Licence disputes and royalty audits: what to do in the first ten days turns on three decisions: whether either side holds a contractual audit right, whether royalty payments should continue during the review, and whether the licence's notice clock has already started. Suspending payment or ignoring an audit notice without checking the contract first narrows every option that follows.
Who this concerns
This concerns licensors and licensees under commercial IP licences, whether the subject matter is technology, a trademark, software or content, where a dispute has surfaced over royalty calculation, sub-licensing scope, exclusivity, or an audit clause one party has just invoked. It applies equally to a licensor who has spotted a discrepancy between reported sales and expected royalty, and to a licensee served with an audit notice it did not expect and does not yet know how to answer. It also concerns finance and commercial teams who control the payment run, because the first payment decision taken after a dispute surfaces is usually the hardest one to reverse later. This falls within Lodline's intellectual property and UPC practice, which covers licensing disputes across technology, trademark and content agreements.
What the law says
Under Swedish law as it currently stands, a licence dispute is governed first by the contract itself: the audit clause, the definition of net sales or royalty base, the notice and cure provisions, and any dispute resolution clause the parties agreed. Where the licence is silent on a point, general principles of Swedish contract law fill the gap, including good faith in performance, a duty to mitigate loss, and a restrictive reading of any clause that would let one party withhold performance unilaterally without express contractual grounds. Intellectual property law itself rarely resolves a royalty dispute directly: it defines what is licensed, but the payment mechanism, the audit right and the remedy for underpayment are creatures of the contract the parties signed, not of a statute that applies the same way to every licence. That means the working document for the first ten days is not a piece of legislation, it is the licence agreement together with every amendment, side letter and email exchange that varied its terms since signature.
How it works in practice
Day one: lock down the paper trail
Preserve every royalty calculation spreadsheet, the underlying sales data, and correspondence connected to the licence, and instruct everyone with access that nothing is deleted, overwritten or "cleaned up" once a dispute is apparent. Identify who controls the financial system that generates the royalty reports, because that person will be the first point of reference once the dispute is contested formally.
Establish who actually holds the audit right
Read the audit clause line by line before responding to anything. Check whether it requires a set notice period, whether it limits the audit to a named accounting firm or category of auditor, whether it restricts the scope to specific royalty periods or products, and whether the cost of the audit falls on the requesting party unless a material discrepancy is found. Many disputes escalate simply because one side assumed a right the clause does not actually give it.
Do not change the payment before checking the clause
Suspending or reducing a royalty payment without a contractual basis for doing so is itself a breach, and one that can shift who is treated as the defaulting party first. Where the contract does not expressly permit withholding, the more defensible route is to keep paying under protest and to record that reservation of rights in writing, rather than to unilaterally adjust the figure and explain it afterwards.
Assemble the complete licence file
Gather the signed agreement, every amendment, any side letter, and any email that varied a term informally, together with prior audit reports if the right was exercised before. Disputes over royalty audits are frequently decided by a clause in a side letter nobody remembered existed, not by the headline agreement.
Identify precisely what the dispute is about
A disagreement over the definition of the royalty base, a disagreement over the scope of what is licensed, and an allegation of breach of exclusivity are three different disputes with three different remedies. Getting precise about which one this actually is, before drafting a response, avoids arguing the wrong point for weeks.
Decide the tone of the first written response
The first substantive letter sent after a dispute surfaces frames the record for everything that follows. It should preserve rights without conceding a position, and without accusing the other side of bad faith before the facts are established. That letter should be reviewed before it goes out, not sent by whoever received the audit notice first.
Foreign licensor or licensee: what changes
Where the counterparty sits outside Sweden, the governing law and forum clause become the first two things to check, not the last. Audit access to a foreign licensee's books frequently needs local counsel to enforce in practice, and currency conversion mechanics built into the royalty base definition can themselves be the source of the disagreement rather than a side issue. If the licence names a foreign arbitration seat, the first ten days are about preserving the position for that forum specifically, since the procedural steps and time limits that matter are the ones set by the chosen forum, not by a Swedish court.
