Many licensors don’t take the time to conduct annual audits. This is one issue than can lead to shareholders claims of IP portfolio mismanagement. Should a licensor audit? Yes! 89% of audits reported payment deficiencies. To ensure your receive the royalties you are entitled to, you should conduct an annual or biannual audit of your licensees. These audits can also uncover misuses of the license that exceed the terms of the license agreement. This will ensure you have control over the intellectual property, and that is key to maximizing its economic value in the market place.
For those involved in preparing and reviewing royalty reports, it is important to be well-versed in the licensed technology and the territory covered by the agreement. Lack of understanding of what is covered by the agreement can lead to erroneous reporting and payment calculations. This can mean loss of earned revenues.
It is also important to keep current information on milestones, minimum payments and royalty rates as these often change over the course of a license agreement. These can be done by any conventional calendar application or tickler system. Later discovered errors can be a financial burden to one party who suddenly owes an unexpected payment or refund. This can stress an otherwise successful working relationship between licensee and licensor.