You have opted for a licensing strategy to develop your activity and you have successfully secured partnerships with companies responsible for the industrialisation of your innovation.
It is time to build the foundations of a robust compliance programme, able to grow and adapt to your activity.
Prerequisites to a successful compliance programme
- Do you have an adapted solution in place to track your IPs (IP renewal trackers, territorial cover, red flags system…)?
A successful licensing programme starts with an efficient IP/innovation tracking system.
- Do you have a robust audit clause in your licence agreement to conduct royalty audits at your licensees?
A robust audit clause needs to cover all the elements necessary to support and confirm the audit findings. An incomplete audit clause will prevent you from recovering all or part of unpaid licence fees and royalties.
Compliance programme strategies
Your compliance programmes will be adapted to the company situation. We will describe below the different possibilities to implement preventive and reactive strategies.
- It is important to use the contract negotiation phase to clarify how to interpret the different contractual provisions. The following steps are essential:
✔ To list and define precisely the key contractual terms
✔ To provide examples of royalty calculation adapted to the partners’ needs
Make sure to renew this exercise each time the partners’ key contacts change.
✔ Reduction of the risks of contractual misinterpretations and royalty miscalculations
✔ Lowering the risk of disagreements will improve the long-term business relationship
- A detailed review of royalty reports should be done each time they are submitted by your partners regardless of the submission frequency.
✔ Detection of errors at an early stage
✔ Findings negotiation on lower amount of unpaid or overpaid revenue
✔ Ongoing review of contractual provision interpretation
✔ Regular communication with your partners
This preventive phase, if well done, will enable you to spend less time and money on the reactive phase of the programme, even if it remains essential to your compliance programme.
The reactive phase includes audit programmes. Its purpose is to check that the partners are in compliance with the contractual provisions and that they have reported accurately their licence fees and royalties to you.
Different possibilities are offered to you:
- Letter sent to your partners informing them of the possibility to conduct an audit at their premises, in line with the audit clause
✔ Good results with catch-up payments coming shortly after the letter is received by licensees
- Desktop audit: it consists of an in-house check of the partners’ processes and activities by sending them targeted questionnaires. It is performed remotely from the partners’ premises.
✔ Good quality data collection enabling you to better spot red flags and partners at risk of not being compliant
- Light-touch audits: it consists of a grouping of audits conducted in the partners’ premises in a chosen territory with a superficial review of the partners’ records. It will turn into a full audit if it detects some discrepancies leading to a lack of compliance with the licence agreements.
✔ Opportunity to audit the non-priority partners at a reasonable cost
✔ Opportunity to detect partners at risk of non-compliance
✔ Cost reduction compared with a full audit
- Full audits: it consists of an in-depth review of the partners’ records covering a 3 to 4 years period. They are conducted by external auditors to respect the partners’ data confidentiality. The main reasons to select partners for a full audit are because they are the highest revenue payers or because you have detected red flags in their activities.
✔ Possibility to get an ROI up to 10 times the initial amount invested
✔ The best results will be aligned to an efficient data analytics internal strategy to detect the right candidates for this type of audits.
A well-managed compliance programme will enable you to keep control of your licensing activities and to retain a longstanding positive relationship with your partners, on top of recovering unpaid revenues.