Over the last several years, brands and licensors, focused on identifying new and cost-effective revenue streams, have found innovative licensing opportunities. In particular, with the continual proliferation of video streaming, online gaming, e-commerce operators, and Web3’s potential, brands are placing an increased emphasis on monetizing their intellectual property through strategic partnerships.
At the same time, supply chain challenges and economic uncertainty have complicated operations and stretched participants throughout the retail economy, from manufacturers to end users. Business conditions have strained the licensor-licensee relationship, and key positions within companies’ audit, reporting, and compliance divisions have gone unfilled. Under these conditions, licensors have an increased incentive to use royalty audits and contract compliance examinations as a means of verifying their licensees’ reporting, identifying and remedying otherwise opaque activities, and ultimately fortifying their partner relationships.
Royalty audits, license fee reviews, contract compliance examinations, contract audits — these terms are essentially used synonymously. One business partner has decided it could benefit by having a third party confirm the terms of the contract between the parties are being followed. The business in question could be nearly anything.
The purpose of this guide is to explain, to both the sophisticated and novice licensor, the rationale for and execution of a royalty audit. In it, we discuss the various reasons for conducting such an audit, how to perform it — from selecting a royalty auditor to performing a site visit — and the nuanced contract provisions that make it possible.
Protecting and monetizing valuable intellectual property continues to be a strategic imperative for brands across a growing number of industries. Thoughtful, well-executed royalty audits and contract compliance examinations are a means by which individuals and companies can better understand their business, strengthen their key partnerships, and ensure they are being treated fairly.