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Developers of intellectual property (IP) – such as technology, software, patents, brands, trademarks, or copyrighted materials – may consider monetizing their intellectual assets by entering into a licensing agreement with another party. These agreements allow the licensor to expand the market reach of his or her property without losing control of the asset. The licensee, on the other hand, can seek to profit from the licensor’s intellectual property without investing in its research and development.
What happens if one of the parties breaches the licensing agreement? There are two possible legal strategies your licensing agreement attorney may pursue:
- Breach of contract claim
- Copyright (or patent or trademark) infringement
Each of these legal strategies can result in distinct remedies, including injunctive relief (a court order instructing the breaching party to cease the infringement activity) and monetary damages.
At Hendershot Cowart, P.C., our licensing agreement attorneys have decades of experience helping IP licensors and licensees in Texas protect their rights. To schedule a consultation with our team, contact us online or via phone at (713) 783-3110.
What Happens If a Licensing Agreement Is Breached?
If a licensee breaches a licensing agreement, the non-breaching party may pursue breach of contract claims, seek injunctive relief to stop the unauthorized use, recover actual damages, including lost royalties, or – where trademark or copyright infringement is involved – pursue statutory damages and attorney's fees. In some cases, criminal penalties may apply.
The right strategy depends on whether the violation constitutes a breach of contract or an infringement of the underlying intellectual property.
How Do You Enforce a Licensing Agreement?
If the licensing agreement was breached, consult a licensing agreement attorney who can advise you on your available remedies, which may include:
#1: Injunction or Other Equitable Remedy
When a licensing agreement is breached, money alone does not always make you whole – particularly when the other party's unauthorized use of your intellectual property is ongoing. In those cases, you may seek an injunction, which is a court order requiring the offending party to stop the infringing conduct.
Courts may also order specific performance, compelling a party to fulfill its obligations under the agreement, when the licensed subject matter is unique, and damages cannot adequately compensate the injured party.
#2: Actual Damages
The most common remedy in a licensing dispute is compensatory damages – money designed to put you in the position you would have been in had the breach never occurred. Depending on the facts, this can include lost profits you would have earned had the agreement been honored, or a reasonable royalty reflecting the value of the unauthorized use. In a Texas case involving a breached software license, for instance, a court awarded $250,000 in reasonable royalty damages for trade secret misappropriation tied to unauthorized use beyond the license's scope.
#3: Cancellation of the Agreement
If the breach is material – meaning it strikes at the heart of what you bargained for – you may have the right to terminate the licensing agreement entirely and walk away from your own obligations under it. Under Texas law, a material breach is one that goes to the root or essence of the contract. If the breach is only partial, however, termination may not be your best option. In that case, you may choose to continue performance under the agreement and sue for damages instead.
An experienced licensing attorney can help you evaluate which path makes more strategic and legal sense given your specific circumstances – because the choice you make can affect the remedies available to you.
#4: Remedies Dictated by the Agreement
Before pursuing any remedy, review your licensing agreement carefully – because the agreement itself may control what you can and cannot recover. Texas courts enforce contractual provisions that limit or modify remedies, including caps on damages, exclusions of consequential damages, or restrictions on equitable relief, as long as those limitations are not illegal or against public policy. Conversely, your agreement may also include provisions that work in your favor, such as liquidated damages clauses or attorney's fees provisions.
The bottom line: the remedies available to you are shaped as much by the contract's own terms as by Texas law – which is why having the right language in your licensing agreement from the start matters as much as enforcing it later.
If the license itself was infringed, offending parties may also face additional consequences:
#5: Statutory Damages
When a licensing dispute involves copyright infringement – not just a breach of the contract – federal law opens the door to statutory damages (damage amounts established by law). Unlike actual damages, statutory damages do not require you to prove a specific dollar amount of loss. Courts may award between $750 and $30,000 per infringed work, and up to $150,000 per work if the infringement is found to be willful.
This can be a significant advantage when actual losses are difficult to quantify or when the infringer's conduct was egregious. To access statutory damages, the copyright must have been registered before the infringement began.
#6: Recovery of Attorney’s Fees
Licensing disputes can be costly to litigate, but in certain circumstances, you may be able to recover your attorney's fees from the other side. Under Texas law, a prevailing party in a breach of contract claim – including a licensing agreement – may recover reasonable attorney's fees in addition to the underlying damages.
Attorney's fees are also available to the prevailing party in a copyright infringement case under federal law.
#7: Criminal Penalties
In the most serious cases – particularly where copyright or trade secret theft is involved – licensing violations can cross the line from civil dispute into criminal conduct. While criminal enforcement is pursued by the government rather than the injured business, the prospect of criminal liability can be a powerful factor in negotiations and civil proceedings alike.
Examples of Licensing Agreement Violations:
- Licensee fails to pay royalties as agreed
- Licensed material is used after the license expires
- Licensed material is used in an unauthorized manner
- The licensor fails to honor exclusive terms of the agreement
- Licensee allows an unauthorized third party to use the licensed material
Is the Licensing Agreement Violation a Breach or Infringement?
Since remedies and damages for license breach and infringement cases can be significantly different, understanding the type of case you have is critical. While it is not always clear cut, a contract law attorney experienced in licensing agreements can examine whether the licensee or licensor breached a contract covenant or infringed on the license. There are several deciding factors:
- Was the licensing agreement for exclusive or nonexclusive use? When a licensor conveys exclusive use of the IP to the licensee, the courts reason that the licensee holds temporary and limited ownership rights to that IP. Therefore, if the owner of the IP – such as a patent holder or trademark owner – makes use of the licensed material exclusively granted to the other party, the licensee could sue the owner for infringement.
- Which provision of the agreement was violated? Was it a condition of the use of the license, such as the geographic scope or quality of use? This may constitute infringement. Or was it a breach of terms of the contract not explicitly related to the use of the license, such as payment of royalty fees? This would likely be considered a breach of the licensing contract.
At Hendershot Cowart P.C., our contract law attorneys will help you find the best path forward in your patent, technology, or copyright licensing agreement dispute, whether that means pursuing an infringement case or breach of contract. Call (713) 783-3110 or contact us online to schedule a consultation with our team.