Compliance & Risk Management Flashcards

A licensee operating in a regulated industry fails to obtain required government approvals before sublicensing. What type of risk does this primarily represent?

Answer: Regulatory compliance risk

Failure to obtain required government approvals before sublicensing constitutes a regulatory compliance risk, which can result in fines, injunctions, or license revocation.

Which contractual provision specifically requires a licensee to maintain records sufficient for the licensor to verify royalty calculations?

Answer: Audit rights clause

An audit rights clause grants the licensor the right to inspect the licensee's books and records to verify that royalty payments are accurate and complete.

A U.S. company licenses technology to a foreign entity located in a country subject to OFAC sanctions. What is the most immediate compliance concern?

Answer: Export control and sanctions violations

OFAC (Office of Foreign Assets Control) sanctions prohibit U.S. persons from engaging in transactions with sanctioned entities or countries, making this an export control and sanctions compliance issue.

In a licensing compliance program, what is the primary purpose of conducting a 'gap analysis'?

Answer: To compare current practices against required compliance standards

A gap analysis compares an organization's current compliance practices against required standards or regulations to identify deficiencies that must be addressed.

When a licensee discovers that a licensed product infringes a third party's patent, which risk category is most directly implicated for the licensor?

Answer: Indemnification liability risk

Third-party patent infringement by a licensed product triggers indemnification liability risk for the licensor, who may be contractually obligated to defend or compensate the licensee.

What is the key distinction between a 'representations and warranties' clause and an 'indemnification' clause in a license agreement?

Answer: Representations cover past facts while indemnification provides prospective financial protection against breach

Representations and warranties are statements of present or past fact about the IP, while indemnification provisions establish financial protection and remedies if those representations prove false or if third-party claims arise.

A compliance officer notices that royalty reports consistently understate sales in one product category. Which risk management response is most appropriate?

Answer: Invoke the audit rights clause and conduct a formal royalty audit

Invoking the audit rights clause and conducting a formal royalty audit provides documented evidence of the discrepancy and is the standard contractual remedy for suspected royalty underreporting.