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January 13, 2020 | From the blogLitigation

Is Breach of a Licensing Agreement Considered a Breach of Contract or Copyright Infringement?

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Updated: June 30, 2020

Most adults have entered into a licensing agreement, sometimes without realizing it. It may have been in the context of a business arrangement to gain permission to use someone’s intellectual property or in a consumer setting relating to software or online subscription services. Is a breach of a licensing agreement considered a breach of contract or copyright infringement?

A licensing agreement is a contract between an owner of rights (“licensor”) and someone who wants permission to use those rights (“licensee”), allowing for certain designated uses of the material. In the context of a licensing agreement to use copyrighted material, if the party using the material breaches the agreement, there may be another cause of action in the form of a copyright infringement claim. The rules for when a breach of a licensing agreement amounts to a breach of contract, as opposed to a claim for copyright infringement, can be complicated.

Determining breach of contracts versus copyright infringement

In order to prove copyright infringement where there has been a breach of a licensing agreement, the owner must satisfy two elements. First, the use must exceed the scope of the license. Second, the breach must be grounded in an exclusive right of copyright such as the reproduction or distribution of a work.

There are several factors relevant to deciding whether a breach results in a contract or infringement action.

  • Was the breached provision a covenant or a condition? Contractual terms that limit a license’s scope are “conditions” and the breach of a condition is considered copyright infringement. All other contract terms are “covenants,” which give rise to a breach of contract. For example, if a user fails to pay licensing fees owed, the copyright owner has the right to sue for breach of contract and recover contractual damages (i.e., money) for breach. However, if the owner terminates the agreement because of the nonpayment and the licensee continues to use the licensed material after termination, then the owner has a claim for copyright infringement. 
  • Was the license exclusive or nonexclusive? If the license was exclusive, a breach based on unlicensed use will likely be considered a breach of contract. Where the license was nonexclusive, unlicensed use may constitute copyright infringement. 
  • Does the agreement provide for a remedy for use beyond the scope of the agreement? If the licensing agreement states that a licensee will have to pay additional fees for use beyond the scope of the agreement, a breach of the licensing agreement on these grounds generally will be considered a breach of contract, rather than copyright infringement. 

Benefits of breach of contract versus copyright infringement actions

The distinction between breach of contract and copyright infringement is important when establishing damages. In instances of copyright infringement, the owner may recover its actual damages for its loss. If the infringer’s profits exceed the owner’s actual damages, the owner may elect to seek the infringer’s profits, which may not be recoverable as contractual damages. 

Assuming that the owner registered its copyright with the U.S. Copyright Office before the infringement occurred (or within three months of the work’s publication), the owner may also elect to recover statutory damages. In the case of willful infringement, statutory damages can be awarded up to $150,000 per work infringed. Attorney’s fees in a copyright action may also be awarded to the prevailing party. Typically, each party pays for their own attorneys’ fees in an action for breach of contract, unless the agreement states otherwise. 

Drafting considerations

In drafting a licensing agreement, it is important to discuss with counsel the implications of a breach and how to maximize the protection of the copyright owner’s rights. Similarly, if there has been a breach of a licensing agreement, an experienced attorney can advise you regarding which type of action to pursue based on the terms of the agreement or how to best defend against an action. 

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