The following are examples of our experience working with IP owners, licensors and licensees:
- License Management / Royalty Audit - Invotex was hired by a diversified Fortune 100 company to assist the client with the selection of appropriate licensees to audit as well as to perform these audits. As the first license to audit, Invotex selected a medical device license that was initiated based on a settlement agreement with a competitor that had evolved from a patent infringement matter. The annual royalties reported were just below $300,000 during the previous three years. Invotex initiated contact with the licensee, requested appropriate documentation, and worked through many issues concerning the production of confidential information. Invotex ultimately discovered over $650,000 of under-reported royalties or more than two times the amount actually reported for the past three years.
- Royalty Audit –Invotex was retained by a University to audit a technology that had been licensed to one pharmaceutical company and then sublicensed to another pharmaceutical company. This audit was initiated based on the size of the royalty income and not based on any specific red flag. It was decided that since both the licensee and sublicense paid royalties on different products both should be audited independently. The initial audit on the licensee uncovered over $250,000 in underreported royalties. This licensee had only reported royalties of approximately $80,000 therefore this was a finding of over three times what was reported. The audit of the sublicense with reported royalties of approximately $5 million per year uncovered a construct of numerous additional sublicenses as well as various overseas distribution agreements. This construct lead to an under reporting of royalties in excess of $300,000 based on transfer pricing issues. As the findings in this case were a bit more complex than usual, the university retained Invotex to assist in the negotiations. At the end of the negotiations, all parties were in full agreement as to what was royalty bearing. The University received a substantial payment and all ambiguities had been removed going forward.
- Royalty Audit – Invotex was retained by a public licensing company in the electronics industry. As part of its Sarbanes requirements, the client has an ongoing royalty audit program. Invotex traveled overseas to perform an audit on a very large player in the market. Invotex uncovered over $12 million in underreported royalties. This under reporting was based on an error in calculating an average selling price of royalty bearing products, multiple products not included on the royalty reports as well as several spread sheet errors on the inputs of the royalty reports. After completing the audit the licensee agreed with the findings and paid our client a significant percentage of the findings.
- Royalty Audit - Invotex conducted a royalty audit for one of the country’s leading technology research institutions. The license was to a highly secretive entity in the electronics industry. The Licensee had been reporting the minimum royalty amount of $10,000 per year but the professor at the institution was sure that it was not right. As in most cases, the inventor did have the accurate perception. At our audit it was determined that the Licensee had not updated the products it was reporting royalties on since the license inception (approximately eight years earlier). In the highly dynamic electronics industry, that leads to misreporting. We uncovered unreported royalties well in excess of the audit costs as well as put in place a procedure to be performed going forward to assure more accurate reports.
- Royalty Audit - Invotex conducted a royalty audit for a Fortune 200 client on a license that had been in existence for more than 10 years. The licensor had never considered auditing any of its licensees but had recently decided to commence a best practices initiative and to begin more closely monitoring its licenses. During Invotex’s investigation, it was determined that the licensee’s record keeping was so poor it was unclear as to the number of actual royalty bearing products that had been sold. With no ability to confirm the level of sales, the licensee and the licensor entered into settlement discussions to determine a fair resolution. Both the licensor and licensee agree that had Invotex been involved at the outset and set up a royalty reporting process, the licensor/licensee relationship would have been much better served. Invotex worked with both parties as an impartial third party to develop internal processes that will alleviate any future ambiguities relating to royalty reporting and tracking.
- Desk Audit – Invotex was retained by a leading university to perform numerous desk audits. In one particular desk audit of a public medical device company, Invotex was able to identify several products that may have not been included in the royalty reports. Further, based on Invotex’s research, a substantial deduction being taken from gross sales was nullified. This deduction alone increased royalties by over 20%.
- Sponsored Research IP Asset Investigation– Invotex was hired by a University to investigate a set of Sponsor Research relationships. Through our investigation we determined that a significant piece of IP had been inadvertently patented by the Sponsoring Party without the University’s knowledge. We were able to assist the University in putting in place a license agreement for the IP that paid the university a significant upfront payment as well as a continuing royalty stream.
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