Difficulties Collecting Royalties

In the recent case of ClearPlay v. Max Abecassis and Nissim Corp (Fed. Cir. 2010), the patent holder (Nissim) struggled to collect its royalty payments even after the parties signed an agreement that settled their patent infringement dispute.

Nissim’s situation is not unusual. A recent report by the Invotex found that 86% of licensees underpay royalties. Most of the under-payment comes from (1) questionable license interpretations and (2) unreported sales of covered goods & services.

Although the report may be somewhat biased (Invotex makes its money by finding non-compliance) it does make clear patentees should plan to work as hard collecting royalties as they did winning the infringement lawsuit. This type of study may also be helpful for patentees seeking injunctive relief — especially if they can show that the defendant-in-question has underpaid royalties in the past.

Read the Report

Intangible Economy Blog

27 thoughts on “Difficulties Collecting Royalties

  1. I can verify that we disclose major underpayments during at least nine out of ten audits.

    Many Boschans died to bring us this information.

  2. As an experienced royalty compliance auditor, I can verify that we disclose major underpayments during at least nine out of ten audits.

    It would amaze you how many rightsholders never audit their licensees because they think their business partners would never underreport royalties, or because they are afraid to rock the boat. (Newsflash: This is what licensees want you to think because they don’t want you to find all of the money they owe you, not to mention the other ways in which they may not have complied with the relevant license agreements.)

    I am biased but the truth is that if you are in the business of licensing IP rights, you stand to gain both money and the power of knowledge through regular audits of your major licensees. Otherwise, you are leaving money and opportunities on the table.

  3. Both IANAE’s posts at 12:06 and Ping’s response post at 12:57 are absolutely right.

    This whole article is well into “well duhhh” territory.

  4. OOPS and one more thing. The Envelope on the case 10-1036 that was used to send it back to me with a court stsmp.
    It has 11 pages and the total post is 61 cents?
    But another has 9 pages and the post is 1.05?

    See so much to share.

  5. NAL is it you that may have some EXPLAINING to do?
    I invite the FBI, USDOJ. POSTMASTER GENERAL to see and copy what I have. My evidence speaks. It can not be denied!

  6. I miswrote I meant 15 USC 1119.
    I have the canceled checks. I have wriiten on the check with the cert. mail # as I sent it.
    I have the cert receipt. I have the proof it was mailed. Typed on top theCertified # on each case.
    AND THE FUNNIEST THING IN WHOLE STORY…. THE JUDGES RULIG WAS NOT mailed back in the usual yellow manilla envelope. It was stuffed in a regular envelope. Taped and mailed. someone opened it and then sent it to me after they were sure the Judge ruled on what they sent. NOT WHAT I SENT!
    I also seem to have different form compalints in the cases. that may not be anything. BUT aren’t all of them done the same?

  7. Yah I’ll say. I filed a complaint. Because NAL told me too file it against Peter Loffler. So the JURISDICTION said 18 USC 241, 18 USC 242 and the Lsnham act 15 USC 1191.
    I sent a sase. Got back the case number but no copy? Then I amended it same JURSDICTION, same thing sase sent. No copy sent back?
    The Judge, Judge Breen closes the case. He sends me back a reason for closing the case. He says you keep saying Trademark? But you don’t mention the Lanham act 15 USC 1191. IN BIG LETTERS in his decision and reason for closing the Case.
    I call the court. I leave a message for the secretary. I tell her I can prove what I sent. A few days later I get another letter, it says the Judge, Judge Breen will not change his mind?
    Now I hope some one shows this to Judge Breen.

    And now i am getting calls and quick mhang ups. not enough to trace. Just to try and make me ASKKEEERRREEEDD. after 15 year. I don’t scare. And now am I to believe that my fender was a lawsuit. Wheres my money? This is really a CIVIL RIGHTS ISSUE. So that is where I will go.

  8. You guys think patentees have it tough? Try any other type of IP royalty… such as royalties (or other continuing payments) due for print publishing; the less said about H’wood’s definition of “profit sharing” (hint: there are no “net profits” to share… BY DEFINITION), the better. And copyright holders have far, far less leverage in dealing with exploiters than do patentees.

  9. Channel 101,

    Your signal is still scrambled. The richness of experience will simply not be material to the decision on Bilksi.

    You are seeing too many things in the static on your screen. Up the meds.

  10. @ ping
    I think you vastly underestimate the richness of experience brought to the court by a certain wise latina. I predict not only will business methods and software get smacked around like a captive in Rick James basement, but the opinion will even have a remark directly mocking AI’s bathroom patent.

  11. The lesson here is never go into business with someone you sue for patent infringer. Here’s some words to live by, Nissim:

    What’sa matta you Nissim, hey,
    Gotta no respect? whatta you think you do,
    Why you looka so sad?
    It’s-a not so bad, it’s-a nice-a place,
    Ah, Shaddap You Face.

