Stakeholders have informed the staff that there are differing views about how a minimum guarantee impacts the accounting for sales-based or usage-based royalties promised in exchange for a license of functional intellectual property. In contrast to symbolic intellectual property, a promise to provide a customer with the right to use functional intellectual property is satisfied at a point in time. The question is whether a guaranteed amount of royalties for a license of functional intellectual property should be recognized at the point in time that control of the license is transferred to the customer.

In the staff’s view, the minimum guarantee should be treated as fixed consideration and recognized at the point in time when the license transfers to the customer. A guaranteed amount is not variable consideration; therefore, it is not subject to the royalties recognition constraint.

This treatment could be considered similar to a license of functional intellectual property that has a fixed fee only, in which the revenue is recognized at the point in time the license is transferred to the customer. There is no uncertainty with regard to the minimum guarantee amount, unlike a royalty which is uncertain before the point at which the customer’s subsequent sales or usage occurs. In addition, because functional intellectual property is recognized at a point in time, the consideration that is fixed should be recognized when the performance obligation is satisfied. The variable consideration (the royalties above the fixed minimum) would be recognized in accordance with the royalties recognition constraint in paragraph 606-10-55-65.