Can Allegations of Breach of a License Agreement Actually Breach the License Agreement?

Most, if not all, good license agreements (and, actually, most legal agreements) include a provision to the effect that the agreement can be terminated if the other party breaches any term of the agreement.  While such a provision is not only common but also seemingly straightforward, perhaps there’s now more to it.  Recently, a company that provides typeface programs and font software programs sued one of its licensees for breach of the License Agreement.  The dispute raised issues about whether the licensee check printing company’s Internet sales and electronic proofs were prohibited under the License Agreement.  That Agreement had two key provisions: (1) the Licensor’s right to terminate the Agreement if the Licensee breached the Agreement, and (2) the Licensee’s right to “use the Licensed Products without disturbance.”

Prior to filing the lawsuit, the Licensor demanded that the Licensee “cease and desist” from exercising its rights under the License Agreement, i.e., stop using the Licensed Products.  In the lawsuit, the Licensee check maker alleged that this cease and desist demand “disturbed” its rights under the Agreement and, turning the case on its head, claimed that the Licensor therefore breached the Agreement.

The Court agreed, saying that the “[p]rovisions in the agreement which concern termination . . . do not afford [Licensor] carte blanche to make cease-and-desist demands with impunity.”  If the check making company “was acting within its licensed rights at all times and [Licensor] has asserted meritless demands or claims, [Licensor’s] actions may constitute a disturbance.

Upshot:  The same as always.  Look before you leap.  And, simultaneously, don’t overreact to this single decision.  Simply be sure that actions, allegations and threats are well thought out and carefully worded.


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