Issue link: https://htpgraphics.uberflip.com/i/246988
Payment Provisions What happens if the royalty is a percentage of a price and your licensee sells at a price lower than it should? Section 6 It is possible that your licensee may sell certain products to its group of companies or even contacts/friends within the industry at a price lower than the proper market price. If you are receiving a percentage royalty you will not want to lose out if this is the case. Negotiation Tip It is possible to include a provision which states that – should any product be sold other than on arm's length terms, the true market value shall be substituted and used for the purposes of calculating the percentage royalty due back to the licensor. You could also address this by getting a fixed sum on the sale of each product. Remember to get the right to increase this fixed sum by reference to an index if the licence is long. What happens if the licensee has the right to sub-license? If this is the case, make sure that it is clear that the royalty is on sales made by the licensee and also on sales made by its sub-licensees. What if the IP being licensed is actually a process which will be used by the licensee? In these cases it may be more appropriate to charge a fixed amount for every time the licensee uses the process. Alternatively, you can ask for a percentage royalty on every product which is sold by the licensee having used the process to manufacture that product, but think about how you will monitor this. Make sure it is clear whether royalties on sales by any sub-licensee should be paid directly to you or via your licensee. 39