Terminating Licenses of IP Rights in India

Intellectual Property (IP) rights basically refer to any and all the rights related to any non-tangible assets owned by an individual or entity and the protection against using it without their consent. Some examples of intellectual properties are patents, domain names, industrial design, confidential information, inventions, moral rights, logos, service marks, works of authorship, database rights, trademarks, design rights, commercial secrets, computer software, and business or trade names.

While IP rights are issued to others by the owner for authorized usage, cancellation of such rights is inevitable after a certain period. It may be because the licensor wishes to do so, the licensee wants to do it or even due to mutual consent of both parties. Inappropriately cancelling IP rights can lead to one of the parties claim for breach of contract.

Although license agreements usually include a termination clause, if no specific clause has been mentioned, the license may be ended after sending a proper, reasonable notice to the other party. The way to deem a notice to be of appropriate length and reasonable depends on the general nature and condition of the situation and the established practice, if any, like business or trade of the licensee. It shall be determined in part by the obligations incurred and the commitments made by the terminated party in fulfilling the terms of its contract with its principal.

How can a License be Terminated?

Through Mutual Consent

An IP rights license can be terminated by both parties through mutual consent as per their convenience. Although the license can be terminated by giving a notice to the other party, this is not what commonly goes down. Usually, a license is terminated by the consent of both the licensor and the licensee.

Due to Breach of Licensing Terms

In case either of the parties involved breach of the terms of a license, where a license is terminable for breach, the license may be terminated by providing a proper and reasonable notice. The party that wants to terminate the agreement must fulfill all the obligations in good faith. It is imperative that neither party involved in the agreement makes false statements to the other or intentionally mislead them on any aspect related to the performance of the contract. If there is any breach that, in any way, affects the other party from availing of the benefits of the license agreement, the deprived party shall have the right to terminate the license.

By Abiding to the Terms of the License

A license agreement can be terminated by the parties through the provisions mentioned in the contract. All IP license agreements must have provisions for the termination of contract and include the rights and obligations of both the parties post termination. Lack of clear terms for proceedings post termination can create significant problems considering there can be major conflicts by the time a contract has been terminated.

The terms in the agreement may include provisions related to how the confidential details shall be handled, representations and warranties and indemnity requirements. Parties can also state that any obligation existing at the time of license termination shall exist until it has been fulfilled.

Due to Invalidity or Expiry of Relevant IP Rights

IP rights may be terminated due to invalidity or expiry of the relevant rights. It is to be noted that if an underlying IP right in an agreement is invalid, it might not necessarily lead to license termination. Furthermore, although it is unusual, if a license demands so, royalties payable shall remain payable irrespective of the invalidity of the IP rights.

What happens when a Licensee challenges the validity of the licensed IP Rights?

A license can be terminated if the licensee challenges the validity of the licensed IP rights. A licensee is generally forbidden from challenging the validity of a licensor’s IP rights while the agreement is being maintained, be it by expressing the terms of contract or by the implications of the licensor/licensee relationship.

Although such bans do not exist after the termination of a license agreement, if certain clauses of the license forbid it to be challenged post termination, the prior agreement shall be enforced to invalidate any attempts to challenge the same.

What happens in case of Insolvency or Bankruptcy of the Licensee?

Several license agreements include provisions that give the licensor the right to terminate the contract in the event of the other party going bankrupt or insolvent. License agreements often provide the licensor the right to terminate the agreement if the licensee commits an act of bankruptcy. Besides, this may even be automatic if the license states so. If the licensee simply files a Notice of Intention to Make a Proposal (NOI) in bankruptcy or files a proposal, it does not, in any way, justify the licensor from terminating the license.

If the licensor believes the licensee is or is about to be insolvent, it is recommended to consider terminating the license for cause before they commit an act of bankruptcy. Assignability of licenses by a trustee in bankruptcy may be possible, provided such assignments are not inconsistent with the license agreement.

Conclusion

Although licenses are granted by the licensor and allows the licensee to utilize certain assets with the owner’s permission, this permission may be revoked depending upon various conditions and the clauses stated beforehand in the agreement.


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