Is your royalty payment trending too low? Calling for royalty audits can put a trusted third-party into the books, combing for any anomaly on your behalf.
Do you suspect that an audit will turn up under-payments? If you didn’t plan ahead during the licensing phase, inspect your licensing agreement first.
Terms of Your Audit and Agreement
Companies and sole proprietors alike may initially envision collecting passive income automatically upon licensing their works, then find themselves resorting to more active efforts. Hopefully, reasonable and specific terms for an audit have been laid out with some detail in your existing agreements. License agreements often provide that the licensee pay the full cost of the audit if the investigations reveal missing royalties. In this situation, it may cost nothing to protect yourself by requiring this verification. Even if that’s not the case in the language of your agreement, it may still be worth your while to contact an expert in royalty audits to verify that there are no reporting errors preventing you from getting what you deserve.
If you are negotiating a license for your valued IP now, you have the advantage of being able to include specific terminology into the agreement to ensure ease of requesting an audit. In respect for both parties, you might require internal or external audits as appropriate at different points in the course of the relationship. Specifying how that will work in advance can keep the communication clear and the payments complete.
Working With a Royalty Audit Expert
When putting together a licensing agreement, consider bringing on an expert in royalty audits to review the contract language in advance, and develop best practice language for your future IP licenses, to make it easier to trust though verification.