Tom: The return reserve is set at 20% of each quarterly statement and paid out after a 12 month (4 quarter) period (11.3). Spark also was to receive a 10% passive royalty on any ports of the Games by any other developer, subject to the same recoupment (11.4). Spark also received passive 10% royalties on any non-software ancillary products such as books, comics, movies, lunchboxes, action figures based on their original IP in the Game, except for hint books and strategy guides (11.5). Hint books and Strategy guides also yield a 10% passive royalty to Spark, provided that they assist and cooperate in the creation of such materials (11.6).

Tom: For purposes of Spark’s royalties, retail sales by Activision will be booked when invoiced (11.7), license revenue will be booked to Spark’s royalty account on actual receipt (11.8), foreign sales are credited at the then current exchange rate and booked when received (11.9). Spark is responsible for any tax on its royalties (11.10). If their Game is packaged with other Activision games, the proportionate royalty attributable to Spark’s Game will be based a ratio determined by the initial retail price of the games packaged together (11.11). There is no royalty due on promotional copies of the Game distributed fee of charge or inventory clearance if discounted to less than 40% of the initial retail price (11.12).

Chris & Dave: The inventory clearance clause greatly favors Activision. The better approach for Spark would be for Activision to pay royalties on the discounted price, as long as that price exceeds the cost of the goods.

Tom: Payments. Royalty statements are due 60 days after the end of each quarter along with any payment due, less appropriate deductions and recoupment (12.1). Developer Audit are limited to once a year and for a period of 12 months after each statement on 15 days notice at developer’s expense.