Notice provisions in licensing agreements detail how and when a licensing agreement may be dissolved.
These provisions help to give certainty and cover for both the licensor and the licensee where the contract is coming to an end.
Thus, companies should draft termination clauses carefully to reduce risks,
establish ownership of intellectual property, and provide legal grounds for contract termination.
Typology of Termination Provisions
Common elements include:
1. Types of Termination
– Termination for Convenience:
Permits one or both the counterparty to terminate the contract without reason,
usually after a stated period of written notice (30/60/90 day).
This type of termination has all the advantages of the use of agreements but may make the terminating side pay penalties or other forms of compensation.
– Termination for Cause:
This applies where one party will have failed to perform a condition fundamental to the contract.
Actual dismissal for breach typically necessitates that the non-violative party notify the breaching party of the violation and afford the party an opportunity to correct the defect.
If no resolution of the breach is reached
within this time then the parties may terminate the agreement.
– Automatic Termination:
Some of these contracts may contain provisions that allow for termination based on certain conditions
like bankruptcy of any party, insolvency, or failure to perform a contract’s specifications.
2. Notice Requirements
Common conditions give legal notice that have to be
delivered before the contract can be terminated by either party.
This means that while some can take as little as one week,
others can take up to perhaps two months or more,
and these should always be very clear in the terms and conditions of the contract.
There must also be specific provisions regarding the notice to be given within them,
the form of that notice given for example through email or certified mail.
3. Post-Termination Obligations
After termination, the parties are likely to have certain responsibilities that they are required to perform. They might involve the return or deletion of confidential information, stop of use of licensed intellectual property and payment of any due fees or royalties.
To eliminate any issues of ever arising misunderstandings beyond the agreement’s termination, a well written termination clause should specify these responsibilities.
4. Dispute Resolution Mechanism
Parties intend to spell out how disputes arising from termination should be resolved by including the dispute resolution clause within the termination provisions.
Parties can do this through negotiation and compromise or by referring to a third party such as a mediator or an arbitrator, or even by going to court as provided by the agreement.
What are the Reasons for Terminating License Agreement?
Below are common scenarios where termination may be triggered:
– Breach of Contract:
In the case of a breach of the important condition by one party subsequently not paying royalties or using the trademark or patent inappropriately, the other party has provided rights to bring the contract to an end. Other usual reasons include violation of confidentiality, poor performance, or practicing unauthorized sublicensing.
– Expiry of the Agreement:
Another type of licensing agreement is one that is term based,
which means that licensing agreement will be terminated immediately at the end of the term, subject to extension.
The renewal / non-renewal clause must precisely state the procedures for renewal or non-renewal say the period of notice to be given.
– Mutual Agreement:
The contract may also be brought to an end at any time without the consent of the parties of the contract.
Where this is so, the clause should also state how and when both parties can bring the contract to an end and the expected conduct on the part of both the parties upon cancellation or otherwise.
– External Factors:
Events of frustration such as acts of God, epidemics, or change of law might necessitate a right to terminate if compliance becomes extremely hard or impracticable for each party or any party to the contract.
Where force majeure has been provided for,
its occurrences are addressed through plan guidelines, while other cases have to be explained according to general concepts in law.
How to Close a License Agreement Correctly
The last thing you want to do is provoke your licensee, especially if they are the type that loves to take you to court, to court once you have made the decision to terminate the license agreement. Here’s a step-by-step guide on how to end a license agreement correctly:
1. Review the Agreement:
Read the agreement thoroughly, with the focus on the termination provision to know and consider all the stated reasons for termination, the notice period, and possible fines.
2. Provide Proper Notice:
Make a notification to the other party in writing regarding the intention to invoke the specific condition in compliance with the contractual notice. Always stick to the agreed on means of communication which can be email, mail or even hand delivery.
3. Cure Period (If Applicable):
When you are acting pursuant to the contract and claiming right to terminate the agreement for cause, then, you should give the breaching party a chance to cure such breach before the end of the cure period as provided under the agreement. If you fail to follow the three steps then your termination may not be legal.
4. Fulfill Post-Termination Obligations:
When the contract expires or the parties decide to dissolve the agreement, they must perform any additional actions required by the termination terms and conditions, including transferring
5. Document the Termination:
Maintain written records of all communication touching on the termination, including the notice of termination, and any reply by the other party. It could become useful in the future in case of a legal conflict, this documentation might be invaluable.
Conclusion
No matter the reason whether it is convenience, cause or external circumstances it is advisable to adhere to the provisions of the contract and make sure that all the contractual requirements are meet. This way, both the licensors and the licensees can safeguard their legal interest, and avert partially expensive litigations while hoping to achieve non-contentious termination.
Use of properly drafted termination provisions in licensing agreements can thus help to minimize potential conflict and or provide clear procedure for ending a business relationship where and as when needed. Because engaging experienced License Agreement Lawyer Perth in the preparation and revisions of more of these clauses are important to protecting your interests.
