CLP CLP Royalty Auditing & Contract Management

Question 1

What is the primary purpose of a royalty audit clause in a license agreement?

Accepted Answer

To give the licensor the right to examine the licensee's financial records and verify royalty payments are accurate and complete

Answer

A royalty audit clause grants the licensor (or its designated auditor) access to the licensee's books to verify that royalties reported and paid are correct.

Question 2

In royalty auditing, 'net sales' deductions that are typically allowed include:

Accepted Answer

Trade discounts, freight costs, and sales taxes actually incurred

Answer

Standard net sales deductions include trade discounts, returns, freight, and applicable taxes—items that reduce the actual revenue received, not operating costs.

Question 3

What is a 'shortfall' in the context of a royalty audit?

Accepted Answer

The difference between royalties actually owed (per audit findings) and royalties paid by the licensee

Answer

An audit shortfall is the underpayment identified—what the licensee owed but did not pay—and typically triggers additional payment plus interest.

Question 4

Which contract management best practice reduces disputes over royalty calculations by clearly defining the royalty base?

Accepted Answer

Including a detailed definition of 'net sales' or 'net revenues' with an exhaustive list of permitted and prohibited deductions

Answer

Precisely defining net sales—including every allowable deduction—eliminates ambiguity that commonly leads to royalty disputes and audit findings.

Question 5

A 'royalty report' submitted by the licensee to the licensor should typically include:

Accepted Answer

Units sold, net sales figures, applicable royalty rate, royalty calculated, and cumulative year-to-date totals

Answer

A proper royalty report details sales volume, revenue, applicable rate, and calculated payment, giving the licensor enough data to verify compliance without full financial disclosure.

(CLP) Certified Licensing Professional Practice Test

(CLP) Certified Licensing Professional Practice Test

CLP CLP Royalty Auditing & Contract Management