Royalty Audit of a Consumer Electronics Manufacturer

Invotex was engaged by a large licensing company to perform a royalty audit of an international consumer electronics company. The audit uncovered underpayments of approximately $2 million.

The client’s business model is to leverage its intellectual property through licensing. They understand that a robust royalty audit program is paramount to maximizing revenue. As such, this client audits all Licensees on a rolling schedule. In this instance, members of Invotex’s royalty audit team traveled to Asia to join our in-country teammate to perform an on-site royalty audit. As we have CPAs throughout Asia fluent in many languages, effective communication with the Licensee was assured. This enabled us to fully understand the reporting structure and be aware of all possible royalty bearing products. We were able to analyze the financial support and technical specifications provided to determine which products were missing from the royalty reports. Based on our audit, we discovered sales that had been mistakenly omitted from the royalty reports due to misidentified technology and missed sales territories. An underpayment of approximately $2 million was calculated and paid to our client. The entire process was accomplished while maintaining a positive working relationship among our client, the Licensee, and our team.

Royalty Audit of a Multinational Pharmaceutical Company

Invotex was engaged by a prestigious research university to perform a royalty audit of a multinational pharmaceutical company. The audit uncovered underpayments in excess of 3,000% of the reported royalty.

The client holds numerous valuable patents which they license through a technology transfer group within the university. The technology transfer group retained Invotex to perform an on-site royalty audit understanding their fiduciary duty to assure university trustees that the licenses are generating the full value. Having thoroughly researched the Licensee and the license prior to the on-site visit, our professionals were aware of the Licensee’s right to sublicense the technology. We were able to focus our on-site Licensee personnel interviews to ensure that we considered the flow of revenue associated with sales of all royalty-bearing products as well as the revenue associated with sublicense agreements. Our audit uncovered a sublicense agreement that had not been reported to the university. Proceeds under this unreported sublicense agreement amounted to over $11 million due to the university.

Royalty Audit of a Consumer Food Product Manufacturer

Invotex was engaged by a world-renowned non-profit organization to perform a royalty audit of a consumer food product manufacturer. The audit uncovered underpayments in excess of $1.5 million.

The client licenses its internationally recognized brand to the consumer product industry to fund its philanthropic mission. Placing a high value on a positive relationship with its Licensee while recognizing the importance of correct royalty revenues to future goals, the organization hired Invotex to perform an on-site royalty audit. Utilizing our comprehensive technique focused on Licensee personnel interviews, financial analysis and industry research, we discovered significant net sales deductions that were not in accordance with the license agreement. Despite engaging other audits of this Licensee in the past, the client was unaware that these net sales deductions were being taken. Our audit brought these deductions to light and allowed for constructive negotiations, a strengthening of the relationship and correct royalty payments going forward.