Did you know that non-compliance rates in your industry range from 5 – 25%? When people think of compliance programs, they usually only consider large companies. And rightfully so, as most major and mature companies do have a compliance program in place. In each of the licensing industries—Software Licensing (SLC), Royalty-based Licensing, or Brand Licensing—there are household names that many people know about. You might recognize Adobe and Oracle in the SLC space, Dolby or HDMI in the Royalties space, or Philips and Nike in the Brand Licensing space.
For these companies, a compliance program is part of their corporate strategy. Whether a company has an in-house team that performs all compliance aspects, from analysis, targeting, engagement, and negotiation of a settlement, or a outsources all their compliance work to third parties, companies can collect potentially millions in underpaid or unpaid licensing or royalty fees.
Despite the benefits that many large companies derive from a systematic compliance program, smaller companies often hesitate to establish such a program for three reasons:
- They may not have the expertise or know-how to set up a robust compliance program. They may not understand how it aligns with their corporate strategy, or what department (e.g. Sales, Legal, or Finance) a compliance team would fit into.
- They may not have the resources available to establish a compliance program comparable to the larger organizations.
- They may be concerned that establishing a compliance program may scare away customers, or damage their reputation.
Therefore, many businesses ultimately decide against pursuing a compliance program at all.
But there are good reasons to set up a compliance program, even for smaller businesses. For one, a compliance program can help you protect your IP-assets and investments. As a business, these assets are key to ensuring your business continues to thrive. Protecting them through a systematic program which verifies that appropriate IP protection mechanisms are in place will help you safeguard your revenue streams and protect shareholder value. This, in turn, can help you with your investor discussions about current and future funding rounds.
A comprehensive compliance program can also help level the playing field for your licensees to compete. Non-compliance can create distorted market conditions that benefit those who under-report and underpay on royalties or licensing fees. If your licensees cannot compete in the market because their competitors are consistently underpaying royalties, this will inevitably erode their competitive advantages. Some regions are more susceptible to compliance issues than others and you need to be active and keep in mind that the cost of inaction is always higher than the cost of action.
As for royalties, securing or recovering underpaid and unpaid royalties is perhaps the most important reason to establish a compliance program. Ensuring you are properly paid for your company’s hard work is paramount if you want to continue to grow.
Ultimately, we recommend establishing a compliance program if your annual licensing revenue surpasses 2 million dollars. At this threshold, the monetary impact of underpaid or unpaid royalties can have a significant impact on your company’s bottom line, and the investment in a compliance program will make sense from a strategic perspective.
Small and medium-sized businesses have a variety of options at their disposal when it comes to starting a program: from targeted email campaigns, remote (off-site audits), all the way to limited and full-scope audits.
Leveraging a partner that can advise on the best strategy and engagement models will help you set up a successful compliance program. If you’d like to learn more about how Connor can help you, contact us at email@example.com.