the who, when, why and how of royalty auditing live webinar presented by technology transfer tactics...

Download The Who, When, Why and How of Royalty Auditing Live Webinar Presented by Technology Transfer Tactics www.technologytransfertactics.com 239-263-0605

Post on 30-Dec-2015

221 views

Category:

Documents

1 download

Embed Size (px)

TRANSCRIPT

  • The Who, When, Why and How of Royalty AuditingLive Webinar

    Presented by Technology Transfer Tacticswww.technologytransfertactics.com239-263-0605

  • The Pervasive Underpayments of RoyaltiesStudies have repeatedly shown that more than 3/4 of royalty payments made by licensees are based on reports that contain errors, misinterpretations, or omissions. -Invotex presents updated aggregated results of nearly 15 years of royalty audit data in their latest paper: Underpaid Royalties Are Pervasive, yet Proper License Management Maximizes Profits. Visit www.invotex.com for details

  • PanelistsGlenn Tautrims, CA, CFE is a Director with Global Royalty Audits Inc. Prior to co-founding GRA in 2005, Glenn was a Vice President in a large international accounting firm, where he was responsible for implementing and overseeing its Canadian Revenue Recovery and Licensing Management practice. Glenn was also one of the original members of the team that created the Royalty Audit practice for the accounting firm in 1996. In addition to his experience in a range of industries, Glenn has presented papers and conducted seminars on various intellectual property issues including Conducting Royalty Audits and Licensing Management Best Practices. Some of the groups Glenn has addressed include the Association of University Technology Managers and the Licensing Executive Society.www.graudits.com

  • PanelistsMatthew A. Hurewitz, CPA, is Managing Partner at Hurewitz, Boschan & Co. LLP. The firms auditors have helped clients recover in excess of $50 million from royalty and participationcompliance audits. Its principals 25 years of professional experience, an international network of experts, and sophisticated computer analytics yield reliable, timely and cost-effective audit results. Auditors analyze voluminous data, often excavating through layers of records to expose buried but critical information. In most audits they find calculation errors, errors in contract interpretation, and a variety of other mistakes that may otherwise remain undiscovered. www.royaltyaudits.com

  • PanelistsRobert Baron is a partner at the law firm Ballard Spahr LLC, where he isVice Chair of the Intellectual PropertyDepartment,a partner in theLitigation Department, and a member of the Intellectual Property Litigation, Complex Commercial Litigation, Higher Education, and Life Sciences/Technology Groups.He regularly prosecutes and defends cases at the trial and appellate levels involving patent, copyright, trademark, and trade dress infringement; theft of trade secrets; licensing disputes; unfair competition; and business terminations. He has litigated royalty disputes, and advised clients on the use of audit provisions in royalty disputes. www.ballardspahr.com

  • Program AgendaIdentifying major playersDesk audit versus a full royalty auditLicense compliance program Establish optimum audit schedules License drafting tips

  • Identify all major players that should be on your audit team

    Remember: Audits are one part of managing royalty compliance.

    Have a royalty team: (i) relationship person who knows the provision and the licensee, and who is the main contact; (ii) accountant who reviews royalty statement with relationship person External auditorExternal/internal legal counselDirector of Licensing / managementPrincipal inventor for technical assistance if applicable

    When you engage a formal audit, consult counsel and a good auditor.

  • Know when a desk audit is appropriate versus a full royalty auditA desk audit can be a good first check of the royalty statements, and appropriate when you want an initial assessment before committing to the costs of a full royalty audit. A desk audit is appropriate when the goal is to determine if basic provisions of the agreement are being adhered to, such as proper royalty rates or correct advance recoupment.

  • Know when a desk audit is appropriate versus a full royalty audit

    Relationship with licenseeSizeVolumeDepth of reporting and external infoErrors and omissions notedComplexity of agreementAudit clause threshold

  • What should be included in your license compliance program

    Assign license to one personStandardize procedures and royalty reportsSummarize license termsPhysically recalculate royalty reportConfirm paymentIdentify due datesConsistent analysis of risk

  • What should be included in your license compliance programDevelop a good relationship with the licensee.

