The Impact of COVID-19 on IP Contracts

Categories: Asma Raza

“If circumstances change and cause inconvenience, costs, damage or extreme or unjustified losses to a party when subject to contractual obligations, the court may justify a violation of” impossibility “or” impracticability “if the change in Era was unpredictable and COVID -19 can meet that standard “.

The global coronavirus pandemic (COVID-19) is disrupting the industry on a large scale and its impact is likely to be significant and lasting. Due to hospital orders across the country, businesses are closing, sales of “insignificant” goods and services are declining, and many parties are unable to meet contractual obligations with business partners or not to use the goods or contracted services. These companies rely on their contracts for provisions that may justify a breach in such circumstances.

These agreements can include IP licenses. These licenses often contain minimal sales or license agreements that can be difficult, if not impossible, to comply with during this period of business and sales outages. Licensee and licensee have both options under a common license to apply or justify the provisions of COVID-19.

Many licenses include force majeure clauses that clearly justify failure in the event of a “natural disaster” or other extreme and unexpected event beyond the control of both parties and prevent the contract from being executed. At first glance, the force majeure clauses seem to perfectly match the extreme and unpredictable conditions caused by the COVID-19 epidemic. However, whether this clause justifies a certain type of delay largely depends on the contract and the circumstances. On the contrary, if the force majeure clause does not apply, the parties can rely on non-contractual lessons such as frustrating intentions or incapacity to trade.

Regardless of whether the party wants to be released from the obligations stipulated in the contract or whether it wishes to fulfill them in light of the changing circumstances caused by the explosion of COVID-19, the contract is the first place to be observed. Pay special attention to provisions related to performance obligations (for example, minimum sales, production or license requirements or time requirements for license fees), cancellation or termination provisions, and force majeure.

If the contract imposes performance obligations, does it provide a remedy for performance errors? In this case, the contractual remedy is likely to apply in the event of an event like COVID-19. In fact, courts tend to postpone corrective actions that parties negotiate to quickly resolve performance problems.

What rights and obligations do these parties impose on the parties if the contract contains a termination or a termination clause? Certain contracts allow the parties to fulfill their contractual obligations by mandatory termination. Some contracts provide for a lump sum that specifies the exact amount that the guilty party must pay the innocent. Certain contracts may authorize a temporary suspension of contractual obligations in lieu of termination under certain conditions.

If the contract contains a force majeure clause, there are three main questions to consider.

How does the contract define force majeure? Look for a correlation between the types of force majeure events described in the contract and why a party cannot act. Certain force majeure clauses explicitly include epidemics or pandemics. others do not mention pandemics, but include other relevant events caused by COVID-19, such as embargo, quarantine, or travel restrictions. In most cases, the clause can be applied even if a force majeure clause does not contain a COVID-19 related event because it contains a general provision that broadly defines force majeure (for example, as an unpredictable event in the (more there) Reasonable number of uncontrolled parties or an indication that force majeure events “include, but are not limited to, listed events.” However, companies should note that certain cases of force majeure are limited to specified events. in the clause.

Secondly, to which service does the force majeure clause apply? Check whether the force majeure clause applies to the type of violation envisaged. Some provisions allow a party to withdraw entirely from the contract, while others simply suspend compliance in the event of force majeure. Certain provisions apply to all contractual obligations; others only apply to certain aspects of performance.

Third, what is needed for a party to use force majeure? Certain clauses oblige the parties to take certain measures before using force majeure as an excuse for non-compliance. In general, contracts must be notified, sometimes in prescribed forms or at certain intervals. Some contracts also require parties to consider measures to eliminate or mitigate the effects of force majeure, such as “reasonable” or “best” efforts to ensure performance.

If a contract does not provide advice on how to respond to a performance breach caused by an extreme and unpredictable event like the COVID 19 epidemic, companies can rely only on doctrines of impossibility or frustration of the goal. For example, if circumstances change, so that a party experiences extreme or inadequate difficulties, costs, injuries or losses in fulfilling its contractual obligations, a court may justify bankruptcy on the basis of “impossibility” or “impossibility” if the change in circumstances is unpredictable and COVID-19 can meet this standard. If a party can demonstrate that its primary acquisition objective has been thwarted by an unpredictable event beyond its control, its functions may also be released. In both cases, the event must be unpredictable, so that the parties cannot protect themselves directly from it in the contract.


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