On January 15, 2014, the U.S. District Court for the Northern District of California decided in Powertech Tech. v. Tessera, Inc. that Powertech was not permitted to terminate a license agreement with Tessera for Tessera’s breach because Powertech itself was in breach of the agreement by its failure to pay royalties to Tessera. In reaching this decision, the court pointed to the license agreement’s termination for breach provision:
“Either party may terminate this Agreement due to the other party’s breach of this Agreement…however, the non-breaching party may terminate this Agreement if such breach is not cured or sufficiently mitigated (to the non-breaching party’s satisfaction) within sixty (60) days of notice thereof” (emphasis added).
Since Powertech had failed to pay royalties, the court decided that Powertech is not a “non-breaching party” and therefore had no right to terminate for Tessera’s breach.
Agreement drafters should keep this decision in mind when writing a termination for breach provision in any type of agreement, as the reasoning does not appear to be limited to license agreements.
Following is a link to the Powertech Tech. v. Tessera, Inc. decision (click here)