Net means "after costs are deducted".
So if a Licensee has a "gross" income of $10 and they deduct business costs of $3 then the Licensee has a "net" income of $7.
For an illustrator working with this client:
- 5% of a $10 "gross" item (or "list price") is $0.50
- 5% of a $7 "net" item is $0.35
Personal Opinion: I am not a fan of "net" but have found some publishers have baked it into their accounting dept.
Because of this when working with contracts specifying "net" rather than "list" (or "gross") it is typical to negotiate double the royalty rates.
As for the contract line you quoted here -- yeah, that's confusing. Based on just this quoted text it does read that Net Sales = Gross invoice amount billed. But contracts are often depended on other clauses in the document. Difficult to evaluate without the rest of the contract.