What licensees pay.
WHAT STRUCTURES EXIST
A lump sum Ongoing royalties, as a proportion of sales A fee per unit Minimum payments regardless of sales A combination
WHAT ROYALTIES REQUIRE
A defined base: what sales are counted, and how.
WHY DEFINITION MATTERS
Disputes about royalties are almost always disputes about the base.
WHAT TO DEFINE
Gross or net sales What deductions are permitted When payment falls due What currency and exchange basis applies
WHAT MINIMUM PAYMENTS PROVIDE
Protection against a licensee who takes rights and does nothing.
WHY THAT RISK IS REAL
Exclusive rights held and unused prevent you licensing to anyone else.
WHAT TO ESTABLISH
Minimum performance, and what happens if it is not met.
WHAT THAT TYPICALLY IS
Loss of exclusivity, or termination.
WHAT REPORTING TO REQUIRE
Regular statements of sales and royalties due.
WHAT TO ESTABLISH
An audit right.
WHY
Royalty reporting is self-declared, and verification must be possible.
HOW OFTEN TO EXERCISE IT
Occasionally, and where figures appear inconsistent.
WHAT TO ESTABLISH ABOUT PAYMENT
Timing, method and what happens if late.
WHAT TO CONSIDER ABOUT WITHHOLDING TAX
Whether it applies to royalties paid across borders.
WHY
It reduces what you receive and it must be planned for.
WHAT TO KEEP
Records of every statement and payment.
WHAT TO REVIEW
Whether the arrangement is producing what was expected.
