Licensing Management Services

How can you uncover underreported revenues?

Many articles that are legally protected by patents or trademarks are today produced and marketed under licence. Unfortunately, not all licensees abide by the agreements, a fact which may make licensing reviews necessary. In our experience, more than 90 per cent of licence-fee settlements contain errors, which means that the royalties paid are too low. This is one of the findings from about 1,000 reviews carried out in the past few years by PwC' forensic specialists in various industrial sectors and countries.

Possible causes of incorrect royalty settlements are:

• faulty settlement procedures
• inadequate bookkeeping
• differing interpretations of the contract
• changes in personnel
• fraud

Against this background, the question arises as to how far licensors can place blind faith in their licensees – without running the risk of substantial financial loss. In cases of fraud in particular, for example plagiarism of design or goods , where licensees or third parties act deliberately, not only may material loss result, but the image of the company and the brand may also be at stake – not to mention the health risks that might arise.

Licensing reviews need to take a forensic approach so they differ from audit measures taken in the context of auditing the year-end accounts or other checks of validity. The objective of licensing reviews is to identify incorrect royalty settlements and to quantify the losses or make additional claims. Following the review, an agreed solution can usually be reached between licensor and licensee so that in future the parties can cooperate to their mutual benefit. The review should therefore not be established on a confrontational basis.

The challenges you face

• You want to verify the trustworthiness of licensees.
• You want to be certain that the royalty settlements drawn up by your licensee are correct.
• You want to know whether the licensing rights are consistent with production volumes, shipment statistics or sales volumes.
• You want to carry out a check on your licensee without this being interpreted as a sign of mistrust.
• You want to protect your brand and its reputation for quality.

 
How PwC can help you

• We offer audit-based forensic expertise in licensing.
• We help you to identify and to quantify inadequate royalty settlements.
• We critically examine all information, data and documents submitted by the licensee.
• We support you in the implementation of licence management programmes.
• We offer you the specific sector knowledge of our global network of experts.
• We will draw up impartial expert opinions on claims and/or amicable solutions.