Term; Renewal; Early Termination; Perpetual License

Term

The term of the agreement should be explicitly stated, either as a date certain, or a specified amount of time following the effective date of the contract.

Renewal

Many contracts provide for automatic renewal under the same contract terms and conditions, provided that all parties have the right to terminate by giving notice. This means that doing nothing causes the contract to renew.

Most licensees have many license agreements, each with differing termination dates. Unless licensees develop procedures to track termination dates and automatic renewal provisions, they are likely to end up with unwanted renewals. Generally, licensors can monitor approaching termination dates and give their licensees adequate notice that their contract will be renewed unless the licensor receives written notice otherwise. Modifying a clause to require the licensor to give notice of impending renewal would be preferable to turning the typical clause around to require the licensee to give notice in order to renew the contract. Most database and software users understandably resist this burden.

Early Termination

Termination provisions describe when the parties may stop performing their obligations prior to the end of the contract. Both parties, not just the licensor, should have this right. Most provisions permit termination only for serious breaches of the agreement such as failure to make or keep licensed materials available, failure to pay money owed, breaches of warranty such as the warranty that a product will not infringe another’s copyright, failure to limit access to licensed materials or failure to monitor user compliance with copyright restrictions. The library can avoid the last two breaches by avoiding unrealistic obligations to limit access and monitor use. Additionally, the parties may specify the breaches they consider material. That way, the agreement cannot be terminated for a breach that only one party thought was serious.

Some agreements permit either party to terminate the agreement for any reason, or no reason at all, provided adequate notice is given to the other party. The automatic renewal provisions discussed elsewhere have the same effect: usually either party may terminate by giving timely notice to the other. Although this sounds equitable and convenient, it can lead to surprising results: a licensor could terminate an agreement because of real or imagined copyright violations by the library’s patrons, even though the library may have carefully avoided agreeing to police the use of the licensed materials.

One further protection is to require the party considering early termination to give the other party notice and an opportunity to cure the breach before termination is effective.

Perpetual License

One important issue to consider when negotiating an agreement for access to digital information is what will happen if the licensing agreement expires and one or more of the parties does not wish to renew it. When a library cancels a subscription to a periodical in paper form, it retains the copies it received during the term of the subscription and can continue to provide its users with access to that information. When a library subscribes exclusively to an online periodical, it is only natural to expect that the library should be able to enjoy the same rights with respect to issues that were available during the term of the agreement. A perpetual license clause is designed to do just that: it gives the library and its patrons the right to continue to use digital materials under the same terms and conditions as applied during the life of the licensing agreement. In addition, where access to the materials was under the exclusive control of the licensor–such as, for example, through password access to the licensor’s remote server–the library will want to make sure that the licensor continues to provide it with equivalent access to the materials that were available when the agreement was in effect.

Example Clauses

Term; Renewal; Early Termination; Perpetual License: Example Clauses

Term1. This Agreement shall continue in effect for [length of time] commencing on the Effective Date.

Renewal1. This agreement shall be renewable at the end of the current term for a successive [length of time] term unless either party gives written notice of its intention not to renew [time period]before expiration of the current term. 2. Licensor shall notify Licensee of any changes in the terms of the Agreement at least 30 days prior to the notice period for renewal or termination, i.e., 60 days prior to the expiration of the then current term if the notice period is 30 days or 90 days prior to the expiration of the then current term if the notice period is 60 days.		Commentary: In most contracts providing for automatic renewal, either party may exercise the right to terminate. Notice that Example 2 only gives this right to the Licensor. Do not hesitate to provide a termination right for the Licensee in a contract that does not contain one. There is an easy way to “fix” Example 2 to provide each party with the right to terminate: Substitute the words, “either party” and “other” for the defined terms, “Licensee” and “Licensor,” respectively.Some contracts provide for renewal at a new price. This may pose problems if the licensee has insufficient time to evaluate the new price structure.



