Documentation required. The royalty review provision should expressly mention all the documents that the licensee must provide in the event of an audit. This may include performance records relating to the specific licence agreement, complete records of the licensee`s activities and information about the company as a whole (including disclosure of other relationships and activities of the licensor). Direct-to-retail licenses. The gross revenue of a direct retail license can vary greatly. Royalties may be based on the costs of production or on the costs of goods related to actual retail prices. In the case of production or purchasing costs, the agreement must clearly describe the cost elements to be included and excluded. If royalties are based on retail sales, the agreement must clearly define whether the actual selling prices or the pricing of retail listings are the basis of the agreement. Other fines. In any licensing relationship, licensees may engage in activities detrimental to the licensor. This may include the sale of unauthorized or unauthorized products, the sale of licensed products to unauthorized customers, outside of contractual distribution channels or outside authorized distribution areas, or the use of sublicenses without express permission under the license agreement. In order to discourage such activities, licensors should introduce specific fines in their agreements.
These sentences should have teeth, as .B. several increases in the standard royalty rate during the period during which a licensee committed a violation or a high penalty (from 50 to 100 percent) for all profits related to sales that violate the agreement. The contractual language for sanctions should be carefully developed to avoid granting the right to conduct prohibited activities with the higher “penalty interest rate”, generally emphasizing that such activity constitutes a violation of the licence agreement. As a structuring instrument, all periodic payments for a minimum guarantee should be set at the same maturity date as regular licence payments, and the agreement should stipulate that the licensee is responsible for the payment of the highest of the cumulative royalty or cumulative minimum guarantee on each of those dates. If the cumulative payment for the royalties is higher than the guaranteed minimum, the minimum guarantee shall not be paid. Licensors may create different minimum warranties for different product lines, features, regions or other variables. However, in this scenario, licensors should closely monitor the expected minimum payments and royalties, which are reflected in these variables, and ensure that a licensee does not “cover” license revenues from one licensee`s non-collateral asset in order to compensate for the failures of another. . .