How We Helped
The licensing agreements included a royalty rate structure which varies at certain intervals and also changes by distribution channels. We collaborated with our legal counsel to obtain a complete and thorough understanding of the conditions, legal terms, complex royalty structure, etc. During the fieldwork, the team on site was able to rely on the information gathered to detect substantial distortion between the contractual requirements and the licensee’s business practice in place. The issues noted were as follows:
- The licensee’s accounting clerk who was responsible for preparing the royalty reports did not have access to the most up to date license agreements or addendums. The clerk was unaware of the complex royalty rate structure and the variation in royalty rate was not reflected in the royalty system accurately,
- US GAAP were applied to determine sales basis whereas Licensing agreement was falling under non-US law,
- Foreign exchanges applied was not at arm’s length,
- Deductions were made when calculating royalty which were not accepted per the license agreements.
The Solution
Our international teams allowed the delivery of multiple services in a single engagement. More than several millions of additional royalty due was assessed. Meanwhile, we were able to provide process improvements and recommendations to avoid future misinterpretation of the contractual terms.
