1. What is the Suspension of a Licensing Agreement?
The suspension of a licensing agreement refers to the temporary cessation by one or both parties of their agreed rights and obligations under a contract for the transfer of industrial property rights (licensing) for a specified period, based on mutual agreement or as prescribed by law.
The reasons for suspending the execution of a licensing agreement can include mutual agreement between the parties or arise in the following circumstances:
- Breach of obligations by one party: Although the current Intellectual Property Law does not specifically regulate this matter, reference can be made to Article 308 of the 2005 Commercial Law. A party has the right to suspend the contract’s execution when there is a breach that the parties have agreed upon as grounds for suspension or if there is a fundamental breach of the contract obligations by one party.
- Force majeure events: According to Article 156 of the 2015 Civil Code, a force majeure event is an objective occurrence that is unforeseeable and cannot be remedied even after all necessary measures have been taken. When such an event prevents one party from continuing to fulfill its obligations under the licensing agreement (e.g., natural disasters, pandemics, wars), suspension of the agreement may be applied to minimize damages for both parties.
During the suspension period, the agreement remains legally valid, but the rights and obligations of the parties are temporarily not performed. Once the suspension period ends or the reason for suspension ceases to exist, the parties shall continue to execute the agreement as originally stipulated.
2. Differences Between Suspension and Termination of Licensing Agreements
The suspension and termination of a licensing agreement are two distinct legal mechanisms that differ in nature, timing, and legal consequences.
- Legal Nature:
Suspension refers to the temporary halt of the parties’ rights and obligations for a specific period. If the contract is established within a commercial context, Article 308 of the 2005 Commercial Law on the suspension of contract execution may apply, meaning the contract remains in effect.
In contrast, termination completely ends the validity of the agreement, rendering the parties’ rights and obligations non-existent from the termination date, as regulated under Article 422 of the 2015 Civil Code. - Contract Validity:
When a licensing agreement is suspended, it remains valid and can resume once the reason for suspension is resolved. Conversely, when the agreement is terminated, it no longer has legal effect, and the parties are not obligated to fulfill any future obligations. - Legal Consequences:
In the case of suspension, obligations are merely temporarily halted, and the parties resume the execution of the agreement once the suspension ends.
On the other hand, when a licensing agreement is terminated under the circumstances outlined in Article 422 of the 2015 Civil Code, the parties must cease all use of the industrial property subject to the agreement and fulfill any outstanding obligations, such as final payments or compensation for damages (if applicable).
3. Is a Written Agreement Necessary for Suspension of a Licensing Agreement?
Although current law does not mandate a written agreement for the suspension of licensing agreements, it is highly advisable to formalize the suspension in writing.
- Legal Basis for Written Format:
According to Clause 2, Article 141 of the 2005 Intellectual Property Law (amended in 2009, 2019, 2022, and 2025 – hereinafter referred to as the “2005 Amended Intellectual Property Law”), licensing agreements must be established in writing. Therefore, when the parties agree to suspend the execution of a licensing agreement, this should be documented in writing to ensure clarity and legal validity.
Additionally, Clause 2, Article 117 of the 2015 Civil Code stipulates that if the law requires a transaction to be in writing, the parties must comply with this format. Since licensing agreements are subject to mandatory written form requirements, any changes or adjustments to the execution of the agreement (such as suspension) should also be documented in writing. - Practical Implementation:
In practice, the suspension of a licensing agreement is often formalized as an annex to the contract (as per Clause 1, Article 403 of the 2015 Civil Code, an annex to a contract has the same legal effect as the contract itself) or as a separate written agreement. This serves as a basis for implementation and helps minimize disputes.
In conclusion, the suspension of a licensing agreement is a temporary measure that allows the parties to pause the execution of their contractual obligations under specific circumstances while ensuring that the contract remains valid. It is distinct from termination, which completely ends the legal relationship between the parties. To safeguard legal clarity and minimize potential disputes, suspensions should be formalized in writing, even though it is not explicitly required by law. Proper documentation ensures that the suspension is legally enforceable and provides a clear framework for the resumption of contract execution after the suspension period ends.
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