Contracts Masterclass 2024

Please share your contractual policy for late payment penalties regarding license agreement royalties and/or license fees. We have standard language in our license agreement, which licensees routinely ignore. Perhaps this language is too weak? The penalty too insignificant? The fees are due quarterly.

Is there a reason for the failures, such as simple oversight (they don't receive an invoice and/or don't set up automatic payments) or is there something more happening?

I've seen companies give business leads the ability to waive a late fee, which may be happening.  It could be that your accounting or invoicing team doesn't have a process to add the late fee to a subsequent invoice or may not know that the contract provides for it.  Also, make sure the customer address/process are correct, and that there hasn't been a change to mailing or emailing address which causes the invoices to go astray.

It might be worth having somebody (the business contact?) ask why the customer isn't paying.  If the answer is ¯\_(ツ)_/¯, you can consider actually imposing the charge, or seeing whether there are other options such as suspending access to the product, or suspending support until payments are made.  Of course, these might be a challenge depending upon the customer - government, medical, etc. might not allow it.

                             Margo Lynn

------------------------------
____________________________________________________
Margo Lynn Hablutzel, JD, LLM, CISSP®
Membership Chair, ACC Intellectual Property Network
Publications Coordinator, ITPeC
Senior Counsel - Gainwell Technologies
margolynn.hablutzel@gainwelltechnologies.com
p: +1.816.514.7891 / m: +1.919.441.2945

The opinions expressed are the views of the author alone and should not be attributed to any other individual or entity and shall not constitute a legal opinion or legal advice. If you want legal advice, that is why we have outside counsel.

Original Message:
Sent: 09-26-2025 14:10:01
From: Anonymous Member
Subject: Late fee penalty for overdue Royalties and/or license fees

This message was posted by a user wishing to remain anonymous

Please share your contractual policy for late payment penalties regarding license agreement royalties and/or license fees. We have standard language in our license agreement, which licensees routinely ignore. Perhaps this language is too weak? The penalty too insignificant? The fees are due quarterly.

-------------------------------------------

Please share your contractual policy for late payment penalties regarding license agreement royalties and/or license fees. We have standard language in our license agreement, which licensees routinely ignore. Perhaps this language is too weak? The penalty too insignificant? The fees are due quarterly.

If the license agreement is subject to laws in the U.S., then the licensees are likely ignoring the "penalties" as unenforceable under contract law. Late payment fees are not enforceable unless they are a reasonable measure of actual damages. It sounds like your company has accepted late payments often enough to establish that your business is not damaged by late payments...simply annoyed. 

Consider reviewing the payment provision of your agreements to determine if amendments are in order. If they are solid, then connect the finance and  business leads to help work through how late payments will be handled going forward.

For a soft approach, the business lead should reach out to their counterpart by phone about the late payments and request timely payment. They should follow that with an email confirmation. If the next payment is late, a more formal notification would be in order from the finance department. Legal should only send notice of the delayed payments have gone on for more than six months or the amount is significant to the operation of the business.

Please share your contractual policy for late payment penalties regarding license agreement royalties and/or license fees. We have standard language in our license agreement, which licensees routinely ignore. Perhaps this language is too weak? The penalty too insignificant? The fees are due quarterly.

They are literally ignoring the late payment phone calls, emails, etc. Our Licensing lead just shared that our royalty reporting system does have a feature whereby licensees, from the first day they are overdue, could be receiving a reminder email regarding the late payment every day for 180 days. (Clearly that has not been happening) We are incredibly short-staffed, and no one in finance wants the responsibility for calculating late payment penalties as per this language from the agreement: "Any adjustments requiring additional payments to Licensor as a result of the audits, or any payments that are late for any reason whatsoever, including, but not limited to, quarterly Royalty payments and Brand Support fees, are subject to interest accrued from the date originally due at the prime rate of JP Morgan Chase plus two (2) points, or the lawful rate, whichever is less." So, I've been challenged by the aforementioned licensing lead to come up with a way to add teeth/make this simpler (so SOMEONE will be willing to enforce...) My thought is a flat fee that is an easy to calculate on a weekly basis...for every 5 business days late, they owe a $100 penalty? Thoughts? I'm so frustrated that this lack of action has become legal's issue, that I'm ready to give them a week to make the payment, and then provide notice of a breach! That would get their attention.

If the license agreement is subject to laws in the U.S., then the licensees are likely ignoring the "penalties" as unenforceable under contract law. Late payment fees are not enforceable unless they are a reasonable measure of actual damages. It sounds like your company has accepted late payments often enough to establish that your business is not damaged by late payments...simply annoyed. 

Consider reviewing the payment provision of your agreements to determine if amendments are in order. If they are solid, then connect the finance and  business leads to help work through how late payments will be handled going forward.

For a soft approach, the business lead should reach out to their counterpart by phone about the late payments and request timely payment. They should follow that with an email confirmation. If the next payment is late, a more formal notification would be in order from the finance department. Legal should only send notice of the delayed payments have gone on for more than six months or the amount is significant to the operation of the business.

Please share your contractual policy for late payment penalties regarding license agreement royalties and/or license fees. We have standard language in our license agreement, which licensees routinely ignore. Perhaps this language is too weak? The penalty too insignificant? The fees are due quarterly.