8
Dec/16

Should Intermediaries (Such as Retailers) Collect and Pay IP Royalties?


We had an expert from an accounting firm give us a presentation yesterday about royalty audits. All sorts of bad things can occur with regard to collecting royalties from the licensee – the licensee may under count, may go bankrupt, etc. (hence the need to attend a presentation about royalty audits, so that we’ll draft better royalty audit clauses in our licenses.

Royalty audits (and disputes) are expensive. The thought occurs: can an intermediary (say, the retailer, or a payment processor) collect patent and trademark royalties on behalf of the licensor? Wal-Mart is told, for example, that if if it sells SKU 1234, then it will remit the designated royalty amount to an agent of the licensor. The licensor would not mind doing without the headache that the licensee may, for example, disappear without paying the royalties. The licensor might even be prepared to grant the licensee a lower royalty rate (or grant other favorable terms) in exchange for the licensee agreeing to this scheme. The intermediary might have two motivations for participating in this: (1) it will make itself a slightly more attractive distribution channel by offering this service; and (2) it would likely be compensated by the licensor for this.

What are the arguments for and against? I’m not really envisioning a copyright collective licensing model. More of a ‘withholding lien’ model.

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