Analysis of legal regulations and handling approaches to notice of termination of a license agreement

In industrial property licensing activities, a notice of termination of a license agreement is an important step to clearly establish the point in time at which the parties’ rights and obligations come to an end. However, if such notice is not implemented on proper legal grounds or fails to satisfy statutory requirements regarding form and content, it may lead to disputes and liability for damages. The article below provides a comprehensive analysis of the relevant legal framework to help enterprises understand the legal value of and proper procedures for issuing a notice of termination of a license agreement in a legally secure manner.

I. Current practice relating to notices of termination of license agreements

In business practice, notices of termination of license agreements have become increasingly common, particularly in circumstances where enterprises restructure operations, adjust brand strategies, or encounter disputes concerning payment obligations, product quality, and the permitted scope of use of licensed rights. In many cases, termination results from cooperation failing to achieve the commercial objectives originally expected.

In addition, many license agreements do not specifically regulate procedures, formalities, and methods for delivering termination notices (for example, requiring written notice, dispatch by registered mail, or email with acknowledgement of receipt). When disputes arise, failure to prove the timing and content of the notice often places the terminating party in a disadvantaged evidentiary position.

II. Concept of a notice of termination of a license agreement

1. What is a notice of termination of a license agreement?

A notice of termination of a license agreement is a legal act performed by one party to a license agreement to formally inform the other party that the agreement will cease to have effect from a specified date based on contractual agreement or legal grounds. Such a notice does not itself constitute the termination of the agreement; rather, it is the expression of intent that triggers legal consequences of termination in accordance with applicable regulations.

Article 422 of the Civil Code 2015 provides that a contract terminates in circumstances such as expiration of its term, completion of obligations, agreement between the parties, or unilateral termination as prescribed by law. For unilateral termination, Clause 2, Article 428 of the Civil Code 2015 requires the terminating party to promptly notify the other party of the termination.

2. Does a notice of termination of a license agreement constitute unilateral termination of the agreement?

A notice of termination of a license agreement does not automatically constitute unilateral termination; rather, it depends on the legal grounds and nature of the termination in each specific case. 

Pursuant to Article 422 of the Civil Code 2015, contracts may terminate for various reasons including expiration, completion of obligations, agreement between the parties, or unilateral termination under the law. If the parties have mutually agreed to terminate the agreement, the notice merely confirms or implements an agreed contractual provision and does not constitute unilateral termination.

Conversely, if one party independently decides to terminate the agreement as the other party has materially breached obligations or if termination is permitted by law, it constitutes unilateral termination under Clause 1, Article 428 of the Civil Code 2015. In such circumstances, notification to the other party under Clause 2 of the same Article is mandatory; failure to notify causing damage leads to compensation liability.

3. What is the legal significance of a notice of termination of a license agreement?

• Determining the effective date of termination: According to Article 422 of the Civil Code 2015, a contract terminates in legally prescribed circumstances or according to agreement. In cases of unilateral termination, Clause 2, Article 428 requires notification to the other party.
• Limiting and allocating legal liability: If one party terminates without notice or gives improper notice causing damage, compensation may arise under Clause 1, Article 428 and Article 360 of the Civil Code 2015. Accordingly, proper and timely notification serves to protect the terminating party and reduce exposure to civil liability.
• Termination of rights to use industrial property objects: Within licensing relationships, the notice also signifies termination of the right to use the licensed industrial property within the contractual scope. License agreements may prescribe termination conditions; once the notice becomes effective, the licensee no longer has legal grounds to continue exploiting the trademark or other protected subject matter. It is particularly important to prevent unauthorized use after termination.

III. Legal regulations relating to notices of termination of license agreements

1. In which circumstances may a notice of termination of a license agreement be issued?

• Unilateral termination due to breach of obligations: Pursuant to Clause 1, Article 428 of the Civil Code 2015, a party may unilaterally terminate performance if the other party materially breaches obligations or where otherwise permitted by law. Notification under Clause 2 is mandatory; failure to notify resulting in loss leads to compensation. In license agreements, examples include non-payment of royalties, failure to maintain product quality, or use beyond the permitted scope.
• Termination by agreement: Pursuant to Article 422 of the Civil Code 2015, contracts terminate by mutual agreement. If the agreement specifies conditions and procedures for termination (for example, 30 days’ prior notice), sending notice becomes mandatory.
• Expiration of contractual terms with confirmation procedures: Under Article 422 of the Civil Code 2015, contracts terminate upon expiration. However, many license agreements require notice before expiry to confirm non-renewal. In such cases, notice establishes the exact point at which trademark use rights end.
• Expiry of industrial property protection: Pursuant to Clause 1, Article 95 of the Law on Intellectual Property 2005, as amended by Clause 30, Article 1 of the amended Law 2022, protection titles may be terminated or invalidated. Once industrial property rights cease to exist, the legal basis of the license agreement is affected, and parties may issue termination notices to clarify legal status and avoid unauthorized use.