What to check
- Whether the audit clause sets a fixed notice period, and whether that period has already started running
- Whether royalty payments are due during the dispute, or can lawfully be withheld under the licence terms
- Which entity within a group structure actually holds the contractual rights and obligations at issue
- Whether the licence names a governing law and forum different from Sweden
- Whether prior audits, amendments or side letters have varied the definition of the royalty base
- Whether an internal reporting error, rather than deliberate underpayment, explains the discrepancy
Can we suspend royalty payments while a dispute is under review?
Only if the licence itself allows it. Absent an express suspension or set-off right, withholding payment is a breach in its own right, and can convert the payer into the party in default first. The safer route is usually to keep paying under protest, in writing, while the underlying discrepancy is investigated, unless the contract expressly permits withholding pending resolution.
What happens if the licence agreement is silent on audit rights?
General contract principles fill the gap under Swedish law as it currently stands, including good faith and reasonable cooperation, but silence does not create an unlimited right to inspect the other party's books. Where the licence says nothing, an audit request is usually negotiated as a one-off arrangement rather than treated as an enforceable contractual entitlement.
How is a royalty audit different from a general accounts review?
A royalty audit is scoped to the licence's definition of the royalty base and the specific periods and products it covers, not the licensee's accounts as a whole. It typically examines sales records, sub-licence income and any deductions claimed against the royalty base, rather than the broader financial statements a general accounts review would look at.
The numbers
No statutory deadline dictates the first response to a licence or royalty dispute. The operative clock comes from the licence itself: audit clauses commonly set a notice period and a limited look-back window, but both figures come from the contract the parties signed, not from a rule that applies uniformly across every licence. What is measurable this early is exposure, not a deadline: the size of the royalty base actually in dispute, the length of the period under review, and whether an audit right, once triggered, extends to related entities within a group structure rather than the named counterparty alone. Cost at this stage depends on the same variables rather than on a fixed scale: how much of the underlying accounting record is genuinely contested, whether an independent auditor is jointly appointed or engaged unilaterally by one side, and whether the matter stays commercial or moves toward a formal claim. A dispute confined to a narrow calculation question resolves on a very different cost basis than one that opens the whole royalty base to inspection.
Where it usually goes wrong
Payment gets suspended unilaterally without checking whether the contract actually allows it, which creates a cross-default the payer did not intend and hands the other side a stronger position than the underlying discrepancy justified. An audit notice gets treated as a routine bookkeeping request and answered informally by whoever happens to hold the finance mailbox, losing the chance to negotiate scope, cost allocation and confidentiality before an auditor is actually appointed. Internal teams respond by email without legal review, and those emails later read as admissions the sender never intended to make. Group structures get ignored: obligations and rights under the licence attach to a specific entity, not to a brand or a group name, and correspondence addressed to the wrong entity weakens the position on both sides. Foreign law defaults get assumed to mirror Swedish rules, and the forum clause is checked too late to matter. Finally, a dispute over exclusivity breach and a dispute over royalty calculation get conflated, leading the affected party to pursue the wrong remedy for months before the actual issue is identified.
What to do next
The first ten days settle whether the dispute stays commercial or hardens into a formal claim. Once the licence file is assembled, the audit right is correctly identified, and the payment position is protected in writing, the practical question becomes whether the discrepancy is a bookkeeping error, a genuine breach, or a disagreement over how the licence should be read. A closely related situation arises where the disputed licence covers custom-built code rather than an off-the-shelf product: commissioned software licence disputes set out the equivalent first-response framework for that case. Where the review points to a real breach or an unresolved audit claim rather than a fixable misunderstanding, the next step is an assessment of the position itself, not another round of correspondence. Lodline reviews the licence, the audit notice and the underlying financial record together, and sets out where the dispute is likely to be won or lost before further correspondence goes out. Request a licence dispute assessment.