IP Licensing and Royalties

A royalty is a promise to pay based on numbers the other party controls.

That single fact shapes everything about how these agreements should be written. The rate is the part everyone negotiates. Whether you ever see the money depends on definitions, reporting obligations, and audit rights nobody argues about because they sound administrative.

HMLG structures IP licensing programs so the revenue arrives, and audits existing ones where it has not.

What HMLG Handles

• License structure and rate models. Percentage of net sales, per-unit, flat fee, tiered, and hybrid structures matched to how the licensee’s business works.
• Advances and minimum guarantees. Payments securing the deal and floors protecting against underperformance.
• Net sales definitions. The deductions permitted before the royalty is calculated, which frequently affect payment more than the rate does.
• Reporting obligations. Frequency, format, level of detail, and consequences for late or incomplete reports.
• Audit rights. Scope, frequency, notice, cost allocation, and what happens when an audit finds a shortfall.
• Portfolio licensing. Multiple assets, multiple licensees, and consistency across a program.
• Trademark, copyright, and trade secret licensing. Each with distinct requirements for maintaining the underlying right.
• Royalty disputes and underreporting. Investigation, negotiation, and recovery, with litigation counsel engaged when a matter requires it.

Why Net Sales Definitions Decide the Outcome

A five percent royalty on net sales sounds specific. It is not, until net sales is defined.

Permitted deductions can include returns, allowances, discounts, freight, taxes, commissions, marketing contributions, and bad debt. A generous deduction list can reduce the royalty base substantially before the rate is ever applied. Two agreements with identical rates can pay very differently.

The same applies to what counts as a sale, how bundled products are allocated, and how transfers to affiliates are priced.

Audit Rights People Never Use, and Why They Still Matter

Most licensors never audit. The right still changes behavior, because a licensee knowing the books can be examined reports differently from one who knows they cannot.

An audit right is only useful if it works in practice. It needs reasonable notice rather than months. It needs access to underlying records, not summaries. It needs a cost-shifting provision requiring the licensee to pay for the audit when a material shortfall is found. And it needs a look-back period long enough to reach the years where a problem would have started.