Licensing agreements are common, often entered into in business contexts to obtain permission to use someone’s intellectual property, or in a consumer setting relating to software or online subscription services. However, when a licensing agreement is breached, it can be unclear whether the breach should be treated as a breach of contract or copyright infringement. The difference matters, as each claim allows for different damages a successful plaintiff can recover.
A licensing agreement is essentially a contract between the owner of certain rights (the “licensor”) and someone who wants permission to use those rights (the “licensee”). The agreement allows for certain designated uses of the material. If the material in question is copyrighted, a breach of the licensing agreement could potentially result in a claim for copyright infringement, as well as breach of contract. However, determining which type of action is appropriate can be complicated.
To establish copyright infringement where a breach of a licensing agreement has occurred, the owner of the rights must prove two elements. First, the use of the material must exceed the scope of the license. Second, the breach must be grounded in an exclusive right of copyright, such as reproduction or distribution of a work.
Several factors are relevant to determining whether a breach of a licensing agreement results in a breach of contract or a claim for copyright infringement. For instance, if the breached provision was a “condition” rather than a “covenant,” it is considered copyright infringement. Additionally, if the license was exclusive, a breach based on unlicensed use will likely be considered a breach of contract, while unlicensed use of a nonexclusive license may constitute copyright infringement. The agreement itself can also provide a remedy for use beyond its scope, which can affect whether a breach is considered a breach of contract or copyright infringement.
The distinction between breach of contract and copyright infringement is important when it comes to establishing damages. In cases of copyright infringement, the owner may recover its actual damages for the loss and may also elect to seek the infringer’s profits. However, in breach of contract claims, damages are typically limited to the amount specified in the agreement or calculated based on the terms of the agreement.
Generally, if the owner of a copyright registered it with the U.S. Copyright Office prior to the infringement or within three months of the work’s publication, they may choose to claim statutory damages. For willful infringement, statutory damages of up to $150,000 per infringed work can be granted. In a copyright case, the prevailing party may also be awarded attorney’s fees. Generally, in a breach of contract case, each party is responsible for their own attorney’s fees, unless the agreement specifies otherwise.
When drafting a licensing agreement, it is important to discuss the implications of a breach with an attorney and to consider how to best protect the owner’s rights. Similarly, if there has been a breach of a licensing agreement, an experienced attorney can advise on which type of action to pursue based on the terms of the agreement, or how to defend against an action.
Carlianna Dengel is admitted to practice law in New York and California.