What to do next
Read the royalty definition before anything else
Net sales definitions, permitted deductions, transfer pricing between affiliates, and bundling of licensed with unlicensed components generate most disputes. Compare the actual calculation to the defined terms rather than to what seems commercially reasonable.
Exercise the audit right
Most licences grant the licensor an audit right with a time limit and a cost-shifting provision if underpayment exceeds a threshold. It is frequently the fastest route to resolution and is routinely left unexercised until the right expires.
Check whether the product is actually within the claims
Licensees sometimes stop paying because they believe a redesigned product no longer reads on the claims. That is a claim-construction question, not a commercial one, and it needs the same element-by-element analysis as an infringement case.
What to prepare
The licence and every amendment, royalty reports and payment history, the audit provision and any past audits, product and sales data for the disputed period, and correspondence about the calculation. Where invalidity is raised, the prosecution history and prior art too.
Possible legal pathways
An audit, a negotiated true-up, mediation, arbitration where the licence requires it, or proceedings for breach. Note that a licensee may be able to challenge validity while continuing to pay under protest - which is a strategic decision to take with advice, since it affects the relationship and sometimes the licence itself.
Frequently asked questions
The licensee stopped paying - can I terminate?
Only if the agreement's termination provisions are followed precisely, including any cure period. Terminating defectively can put you in breach instead.
Can a licensee challenge the patent's validity?
Often yes, and in many jurisdictions a no-challenge clause is unenforceable or limited. Some licences provide for higher royalties or termination if a challenge is brought.
What if the patent is invalidated?
The agreement usually governs whether royalties stop and whether past payments are recoverable. Absent a clause, recovery of past royalties is generally difficult.
Is this arbitration or court?
Check the dispute resolution clause first - cross-border licences frequently require arbitration, sometimes seated in another jurisdiction.
How far back can I audit?
The agreement sets the period, commonly a few years, and it runs. Exercising the right late usually means losing the earlier years entirely.
This is general information, not legal advice. Laws vary by location and every situation is different — speak with a qualified lawyer about your specific circumstances.