Two companies enter into an intellectual property licensing agreement. Later, a dispute erupts over whether the licensee has used the IP outside the scope of the BRITISH COLUMBIA FAKE DRIVERS LICENCE agreement such as marketing a brand on a new product line or selling patented goods in another territory. Does this extra-license use constitute breach of contract? Infringement of the IP rights or both?
The distinction matters because remedies for infringement differ from contract damages. For example, a copyright registered pre-infringement entitles the owner to elect statutory damages over actual damages. A successful plaintiff in a trade secret or trademark case can potentially recover exemplary damages in addition to actual damages recoverable in a breach of contract action. In patent and trademark actions, treble damages are available. Recovery of attorney’s fees, while provided under the Patent Act and Lanham Act, are generally easier to recover in connection with a successful breach of contract action. Therefore, these differences make careful consideration of claim pleading necessary to maximize recovery.
While it may not always be clear at the onset whether an extra-license use constitutes a breach of contract or an infringement of IP rights, the following provides some guidelines between where a license ends and infringement begins:
· Type of license. The threshold issue is determining whether the license is an exclusive license or a non-exclusive license. Courts have held that where the licensee has been granted an exclusive license, unlicensed use of the IP is merely a breach of contract. The underlying rationale stems from the understanding that an exclusive license transfers ownership of the IP rights. The licensee is incapable of infringing an interest in IP that he owns. Thus, any use of the IP beyond the scope of the license agreement would result in breach of contract, rather than infringement. Conversely, if the licensee has only been granted a non-exclusive license, any use of the IP beyond the scope of the license agreement could result in the licensee being liable for infringement.
· Provision Breached. Another key issue in distinguishing between a breach of contract or infringement is determining whether the provision of the license agreement breached is a contract covenant or a condition precedent. If the provision were a contract covenant, then the breach would result only in a breach of contract. However, if the provision were a condition precedent, then the condition was not satisfied and the contract effectively does not exist. Therefore, any use of the IP would result in infringement.
· Limitations. Similarly, if the license agreement is limited in scope and the licensee acts outside the scope, then the licensor can bring an action for infringement. To prevail, the licensor must establish that the license terms are limitations on the scope of the license, rather than independent contractual covenants, and that the licensee’s actions exceed the scope of the license.
In certain instances, courts have concluded that a license agreement has created both contractual covenants and conditions precedent or both contractual covenants and limitations on the scope of the license. In such cases the courts have held that both breach of contract and infringement causes of actions are available.