Breach of Contract or IP Infringement
3 Ways The Courts Determine The
Issue In A Property Licensing Agreement
Two businesses go into an Intellectual Property Licensing Agreement. A
dispute comes about regarding the licensee’s use of the IP for
marketing purposes or patenting products – the claim is that it’s
outside the terms of the agreement. Does the additional use of the IP
break the contract, infringe upon the IP rights or both?
It’s important to know the distinction because infringement remedies
will vary from contract damages. For instance, a copyright registered
pre-infringement allows the owner to choose statutory over actual
damages.
If a plaintiff in a trademark or trade secret case when his/her case,
they could actually recover the exemplary damages along with the actual
damages due to the breach of contract. In trademark and patent
actions, there’s also the possibility for treble damages. Recovering
for attorney fees is typically easier to recuperate when there has been
an efficacious breach of contract action. As you see, the differences
definitely play a part in getting the most back out of the recovery.
IP Rights Infringement vs. Breach Of Contract: 3 Ways To Know Which One
Your Contract Falls Under
At the beginning, it’s not so clear if the extra-license use is an IP
rights infringement or if it’s a breach of contract. How can you
distinguish which one is which?
1 – License Type
You need to figure out if the license is exclusive or non-exclusive.
Courts have determined that an exclusive license rules the IP use as
being a breach of contract. This rationale is founded on the acceptance
that an exclusive license changes ownership of the IP rights.
Simply put:
- A licensee cannot infringe upon his/her IP interest. Any use of
the IP beyond what the agreement states is considered a breach of
contract, not infringement.
- And, a licensee granted a non-exclusive license can be considered
held liable for infringement if the IP is used beyond the license
agreement.
2 – Breach Provision
Is the license agreement provision a condition precedent and a contract
covenant? Contract covenant provisions are considered a breach of
contract. If the provision falls under the condition precedent, the
condition isn’t satisfied and the contract doesn’t exist. Any IP means
it is an infringement.
3 – Limitations
If the agreement has limitations in its scoop and the license goes
beyond it, the licensor can claim infringement. To win the case, the
licensor will need to establish that the terms in the agreement are the
limitations, and not independent contractual covenants, to claim that
the licensee’s actions went beyond the license.
There have been instances where the court has ruled an agreement has
produced both a contractual covenant and conditions precedent in a
license. In these cases, the courts have ruled that both an
infringement and breach of contract had occurred.