diff --git a/contracts/modules/licensing/PILicenseTemplate.sol b/contracts/modules/licensing/PILicenseTemplate.sol
index 2964ce7ab..e9011fbdc 100644
--- a/contracts/modules/licensing/PILicenseTemplate.sol
+++ b/contracts/modules/licensing/PILicenseTemplate.sol
@@ -88,7 +88,11 @@ contract PILicenseTemplate is
     /// @param terms The PILTerms to register.
     /// @return id The ID of the newly registered license terms.
     function registerLicenseTerms(PILTerms calldata terms) external nonReentrant returns (uint256 id) {
-        if (terms.royaltyPolicy != address(0) && !ROYALTY_MODULE.isWhitelistedRoyaltyPolicy(terms.royaltyPolicy)) {
+        if (
+            terms.royaltyPolicy != address(0) &&
+            !ROYALTY_MODULE.isWhitelistedRoyaltyPolicy(terms.royaltyPolicy) &&
+            !ROYALTY_MODULE.isRegisteredExternalRoyaltyPolicy(terms.royaltyPolicy)
+        ) {
             revert PILicenseTemplateErrors.PILicenseTemplate__RoyaltyPolicyNotWhitelisted();
         }
 
diff --git a/test/foundry/integration/flows/royalty/Royalty.t.sol b/test/foundry/integration/flows/royalty/Royalty.t.sol
index 88e622bc2..b57fccbb7 100644
--- a/test/foundry/integration/flows/royalty/Royalty.t.sol
+++ b/test/foundry/integration/flows/royalty/Royalty.t.sol
@@ -4,13 +4,13 @@ pragma solidity 0.8.26;
 // external
 import { EnumerableSet } from "@openzeppelin/contracts/utils/structs/EnumerableSet.sol";
 import { Strings } from "@openzeppelin/contracts/utils/Strings.sol";
-// import { ERC20, IERC20 } from "@openzeppelin/contracts/token/ERC20/ERC20.sol";
 
 // contracts
 import { IRoyaltyModule } from "../../../../../contracts/interfaces/modules/royalty/IRoyaltyModule.sol";
 import { IpRoyaltyVault } from "../../../../../contracts/modules/royalty/policies/IpRoyaltyVault.sol";
 import { Errors } from "../../../../../contracts/lib/Errors.sol";
 import { PILFlavors } from "../../../../../contracts/lib/PILFlavors.sol";
+import { MockExternalRoyaltyPolicy1 } from "../../../mocks/policy/MockExternalRoyaltyPolicy1.sol";
 
 // test
 import { BaseIntegration } from "../../BaseIntegration.t.sol";
@@ -196,5 +196,49 @@ contract Flows_Integration_Disputes is BaseIntegration {
                 earningsFromMintingFees + (1 ether * (10_000_000 + 20_000_000)) / royaltyModule.maxPercent()
             );
         }
+
+        // A derivation occurs using an external royalty policy
+        {
+            // Register an external royalty policy
+            MockExternalRoyaltyPolicy1 mockExternalRoyaltyPolicy1 = new MockExternalRoyaltyPolicy1();
+            royaltyModule.registerExternalRoyaltyPolicy(address(mockExternalRoyaltyPolicy1));
+
+            vm.startPrank(u.alice);
+            erc20.approve(address(royaltyModule), type(uint256).max);
+
+            mockNFT.mintId(u.alice, 4);
+            ipAcct[4] = registerIpAccount(mockNFT, 4, u.alice);
+            vm.label(ipAcct[4], "IPAccount4");
+
+            uint256 commRemixExternalTermsId = registerSelectedPILicenseTerms(
+                "commercial_remix_external",
+                PILFlavors.commercialRemix({
+                    mintingFee: mintingFee,
+                    commercialRevShare: defaultCommRevShare,
+                    royaltyPolicy: address(mockExternalRoyaltyPolicy1),
+                    currencyToken: address(erc20)
+                })
+            );
+
+            licensingModule.attachLicenseTerms(ipAcct[4], address(pilTemplate), commRemixExternalTermsId);
+
+            uint256[] memory licenseId = new uint256[](1);
+            licenseId[0] = licensingModule.mintLicenseTokens({
+                licensorIpId: ipAcct[4],
+                licenseTemplate: address(pilTemplate),
+                licenseTermsId: commRemixExternalTermsId,
+                amount: 1,
+                receiver: u.alice,
+                royaltyContext: ""
+            });
+
+            mockNFT.mintId(u.alice, 5);
+            ipAcct[5] = registerIpAccount(mockNFT, 5, u.alice);
+            vm.label(ipAcct[5], "IPAccount5");
+
+            licensingModule.registerDerivativeWithLicenseTokens(ipAcct[5], licenseId, "");
+
+            vm.stopPrank();
+        }
     }
 }