How to license with a revenue-based model?

Hi, I have a software startup company. I am about to license software to a European company. The licensing is revenue based (10% of sales). They told me that they will send me quarterly reports, but how can I make sure the numbers I receive are legitimate? Also, legally the company is only in Europe, are there any special considerations I need to make when working internationally? Thanks.


Hello -

I work as an in-house transactional attorney for a US-based website with 20 million monthly unique visitors around the world, and I've worked on several licensing and ad-rep deals for several countries in Europe, South America, Australia, etc. There are several ways to protect yourself, but at the end of the day you have to trust your partner that you they will want to be honest so you can continue doing business together.

That said, you should give yourself an audit right. Not sure what the software is and if it directly correlates to sales, but if so see if you can track yourself or use a third party's tracking software so you can compare numbers with theirs. Also consider including in the agreement a dispute clause, something to the effect that if you dispute their report for a quarter they will have x days to provide you with sufficient evidence to reconcile the dispute to your satisfaction - if not, you can terminate the agreement.

Another way to protect yourself would be to ask for a minimum guarantee, but depending on the deal that may be difficult to work in.

As far as working internationally, I think the hardest part there is ensuring collections and that you are paid in US dollars. Stand strong on keeping venue and choice of law in the jurisdiction in which you reside, not in theirs.

If you'd like to schedule a call to further discuss, I'm happy to chat, let me know!



Answered 8 years ago

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