8th December 2021How Universities can maximise the revenues generated from their intellectual property (IP) and save expenditure on their contracts

Revenues – royalty audit

A number of universities hold patents that secure their intellectual property rights, whether it be in the field of technology, pharmaceuticals or processes generally. The multitude of their written works are secured by copyright.

However, such protection only goes so far, for in the cut and thrust world of business, there must be controls in place, strict rules if you like, that provide the legal framework for transparent and accountable exploitation of the rights. Enter the licence agreement. This contract between the licensor (the university) and the licensee (the exploiting entity) must be carefully crafted, its key clauses honed to perfection, so that the university’s interests are protected and the licensee’s accounting for royalties to the licensor properly regulated.

The other essential ingredient is the implementation of a regular audit programme, so that the university can, via its auditors, verify the licensee’s full compliance with the licence agreement.

This is surely no more than prudent corporate governance, since the licensee has been granted the right to exploit the university’s intellectual property rights – its crown jewels.

In our experience, we have learned  that mostly inadvertently but also via sharp practice or interesting interpretation of the licence agreement terms, over 90% of licensees under-report their royalties or are in some other form of breach of their licence agreements.

What this means inevitably, is that the audit programme becomes a profit centre in its own right, generating much needed additional funds for the university, whilst informing the university just how well or otherwise the licensee is using or treating its intellectual property rights, which in turn feeds into better fine-tuning of the licence agreement key clauses to take account of what’s been revealed through audit.

To end there would not be revealing the full story – for audit is not only about making findings and money – its also about preserving the business relationship between licensor and licensee. What the audit provides is an opportunity for truing up between them both, so that they can move on seamlessly in business together, both being better informed about their business relationship.

Last but by no means least, is the perspective of the seasoned royalty auditor on the licence agreement key clauses. Lawyers can only go so far in drafting such clauses to protect the university’s interests. However, it’s here where the field work experience of countless audits can pay dividends by including wording and features that enhance the university’s ability to maximise still further its revenue from exploitation of its intellectual property.

Here is a non-exhaustive list of what we find on audits:

Under-reported sales, unapproved products, unlicensed products, selling out of territory, selling out of term, unauthorized deductions from sales revenue, provisions for returns not reversed, unpaid royalties due, unauthorized sub-licensing, triangulation arrangements leading to understatement, FOB transactions mis-classified, sales at lower prices to licensee affiliates, incorrect offset of royalties against Minimum Guarantees, etc.

Expenditure – contract compliance

Universities are increasingly working with third parties to fulfil their organisational needs and services; for example, areas such as catering and property management all require detailed contracts/agreements. The agreements themselves are critical in defining relationship terms, responsibilities, deliverables and compensation; however, after signing, often these contracts and agreements are not revisited to ensure that the terms are being complied with and that costs minimised together with ensuring that all the agreed services are being fully delivered. Thus, the organisation is not receiving the full benefit of the contract terms.

It therefore makes sense to review contracts after award to ensure that the full monetary and service benefit is received compared with what was contractually agreed between the university and the suppliers, distributors, joint-venture and key alliance partners. A successful contract compliance programme should be embedded in an organisation’s approach to addressing third party risk giving visibility and transparency and the valuable insight beyond what the organisation already knows of its business relationships.

As well as greater transparency, the reviews will often identify and recover over expenditure and therefore provide a direct and measurable benefit, enabling funds to be maximised. Furthermore, the reviews allow for improvements to be made with regard to quality of contracting and providing opportunities for further operational cost saving opportunities. Operational improvements stem from contractual agreements which are better managed, up to date, streamlined and easy to monitor, ultimately delivering maximum value.

With increasing pressure on the financial sustainability of a university, contract compliance and licensing reviews are therefore a valuable tool to uncover potential savings which are never more needed following the challenges of the last year. Such reviews can be carried out internally but sometimes the greatest benefits are achieved by working with specialists in these areas who know what to look for through practice and experience. On contract compliance, these areas can include:

  Supplier spend category   Relevant examples of historical Contract Compliance recoveries
  Facilities management
  • Reactive maintenance charges are inaccurately applied.
  • Non-contractual material mark-ups are applied to costs.
  • Limited control over who is able to authorise FC spending.
  • Sub-contractor mark ups not consistent with contractual terms.
  Outsourced services
  • Incorrect reporting of KPI’s and non-delivery of service levels.
  • Incorrect calculation of fees charged.
  • Recovered fees are not passed on appropriately.
  Staffing agencies & providers
  • Inconsistent application of staffing rates
  • Inaccurate input of hours.
  • Incorrect calculation of commission of agencies.
  • Volume rebates/discounts not applied by the agencies.
  Logistics & distribution
  • Incorrect calculation of driver time, mileage and vehicle depreciation.
  • Non contractual fuel fess applied to costs.
  • Inaccurate allocation of head office costs.
  IT services
  • Variable support costs may be calculated incorrectly.
  • Unsupported and unauthorised hours charges.
  • Ambiguous agreement expiration terms and conditions create costs.

 

For more information or to discuss your specific circumstances, please get in touch.

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Stuart Burns HW Fisher

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Carol Rudge
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