2. What essential contents should be included in a notice of termination of a license agreement?

• Contract identification information: Full details of the parties, legal status, agreement number, execution date, licensed subject matter, and scope.
• Grounds for termination: Clear reference to contractual provisions, expiration, or unilateral termination under Article 422 and Clause 2, Article 428 of the Civil Code 2015.
• Effective date of termination: The notice should specify when the agreement will terminate so the receiving party may respond if necessary.
• Post-termination arrangements: Including settlement of outstanding payments, cessation of use of trademarks, patents, or other industrial property objects, return of documents, and destruction of infringing products if applicable.

3. In which circumstances is prior notice not required when terminating a license agreement?

• Expiration of contractual term: If the agreement specifies a fixed term without automatic renewal, termination occurs automatically upon expiry under Point a, Clause 1, Article 422 of the Civil Code 2015, unless otherwise agreed.
• Invalidity of the agreement: If the agreement is declared invalid by the Court under Article 122 of the Civil Code 2015 (for example, due to illegality, sham transaction, or lack of licensing authority), the agreement is treated as having never taken effect and termination notice is unnecessary. 
• Termination of industrial property protection: If the protection title expires or is invalidated under Clause 1, Article 95 of the amended Law on Intellectual Property, the industrial property right ceases to exist and notification is not a condition for legal effectiveness.
• Termination upon occurrence of agreed events: If the agreement provides for automatic termination upon specified events (such as dissolution, bankruptcy, or transfer of ownership without approval for continued licensing), no prior notice may be required.

IV. Questions relating to notices of termination of license agreements

1. Does sending a notice of termination of a license agreement via email have legal validity?

Sending a notice of termination of a license agreement via email may fully possess legal validity. The obligation to issue a notice of termination is mandatory if the parties have agreed to such a requirement in the contract or in cases of unilateral termination under Clause 2, Article 428 of the Civil Code 2015.

Clause 2, Article 428 of the Civil Code 2015 does not prescribe any mandatory form for a notice of termination. Thus, notification by email may have full legal effect unless the parties expressly agree in the contract that notices of termination must not be delivered via email.

2. Can a notice of termination of a license agreement be withdrawn or revoked after it has been sent?

Pursuant to the principle under Clause 1, Article 381 of the Civil Code 2015, an offer to enter into a contract may be withdrawn if the notice of withdrawal reaches the other party before or simultaneously with the original offer. Applying such a principle under Clause 1, Article 6 of the Civil Code 2015, if the notice of termination has not yet reached or been received by the other party, the sending party may withdraw it.

However, if the receiving party has already received the notice and the termination has become effective under Clause 2, Article 428 of the Civil Code 2015, revocation may only occur upon mutual agreement of both parties.

3. Must a notice of termination of a license agreement be made in writing?

Current legislation does not require notices of termination of license agreements to be made in writing in all circumstances. However, from both a legal and practical perspective, written form is advisable and should be prioritized.

Clause 2, Article 428 of the Civil Code 2015 requires the party unilaterally terminating performance of the contract to notify the other party but does not impose a mandatory form for such notice. In addition, Article 119 of the Civil Code 2015 provides that the form of civil transactions shall be determined by agreement of the parties unless otherwise prescribed by law.

Accordingly, in principle, notification may be made orally, in writing, or through electronic means if the agreement does not require a specific form. 

4. If termination of a license agreement is caused by force majeure, is prior notice still required?

Pursuant to Clause 1, Article 156 of the Civil Code 2015, force majeure is an objective event that is unforeseeable and cannot be remedied despite all necessary measures being taken. Clause 2, Article 351 of the same Code provides that a party in breach shall not take civil liability if the breach results from force majeure. 

However, this provision only serves as grounds for exemption from liability for damages and does not automatically terminate the contract. A contract terminates only in circumstances specified under Article 422 of the Civil Code 2015, including if the contractual purpose can no longer be achieved. If force majeure renders performance of a license agreement impossible, it may be regarded as frustration of contractual purpose and may constitute grounds for termination. If one party relies on force majeure to unilaterally terminate the agreement, Clause 2, Article 428 of the Civil Code still requires notice to be given to the other party.

5. From what point in time does a notice of termination of a license agreement become effective?

The effectiveness of termination depends on the legal basis for termination and the agreement between the parties. Pursuant to Clause 3, Article 428 of the Civil Code 2015, in cases of unilateral termination, the contract terminates from the time the other party receives the notice.

If the parties agree on a different effective date (for example, 30 days after dispatch), such agreement shall prevail under the principle of freedom of agreement under Article 3 of the Civil Code 2015.

V. Why should you seek legal advice from NPLaw for issues relating to notices of termination of license agreements?

When issues arise concerning notices of termination of license agreements, consulting legal counsel helps determine the correct legal basis, termination conditions, and notification obligations under the Civil Code 2015 and intellectual property laws.

NPLaw has experience handling contractual disputes and intellectual property matters and can assist in drafting legally robust termination notices while minimizing litigation risks. Legal counsel also assists in assessing exposure to damages, contractual sanctions, and strategies for protecting legal interests. As a result, enterprises can proactively manage legal risks and avoid unfavorable consequences in the future.

The information above is for reference purposes only. Should you require advice tailored to a specific case, please contact NPLaw Firm for immediate consultation.