The Royalty Audit Dispute: What to Exchange Before Mediation
A royalty dispute can look like a disagreement over one number while concealing several different questions: which sales count, what deductions apply, which reporting period matters, and whether the underlying records are complete. A focused exchange can help counsel identify what the mediation actually needs to resolve.
Begin with the contract language
Collect the executed license, amendments, reporting schedules, and relevant audit provisions. Identify the royalty base, rate, territory, products, reporting periods, and agreed treatment of returns, discounts, bundles, and related-party transactions. Do not assume that an accountant’s preferred method is the contractually required method.
If the parties disagree about interpretation, list the competing readings before debating the final calculation.
Build a bridge from records to the demand
Ask each side to explain how source records became the reported amount or audit adjustment. A useful reconciliation identifies the relevant transactions, classifications, exclusions, rates, and resulting calculations. The goal is a traceable explanation that the business and its advisers can understand.
For example, a dispute over a bundled product may turn on both allocation methodology and contract interpretation. Separating those issues can prevent an accounting discussion from obscuring the legal question.
Agree on a proportionate exchange
Counsel can consider representative records, defined date ranges, transaction summaries, and explanations of disputed categories. Discuss confidentiality protections and any limits on access before exchanging sensitive pricing, customer, or technical information. Do not assume a mediation invitation overrides an existing protective order or audit restriction.
An agreed exchange should state what is requested, who will receive it, and what questions the material is intended to address. Preserve any existing discovery obligations unless they are properly changed.
Bring the people who can explain the numbers
Consider whether a finance representative, licensing executive, or retained expert can answer implementation questions. Prepare them to explain assumptions clearly and distinguish facts from estimates. Counsel should decide how to protect privileged advice and work product.
Negotiate the future as well as the past
Potential business terms may include clarified reporting categories, an agreed reconciliation process, a payment structure, or a future audit protocol. Those are options for negotiation, not entitlements or guaranteed outcomes. Test the cost and operational burden of each proposal.
WIPO’s mediation guidance describes preliminary document exchanges and issue identification as possible parts of the process. For a royalty dispute, the practical opportunity is to arrive with an understandable record and a defined list of disagreements rather than a stack of spreadsheets and competing totals.
For information about mediating an IP or technology dispute, visit Intellectual Property Mediation. Counsel can discuss process needs before selecting a session.
General educational information only; not legal advice. Mediation is a neutral process; the mediator does not represent either party. Counsel should assess the governing law, agreements, and court orders.
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