Licensee Underreporting

By Dennis Crouch

One problem with royalty agreements is the annual fight over whether the licensee is paying full royalties to the licensor. In a recently released report, the technology-license auditors at Invotex say that there is good reason for a fight based upon their finding that "89% of audited licensees underreport and underpay royalties." According to their audits, a full 25% of licensees were paying less than half of what they should.

Now, one potential issue with this report is that Invotex has some amount of bias because the company primarily represents licensors willing to pay for an audit (and who have some suspicion of under-reporting). In addition, Invotex has a financial incentive to make audits appear larger. That said, the results found here are not surprising to me and attorneys should recognize that a licensor's role must be an active one.

Read the report here:

10 thoughts on “Licensee Underreporting

  1. 5

    Here are practical questions: I leave it to my clients to monitor their own compliance, and get called in when a problem arises (like failure to make milestone payments, disagreement over whether a new product is covered by the licensed product, etc.). I have encountered license OVERpayments as well as missed milestone payments. I have not yet discovered failure to include a covered product in the royalty base. So, how involved should patent counsel be in the license monitoring to make sure clients are compliant? Is there any software that might help track these things?

    1. 4.1

      Legislation is needed to combat what the private sector is effectively combating on its own? What, you want a new federal agency to “efficiently” administer licensing arrangements LOL!!!!

      1. 4.1.1

        I just said legislation not an administration that is make it illegal to cheat patentees on lisencing and set up punishments of triple damages. We do need a new federal agency to combat frauds in applcation and issuances and sales though. These people are a violent mob when money is involved and a police force and security teams need to be set up to curb crimes surrounding the money involved

  2. 3

    Sounds like Bilbo: I don’t know half of you half as well as I should like and I like less than half of you half as well as you deserve.Really, sounds like a mere marketing piece for Invotex, and should not be passed off as credible news, even with the caveat that “one potential issue” is the obvious self interest of the authors.The fact that there is no indication of that the licensee and licensor might disagree on the scope of the claims, and thus what devices are subject to royalties, and no reports of overpaid royalties, indicates that the report is quite biased. The fact that it stems from only a few recently of audited licenses, among an unspecified number of licenses currently in force in the US, undermines the conclusion that “a full 25 % of licensees were paying less than half of what they should.”

    1. 3.1

      I think Dennis adequately addressed it. Of those who suspect that they’re being scammed/skimmed enough to take action, about 1/4 of them were right that they were getting 1/2 what they were entitled to. That’s a perfectly reasonable conclusion.The broader, unanswered question is, of course, what percentage of licensors are underpaying? Due to the private nature and number of these contracts, we’ll just never know this.

  3. 2

    I believe it. Look what the car companies did to those small inventors. The companies like Ford have nice cars for sale but it seems the ethics are lacking

    1. 1.1

      They need legislation to stop that by allowing examination of the books and board sitting and shipments evidencing to stop the ripoffs

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