Thursday 16 July 2015

Under-reporting of IP licence royalties: is it a problem worth tackling?

IP Finance has received word from InvotexIP of the findings of its 14th Royalty Compliance Report in which, it reports, licensors who fail to audit their intellectual property income may be losing significant revenue. The study shows that a staggering 87% of audited licensees underpay royalties. The errors are substantial: 
  • 57% of licensees under-report sales
  • 31% misinterpret the licensing agreement
  • 27% under-report due to disallowed deductions

The report also offers data on the frequency rate of common under-reporting errors, findings by error type and under-reported royalties as a percent of reported royalties.

This blogger is not surprised. Noting that 57, 31 and 27 add up to rather more than 100%, he has no doubt that some licensees under-report in more than one way -- and he is sure that there are other bases upon which under-reporting is made. Rigorous auditing by licensors is often resented both by licensees who find it invasive and embarrassing and by licensors who find it expensive and inconvenient. However,the cost of taking measures to ensure accurate reporting of sales volumes, income and so on should be measured against the cost of not taking them.

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