    Require detailed royalty statements.Units sold, regions where licensed product is made or sold, gross and net sales, currencies sold and exchange rate used.

    Be proactive when you think there may be a problem.

  • License drafting tips Penalties (e.g. late payments)Objection periodAudit rightsReimbursement of audit costsDocument retention period

  • Examples of underreporting and other non-compliance issuesUnreported / underreported:RevenueProductsSales in specific territoriesIncorrect:Royalty ratesIncorrect deductions/deductionsFailure to obtain required licensor approvalSales of unlicensed product categoriesLate reporting

  • Reasons for underreporting and other non-compliance issuesPeople make mistakes Internal controls People think differently/contract interpretationDeductionsCommunication People even cheat

  • Red flags for targeting audit candidates and activity Internal red flagsWarnings from inventorKnown disputes on contract interpretationHistory of errorsEnd of license term

  • Red flags for targeting audit candidates and activity Licensee red flagsChanges in communicationUnexpected swings in amounts reportedSubmission of manual royalty statements instead of system generated royalty statementsNet Negative sales reportings for a productLicensee is experiencing financial hardshipLicensee operation-specificLicensee claims in litigation (i.e., licensee states new product does not infringe patent for similar technology)

  • Red flags for targeting audit candidates and activity External red flagsPublic reports of product sales do not jibe with royalty statementsForeign subsidiaries

  • Keeping the peace while maintaining your audit rights Understand that audits are an anticipated and common business practice and dont have to rock the boat. Hire a professional and experienced auditing firm that understands the importance of maintaining a your business relationships. What is goal?Keep peace with important relationship, or Obtain information in a broken relationship, as potential pre-cursor to litigation

  • Common mistakes to avoid Dont assume communications with independent auditor are privileged.

  • Common mistakes to avoid When drafting the license agreement:Dont leave room for ambiguity and misinterpretation in key provisions of the agreement such as: royalty rates and escalations, applicable and excludable sales, allowable deductions from sales, the books and records that are to be provided to the auditors, expiration of audit rights and right to contest royalty statements. Lack of specificity in royalty and audit provisions. Make sure licensee cannot depress royalties via lower-than-market sales to affiliates.

  • Common mistakes to avoid Failure to monitor licenseesComparison to license terms Make it constant, proactive

    Biggest mistake Not auditing , because some licensors dont realize how fruitful audits can be.

    2nd biggest mistake - Waiting too long to audit, such that the audit window has closed for periods with significant activity.

  • Common mistakes to avoid Failure to perform desk auditsSearch public information.

    Materiality issues

    Dont confuse a desk audit with a full audit. There is much that cannot be detected by a desk audit and unless an auditor performs fieldwork and analyzes the books and records of the licensee.

  • Establishing optimum audit schedules Product numberUnits sold, price and extended sales amountDetails of discounts allowedRoyalty rate and royalty dueDetails of sales by country with foreign exchange rate usedWithholding taxes taken and prior period adjustments

  • Questions?Utilize the chat box to the bottom of your screen to submit a question to the panel. Please address your question to a specific presenter.

    OR

    Press 01 on your touchtone phone and this will place you into the phone queue.

    Webinar operator to give brief introduction to program and hand program to presenters. Debi to move slide**Glenn introduces self and Debi moves slide*Matt introduces self, Debi moves slide*Rob introduces self, Debi moves slide*Glenn reviews agenda to set tone for program and Debi moves slide*Robert is the slide leader, guiding the conversation through this slide. *Matt is the slide leader here, Debi moves slide*Glenn is the slide leader here. Debi moves slide*Glenn is the slide leader here. Debi moves slide*Rob is the slide leader. Debi moves slide*Matt is the slide leader. Debi moves slide*Matt is the slide leader. Debi moves slide*Rob is the slide leader. Debi moves slide*Glenn is the slide leader. Debi moves slides*Rob is slide leader*Matt is slide leader. Debi moves slide*Matt is slide leader. Debi moves slide*Rob is slide leader. Debi moves slide*Glenn is slide leader. Debi moves slide*Matt is slide leader. Debi moves slide*Matt is slide leader. Debi moves slide*Glenn is slide leader. Debi moves slides**