Four common mistakes in licence compliance and how to avoid them

While a successful licence compliance programme can add tremendous value to an organisation through significant revenue recoveries, several common mistakes prevent licensors from realising their programme’s full potential.  

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 on amount is a key factor to consider when evaluating audit targets, many other elements are crucial to keep in mind when assessing licensees. These include:

• market research to identify unreported or misreported products;
• gaps or anomalies in reporting; and 
• reviewing licensees with active licences for certain IP types but with no reporting to date. 

These steps help to identify risk factors throughout your licensee base and uncover material compliance issues in licensees that may have had minimal reporting thus far. 

Limiting compliance efforts to full-scope audits 

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

• Desk audits – this 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. The former 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 but a full-scope audit is impractical, a single-issue audit may be the best solution to resolve the identified problem and efficiently recover any related revenues. 
• Continuous monitoring – performing ongoing analyses using analytics of reporting data and triangulating with market data can help to identify compliance issues and high-risk audit candidates.  

A compliance programme that incorporates multiple forms of compliance review improves the cost benefits by selecting better audit targets and more promptly identifying compliance issues and missed revenue. 

Failing to establish a strong position on identified issues 

Licence compliance is a small world; it is common for licensors to obtain a reputation among their licensees based on how they structure the audit process and address compliance issues. If a licensor is known to concede on certain items, this can set an unwanted precedent in the industry. Therefore, it is crucial that the licensor evaluates its position on key areas (eg, contractual charges, interest and reimbursement of the licensee for audit fees in the event of material findings) to ensure that it is consistent in its treatment of these areas and that it structures its position in a manner that properly incentivises compliance across its licensee base.  

Using providers with limited licence compliance experience 

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

Key takeaways

Experienced firms will be better able to tailor their audit process to specific technical and financial risks. They can also gain efficiency during this process by targeting high-risk areas that require testing and minimising time spent in lower risk areas, decreasing the overall cost and timeline of the audit. Finally, an experienced firm can provide guidance to licensors on industry best practices.