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Can an act of God affect a licensing agreement?

On Behalf of | Nov 9, 2020 | Patent Law

A licensing agreement should provide security when you allow others to take advantage of your intellectual property, but all bets may be off when the wrong circumstances strike.

Companies are increasingly trying to find the leanest ways to source materials. But the trouble with such efficiency is the vulnerability to disruption. And when one link in the chain goes down, the whole machine can stop. The cascading costs are bad for business, and the repercussions could reach your licensing agreement.

Shuffling requirements

When your business partner can’t keep the supply chains moving, they may have trouble keeping their end of the bargain. A solid contract can make sure you still get your share of the deal, but there could be provisions in place for uncontrollable situations. This isn’t a regularly viable excuse in business, though there may be forces at work that excuse falling short.

Clauses for force majeure, or acts of God, outline unforeseeable conditions that could be impossible to avoid. Triggering one of these stipulations may let a party get out of some of their obligations, but there can be plenty of provisions:

  • Definitions: Force majeure can take many forms, and it can be dependent on the wording of the contract. Any old cause for breach likely won’t make the cut, and even some major issues could be explicitly written out of the deal.
  • Divisions: Your terms will need to spell out what part of the agreement it will impact. The entire contract may become void, or perhaps only certain clauses will be devoid of penalty.
  • Developments: You also need to outline a method for applying force majeure. It isn’t likely to take effect immediately, so you’ll want to set a process for setting it in motion. You can also arrange temporary exceptions to allow things to fall back in line before calling anything off.

But just because you understand the basics of an agreement doesn’t mean it’s ready to sign. The other party will likely have some thoughts, and approaching them with lopsided terms or excessive penalties may not get a favorable response. Drafting a deal can offer security in the future, but it can take solid experience to keep it from costing you in the present.