  12. Pretty cool what you did NAL. Scaring that little Canadian boy back with all that scary stuff. The XXX. Well that will be a mystery, for “a short while anyway.” Did the Judge really get what I sent. NAH not possible.
    Was it the move that made the Judge say okay it’s Moot. so we will let sleeping dogs lie
    TRANSPARENCY we shall see.

  13. Ok Alex I’ll take Musta thought I didn’t get the whole Fraud for 2000. %%%%@@@$%$^ Daily double. I’ll bet it all Alex. Who is all of them.

  14. Nissim wasn’t having trouble collecting royalties. He was collecting royalties at the same time as he was claiming that ClearPlay didn’t have a license.

  15. No, ambiguous patent license language is not an equitable problem. This is contract law, and usually an attorney drafting and negotiating problem. Neither is the reported “..under-payment .. from questionable license interpretations and unreported sales of covered goods & services.” But all of them can be aggrevated by inadequately defined and/or limited arbitration and/or royalty audit clauses and the reluctance of some judges to promptly give summary judgements against unreasonable, illogical, contract language interpretations and/or hold non-payers to be in material breach of the license and thus be subject to patent infringement suit.

  16. They disclose tons of unrelated, undeveloped structures and functionalities that Examiners can stitch together to meet any recording medium claim.

    Bad news for people who want a claim to tons of unrelated prior art structures and functionalities stitched together.

    Oh well, if there’s prior art to your medium claim, you can always try a long claim.

  17. I bet the same people clamoring for lower taxes in the other thread will be shouting just as loudly here for more stringent enforcement of royalty payments.

    …makes pefect sense – play loose on what is going out, play tight on what is coming in. Sorta like “buy low, sell high”. just an observation.

    …and we see what happens to people who don’t pay their taxes.

    Are you suggesting the same equitable treatment for those who don’t pay what they owe in relation to patents, IANAE?

    What a great idea! The Office can open up a branch of audit police. Move over, death and taxes, here comes patents.

    TiSKaSff,

    one key may be “undeveloped to count as actual prior art, the undeveloped has to be more than monkey scratch, otherwise, a dictionary would be claimed as invalidating prior art (the words are used in one document) – not that I wouldn’t put it past some examiners with rather, shall we say esoteric, reading skills and legal acumen.

  18. As a side note, Max Abecassis’s patents are nightmarish when applied as prior art. They disclose tons of unrelated, undeveloped structures and functionalities that Examiners can stitch together to meet any recording medium claim.

  19. What a shock, people who owe other people money would rather not pay it.

    I’m sure tax returns show the same pattern of under-reported revenue, “questionable” interpretation of the tax statute (meaning, of course, any interpretation with which your creditor disagrees), disallowed deductions, and copious math errors that favor the debtor more often than not.

    I bet the same people clamoring for lower taxes in the other thread will be shouting just as loudly here for more stringent enforcement of royalty payments.

  20. Um, Channel 101 – your signal is scrambled.

    Business methods will not be smacked down (that’s not to say Bilski won’t be smacked down – he will be).

    In other news,

    Paul, don’t all those other challenges still fall under the umbrella of equity considerations?

    Now back to our game show,

    it does make clear patentees should plan to work as hard collecting royalties as they did winning the infringement lawsuit.

    Isn’t this like double jeopardy? Alex, I’ll take “Weakened Patent Systems” for 500, please.

  21. “Running royalties” [instead of "up-front" payments] seem to be a great deal less frequent for purely patents licensing, as compared to years ago. The ability to file reexaminations that can end the obligation to pay if successful seemed to play a role. That was later possibly increased by the Sup. Ct. making it easier for licensees to file DJ actions.
    But as to alleged non-paying or underpaying of royalties for OTHER than invalidity or non-infringement challenges, in my view ambiguous terms in the license agreement are a major factor. E.g., a royalty based on the “patented portion” of a product. Or disputes as to license coverage from, or removed by, or amended by, continuations, interferences, reissues, reexaminations, etc. Or “exclusive” licenses that goes sour for some business reason and do not have adquate minimum payment requirements and automatic conversion to non-exclusive and/or termination.

  22. We interrupt this broadcast to bring you this important public service message…

    SCOTUS, GIVE US THE FREAKING BILSKI DECISION ALREADY. IT’S ALMOST MAY. STOP PLANNING THE PIZZA PARTY FOR STEPHENS AND SMACK DOWN BUSINESS METHODS. THIS IS IMPORTANT.

    We now return to our regularly scheduled programming.

  23. This type of study may also be helpful for patentees seeking injunctive relief

    Oh, the equity of it all.

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