Early Termination
1. In the event that either party believes that the other materially has breached any obligations under this Agreement, or if Licensor believes that Licensee has exceeded the scope of the License, such party shall so notify the breaching party in writing. The breaching party shall have [time period] from the receipt of notice to cure the alleged breach and to notify the non-breaching party in writing that cure has been effected. If the breach is not cured within the [time period], the non-breaching party shall have the right to terminate the Agreement without further notice.Upon Termination of this Agreement for cause online access to the Licensed Materials by Licensee and Authorized Users shall be terminated. Authorized copies of Licensed Materials may be retained by Licensee or Authorized Users and used subject to the terms of this Agreement. In the event of early termination permitted by this Agreement, Licensee shall be entitled to a refund of any fees or pro-rata portion thereof paid by Licensee for any remaining period of the Agreement from the date of termination.		Commentary: This is a standard provision for early termination: it allows termination for breach of the contract after notice and the passage of a period of time without cure of the breach. Of importance to licensees, this clause makes clear that the licensee and authorized users may retain copies of the licensed materials they obtained under the agreement, and provides for a refund of any fees paid in advance for the remaining term of the agreement.

2. This Agreement is subject to termination by either party upon at least thirty (30) days notice prior to the end of the then-current contract year.		Commentary: This clause permits any party to terminate the agreement for any reason, or no reason at all, provided adequate notice is given to the other party. This may not be a good idea, as discussed earlier.

3. Licensor may terminate this agreement effective upon [number] days’ notice to the Licensee if the Licensee commits any material breach of this Agreement that remains uncured during such notice period. Examples of material breach include but are not limited to non-payment of any amount when due and failure to prohibit access to the Licensed Service by any person other than a Permitted User.4. The Licensor may terminate this Agreement prior to the expiration of the term in the event of a material breach by the Licensee and/or the Libraries of their obligations under this Agreement if such breach has not been cured within [number] days of written notice from the Licensor specifying the nature of the breach. A breach by one or more Authorized Users or other Library patrons of the restrictions on use of the Materials shall not be deemed to be a breach of this Agreement by the Licensee. However, the Licensor may terminate this Agreement before expiration of the term on [number] days’ prior written notice if, in the Licensor’s reasonable opinion, the cumulative effect of material breaches of the usage restrictions by Authorized Users or other Library patrons justifies such termination.		Commentary: Since many initial drafts of agreements are prepared by licensors, they often grant the licensor more termination rights than the licensee. Termination provisions should be drafted to permit either the licensor or the licensee to terminate the agreement in the event of a material breach by the other party.Example 4 contains an especially troublesome provision that allows the licensor to terminate the agreement if the licensee’s users ignore restrictions that the licensor wishes to impose upon them. Many libraries have little if any control over their patrons. Further, their patrons are not parties to the agreement (they have not signed anything). Nevertheless, this clause says that the licensor can deny the library a license because of patron misbehavior. It is unwise to allow the actions of third parties not under the licensee’s control to determine the library’s access to materials. This is a serious problem that can appear in two places: Licensee obligations: agreeing to unrealistic restrictions or to police patron use Termination clauses: designating as a basis for termination patron failure to abide by licensor’s desired restrictions Licensees should address the problem in both places. First, make sure licensee obligations are realistic. Propose an alternative, such as the following, to any language that requires the licensee to restrict use. For example: “The licensee will take reasonable steps to inform its users of licensor’s restrictions on their use of the Licensed Product.” Second, do not agree to no fault termination or termination forpatron breach.

5. If [Licensor], in its sole discretion, ceases to offer the Licensed Service or a particular Database, then Licensor may terminate this Agreement in its entirety or with respect to a particular Database, as the case may be, at any time effective upon [number] days’ notice to the Licensee. In the event this Agreement or any Database subscription is terminated pursuant to this section, Licensor will refund to the Licensee the subscription fees paid for the number of full months remaining in the subscription period (if any) with respect to the Database(s) so affected.		Commentary: Licensees should be particularly careful about provisions permitting the licensor to terminate all or a portion of its service during the life of the agreement. There is little reason to give the licensor unfettered discretion to change the content of the licensed materials during the term of the agreement. Ordinarily such termination rights should be limited to events beyond the licensor’s control, such as loss of a database supplier.

Perpetual License1. Except for termination for cause, Licensor hereby grants to Licensee a nonexclusive, royalty-free, perpetual license to use any Licensed Materials that were accessible during the term of this Agreement. Such use shall be in accordance with the provisions of this Agreement, which provisions shall survive any termination of this Agreement. The means by which Licensee shall have access to such Licensed Materials shall be in a manner and form substantially equivalent to the means by which access is provided under this Agreement.		This clause permits continued use of the licensed materials after expiration of the agreement’s term under the same conditions as applied when the agreement was in effect. The last sentence is designed to ensure that if access to the materials is under the licensor’s control, users will be granted equivalent access to materials that had been available when the agreement was in effect.

Last updated: April 25, 2012