Legally Speaking
TOTAL LICENSING
Can COVID-19 be a Force Majeure Event By: Gregory J. Battersby
BOOK AVAILABLE! THE BUSINESS OF LICENSING The Essential Guide for Intellectual Properties Licensing has has exploded into a $250+ billion worldwide industry at retail and generates more than $7 billion in royalty income for those property owners who are savvy enough to license their properties for a wide variety of consumer products. About 8 years ago, lawyer Gregory J Battersby and licensing veteran Danny Simon introduced the first Basics of Licensing book. They published a revised version a couple of years later and followed it with a Licensee edition and then finally an International edition. Recognizing that there was a degree of commonality between these editions, Battersby and Simon concluded that it was time for the definitive work on licensing, hence, The Business of Licensing which combines the best of all three prior editions and takes the subject to the next level. This book takes the reader through the nuts and bolts of how to conduct a licensing program and handle many of the problems that it might face There is a substantial amount of reference material. They have included an expanded history of merchandising, and an extensive collection of the forms that any licensing professional may need which they intend to provide to purchasers with electronic access to the forms via Dropbox. The Complete Business of Licensing is available at a cost of $39.95 ($34.95 for LI members). https://www. totallicensingworld.com/site/business_ of_licensing
Gregory J. Battersby Battersby Law Group, LLC 25 Poplar Plains Rd. Westport, CT 06880 (203) 454-9646 gjbattersby@gbiplaw.com www.gbiplaw.com 124
A force majeure clause is a provision that is ordinarily requested by a licensee in a license agreement and is typically agreed to by the property owner/licensor. Such a provision provides that the licensee’s obligations to perform will be relieved if the licensee’s failure to perform results from a contingency beyond its reasonable control. Force majeure provisions are also commonly included in agent or representative agreements. Force majeure clauses can vary in their specificity and coverage. Many types of occurrences qualify as a force majeure event, e.g., everything from government sanctions to weather events such as tornados or hurricanes have been regularly included for decades. The events of September 11, 2001, and its aftermath make it important to include “terrorism” as a triggering event in any such provision and now the COVID 19 pandemic of 2020 has become yet another example of why such a provision could be important. Some companies have tried, albeit unsuccessfully, to include adverse economic conditions such as the Great Recession as a triggering event. Several factors must be considered when drafting such a force majeure clause. First, the parties must decide what constitutes the force majeure event. Second, the impact of the force majeure event must be decided, i.e., whether an event is a permanent excuse for nonperformance or merely a temporary excuse that allows the nonperforming party to be held in default is a key consideration. Third, attention should be paid to substitute performance, also known as cover. The parties should agree beforehand as to whether the licensor can secure substitute performance by a third party in the case of a force majeure event. The recent events have caused lawyers to revise their “boilerplate” force majeure clauses to one similar to the one contained at the end of this article. The real question, however, is whether pre-pandemic clauses will cover such an event. In reviewing such clauses, the following issues should be considered: • Whether COVID 19, a pandemic or similar described event, e.g., public health emergency, is specifically listed as a force majeure event in the contract. Even if they are listed, however, other requirements such as causation may still need to be satisfied.
• If COVID 19 or similar language is not contained in the provision, could it fall under such general wording as “other similar events” or “Acts of God” recognizing that courts generally narrowly interpret such clauses? • Does the clause exclude foreseeable events? Events that may have been reasonably expected may be excluded. • Does causation have to be established, i.e., does the party claiming the benefit of the right need to show a causal link between COVID 19 and that its failure to perform was specifically due to COVID 19. • Whether there is any duty to mitigate, i.e., did the impacted party take reasonable steps, in good faith and with due diligence, to mitigate or avoid the effects of the force majeure event. • Was this type of event specifically excluded by the clause? A sample clause specifying force majeure events follows: “Force majeure” shall mean the occurrence of any of the following events beyond the control of the party claiming delay, which results in the delay of some performance mandated by this License Agreement: including, but not limited to failure of the manufacture and sale of the Licensed Products, failure of facilities due to drought, flood, earthquake, storm, fire, lightning, epidemic, pandemic, war, riot, acts of terrorism, civil disturbance, sabotage, strike or labor difficulty, accident or curtailment of supply or equipment, casualty to equipment or other unavailability or equipment or replacement equipment, inability to obtain and maintain rights-of-way, permits, licenses, and other required authorizations from any local, state or federal agency or person for any of the facilities or equipment necessary to provide or receive service hereunder, and restraint by a court or public authority.” This has particular application to whether the term of the license agreement should be extended as a result of the force majeure event and whether the licensee should be relieved of its obligations to pay a guaranteed minimum royalty if the period extends for a substantial period. Most licensors are reluctant to extend, although equity does dictate that consideration should be given to grant an extension of the term and relief from paying any guarantee in extreme situations.
