Intellectual Property License Infringement vs. Breach of Contract

AdobeStock_647582173-300x200When two parties enter into an intellectual property licensing (IP) agreement, it is not uncommon for disputes to arise regarding licensees using IP outside the scope of a license agreement. Such cases can result in IP litigation that can be extremely costly, and anybody with a possible IP dispute should quickly seek the help of a Texas intellectual property lawyer.

One of the major questions many people struggle to answer is whether a violation constitutes a breach of a license agreement, infringement of IP rights, or license infringement. A licensing agreement typically outlines the terms and conditions for the use of IP as well as the compensation a licensor will receive from a licensee, and a licensee who fails to follow the terms of the contract can allow a licensor to hold the licensee accountable.

Types of Licensing Agreement Violations

Some of the most common violations of licensing agreements include, but are not limited to:

  • Failure to follow exclusivity clauses in an agreement
  • A licensee failing to pay royalties as agreed
  • Failure to prevent the use of a product by an unauthorized third party
  • Licensed material being used after a license expires
  • Failure to stop using a product after a license expires
  • Licensed material being used in an unauthorized manner
  • Failure to pay all or part of stipulated royalties
  • A licensor failing to honor exclusive terms of an agreement
  • Failure to use a product as stipulated

In most cases, the type and extent of a violation determine whether the action constitutes a breach of license, an infringement, or possibly both. The distinction will be important because the legal repercussions and damages can differ depending on the classification of the violation.

The distinction is further crucial because remedies for infringement are different from contract damages. A copyright registered pre-infringement could entitle an owner to recover statutory damages and attorney’s fees instead of actual damages.

A trade secret or trademark case may lead to exemplary damages in addition to the actual damages for a breach of contract action. Patent and trademark actions can involve treble damages.

Recovery of attorney’s fees under the Patent Act and Lanham Act is usually easier to recover in breach of contract cases.

Infringement and Breach of Contract Differences

The central issue in these types of cases will be determining whether a license is an exclusive license or a non-exclusive license. Many courts have held that in exclusive license cases, unlicensed use of IP is a breach of contract.

An exclusive license transfers ownership of IP rights so the licensee cannot infringe on an interest in IP that it owns. This means that any use of IP beyond the scope of a license agreement results in a breach of contract instead of infringement.

When a licensee is granted a non-exclusive license, however, any use of IP beyond the scope of a license agreement may result in a licensee being liable for infringement. Another important issue to determine whether an action is a breach of contract or IP infringement is whether a provision of the license agreement breached is a contract covenant or a condition precedent.

When a provision is a contract covenant, a breach is a breach of contract. If the provision is a condition precedent, then the condition was not satisfied, and the contract does not exist, so any use of IP results in infringement.

When a license agreement is limited in scope, and a licensee acts outside of the scope, the licensor may bring an action for infringement. A licensor will have to establish that the license terms are limitations on the scope of the license and that the licensee’s actions exceed the scope of the license.

Several distinctions exist between breach of a license agreement, IP infringement, and license infringement. When such issues arise, a Texas intellectual property attorney can consider all of the options relating to which claims or defenses may be asserted.

Call Us Today to Speak with a Texas Intellectual Property Lawyer

IP rights are an important part of a business’s success and it is critical to ensure that these rights are protected from any potential misuse. If you believe that you are currently involved in a dispute regarding the use of IP rights, it is important to seek legal assistance from a qualified Texas intellectual property attorney.

At Structure Law Group, LLP, we offer experienced legal representation in IP cases and will work hard to make sure that you get all of the damages to which you are entitled or defend you against any accusations. To arrange a consultation with our Texas intellectual property lawyer, please call (512) 881-7500 or contact us online. We look forward to helping you protect your intellectual property rights.