A successful License Compliance Program can add tremendous value to an organization through significant revenue recoveries, several common mistakes prevent licensors from realizing the full potential of their program.  

These are the four most common mistakes we see in License Compliance Programs:

1.Limiting Audits to Top Tier Licensees

When licensors only target top revenue generating licensees, they may miss out on uncovering significant compliance issues and revenue opportunities. While reporting amount is certainly a key factor to consider when evaluating audit targets, there are many other factors to consider when assessing licensees as potential audit targets. These include market research to identify unreported or misreported products, gaps or anomalies in reporting, and reviewing licensees with active licenses for certain IP types but no reporting to date. Performing targeting steps such as these helps to identify risk factors throughout your licensee base and can uncover material compliance issues in licensees that may have minimal reporting to date.

2. Limiting Compliance Efforts to Full Scope Audits

While full scope audits are an important compliance tool, licensors should not limit their compliance efforts to full scope audits.  A comprehensive compliance program should consider additional compliance tools such as desk audits, limited scope audits, single issue audits, and/or continuous monitoring. A well-rounded compliance approach allows licensors to address compliance risks throughout their licensee base while maximizing the returns on a limited compliance budget.  

Desk Audits – A desk audit generally consists of sending a questionnaire for the licensee to fill out and remote analysis of available information to assess potential compliance issues.  

Limited Scope Audits – For smaller or lower risk licensees, a limited scope audit may be a better option than a full scope audit.  A limited scope audit involves performing limited procedures to address high risk areas, resulting in a smaller budget. Procedures can be expanded if additional risks are identified during initial procedures.

Single Issue Audit – If there is a known issue at a licensee but a full scope audit is not practical, a single-issue audit may be the best solution to resolve the issue identified and recover any related revenues in an efficient manner.

Continuous Monitoring – Performing ongoing analysis of licensees through use of data analytics of reporting data and triangulating with market data.  In addition to the identification of compliance issues, continuous monitoring can also help identify high risk audit candidates.  

A compliance program incorporating multiple forms of compliance review improves the cost-benefits of a compliance program by selecting better audit targets and identifying compliance issues and missed revenue more promptly.

3. Not Establishing a Strong Position on Issues Identified

License compliance is a small world, and it is common for licensors to obtain a reputation across its licensee base based on how the licensor structures the audit process and addresses compliance issues.  If a licensor is known to concede on certain items, this can set an unwanted precedent in the industry for the licensor. Therefore, it is important for the licensor to evaluate its position on areas such as contractual charges (i.e., interest and the reimbursement of the licensee for audit fees in the event of material findings) to ensure it is consistent in its treatment of these areas and structures its position in a manner that properly incentives compliance across its licensee base.  

4. Using Providers with Limited License Compliance Experience

License compliance is a niche service offering. Partnering with experienced providers can ensure the audit is performed efficiently, and all risks associated with the licensor’s technology are addressed. Unlike standard financial statement audits, every licensor has different risks, and a specialized audit plan must be created to address these risks.  

Firms with experience in the industry will be better able to tailor their audit process to the specific technical and financial risks in that industry. An experienced firm also gains efficiency during the audit process by targeting high risk areas that require testing and minimizing time spent in lower risk areas, decreasing the overall cost and timeline of the audit.  Lastly, an experienced firm will be able to provide guidance to licensors on industry best practices

Connor, Your Partner For Success

Connor is re-imagining licensing compliance with a globally distributed team of consultants wth deep big 4 and industry experience paired with local experts in your region. Our technology-first approach driven by your specific needs is powered by our dedicated team of passionate compliance experts.

Connor has a proven track record of helping clients build a self sustaining license compliance program. Getting started with Connor is simple! Contact us today royaltycompliance@connor-consulting.com

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