- Royalties payment on invoiced amounts
- Cash flow risk for Licensees
- Deductions from gross receipts
- Licensor should consider carefully any deduction other than sales tax (otherwise could end up with a “Licensee’s profit” based royalty)
“The Licensee will pay the Licensor a royalty of 10% of the gross receipts (less VAT) generated in respect of the sales of Licensed Products during the month in question.”
- Minimum guarantee
- Licensees, don’t end up putting your money where your mouth is!
- Actual royalties should exceed minimum guaranteed royalty after a couple of years.
“The Minimum Guaranteed Royalty for the first year shall be £50,000. In respect of each year after the first, the minimum guarantee shall be increased by such amount as equals 50% of the amount by which the actual royalty generated in the previous year exceeded the applicable minimum guarantee for that year.”
- Added value payments
- Seeing these more often
- Licensor considers itself an investor
- Accurate valuation and proportionality to royalty payments are key
“Where the Licensee is proposing to transfer, assign the whole or any material part of its business (including by way of the transfer of shares) the parties shall before any such transfer as effective jointly identify and appoint (at the Licensor’s own expense) an independent professional brand valuer (the “Valuer”) to determine the additional value realised in the sale of the Licensee’ business arising directly from the licences granted under this Agreement (but excluding any value attributed to future sales and/or royalties) (“Additional Value”). The Valuer’s decision as to the amount of the Additional Value shall (in the absence of clerical or manifest error) be final and binding upon the parties. Each party shall provide the Valuer with such information as he may reasonably require for the purposes of his determination. The costs of the Valuer shall be borne solely by the Licensor. Once determined the Licensee shall pay to the Licensor a sum equivalent to 10% of the Additional Value within thirty days of the date upon which any such transfer is completed.”