During the exploitation of industrial property rights, the suspension of the performance of a license agreement may arise when one party has difficulties in continuing to perform its contractual obligations or when circumstances affecting the exploitation of the licensed rights occur. However, if such suspension is implemented without complying with applicable laws or without a clear contractual basis, the parties may face disputes and legal liabilities. The following article analyzes the concept, legal basis, and main legal issues relating to the suspension of the performance of a license agreement under the current laws.

I. Current practice concerning the suspension of the performance of a license agreement

In practice, the suspension of the performance of a license agreement frequently occurs when one party breaches its obligation to pay licensing fees, uses the industrial property subject matter beyond the authorized scope, or when an enterprise changes its business strategy. In such circumstances, the other party may elect to suspend the performance of the agreement in order to minimize risks and require the defaulting party to remedy its breach.

However, many license agreements in practice do not clearly stipulate the conditions, procedures, and legal consequences of suspending contractual performance. As a result, one party may unilaterally suspend the performance of the agreement without a clear legal basis, thereby leading to disputes concerning the right to use the industrial property subject matter, payment obligations, or liability for damages.

II. Concept of the suspension of the performance of a license agreement

1. What is the suspension of the performance of a license agreement?

The suspension of the performance of a license agreement refers to the temporary cessation by one or both parties of the exercise of their contractual rights and the performance of their contractual obligations under an agreement for the licensing of an industrial property subject matter for a specified period, either pursuant to the parties' agreement or as prescribed by law.

In addition to the parties' mutual agreement, the suspension of contractual performance may arise in the following circumstances:

  • A party breaches its contractual obligations: Although the current Law on Intellectual Property does not contain specific provisions governing such an issue, reference may be made to Article 308 of the Law on Commerce 2005. Accordingly, a party is entitled to suspend the performance of a contract if a breach occurs which the parties have agreed shall constitute a condition for suspension, or if the other party commits a fundamental breach of its contractual obligations.
  • Occurrence of force majeure: According to Article 156 of the Civil Code 2015, force majeure is an event that occurs objectively, is unforeseeable, and cannot be remedied despite the application of all necessary and permissible measures. If such an event renders a party unable to continue performing its obligations under a license agreement (for example, natural disasters, epidemics, or war), the suspension of contractual performance may be applied in order to mitigate losses suffered by the parties.
  • The parties have agreed upon suspension in the agreement: According to Clause 1, Article 141 of the Law on Intellectual Property 2005, as amended and supplemented, a license agreement is established and performed on the basis of the parties' mutual agreement. Accordingly, the parties may agree in advance on the circumstances under which either party may suspend the performance of the agreement and the applicable conditions.

2. How does the suspension of the performance of a license agreement differ from the termination of a license agreement?

The suspension of the performance of a license agreement and the termination of a license agreement are two distinct legal mechanisms that differ in legal nature, timing, and legal consequences.

  • Legal nature: Suspension of performance refers to the temporary cessation of the parties' contractual rights and obligations for a specified period. If the agreement is entered into in the course of commercial activities, Article 308 of the Law on Commerce 2005 governing the suspension of contractual performance may serve as the legal basis, while the agreement itself remains legally effective. In contrast, termination of a contract completely extinguishes the legal validity of the agreement, resulting in the cessation of the parties' rights and obligations from the time of termination in accordance with the circumstances prescribed in Article 422 of the Civil Code 2015.
  • Validity of the agreement: If a license agreement is suspended, the agreement continues to exist and may be resumed once the grounds for suspension cease to exist. Conversely, once a license agreement is terminated, it no longer has legal effect, and the parties are discharged from performing future contractual obligations.
  • Legal consequences: In the case of suspension, the parties' obligations are merely suspended temporarily, and upon the end of the suspension period, the parties continue performing the agreement in accordance with its terms. By contrast, if a license agreement is terminated under Article 422 of the Civil Code 2015, the parties must completely cease using the licensed industrial property subject matter and fulfill any outstanding obligations, including payment of remaining amounts due and compensation for damages (if any).

3. Must the suspension of the performance of a license agreement be made in writing?

Although the current laws do not specifically require the suspension of the performance of a license agreement to be made in writing, such suspension should be documented in writing.

First, according to Clause 2, Article 141 of the Law on Intellectual Property 2005, as amended and supplemented in 2009, 2019, 2022, and 2025 (hereinafter referred to as the "Law on Intellectual Property 2005, as amended"), an agreement for the use of an industrial property subject matter, namely a license agreement, must be executed in writing.

Furthermore, based on Clause 2, Article 117 of the Civil Code 2015, if the law requires a civil transaction to be established in writing, the parties must comply with such formal requirement. Since a license agreement is legally required to be made in writing, any modification to the manner in which the agreement is performed, including its suspension, should likewise be evidenced in writing.

Accordingly, in practice, the suspension of the performance of a license agreement is commonly documented either in the form of a contract appendix (Clause 1, Article 403 of the Civil Code 2015 provides that a contract appendix has the same legal effect as the contract itself) or through a separate written agreement, thereby providing a legal basis for implementation and minimizing potential disputes.

III. Legal provisions governing the suspension of the performance of a license agreement

1. How is the effective date of the suspension of the performance of a license agreement determined?

The effective date of the suspension of the performance of a license agreement may be determined either by the parties' agreement or by the legal provisions governing the suspension of contractual performance.

  • If the license agreement or a separate agreement between the parties expressly specifies the effective date of the suspension, the suspension shall take effect on the date agreed upon by the parties. Such a principle is derived from the parties' contractual freedom under Clause 1, Article 398 of the Civil Code 2015.
  • If the agreement does not specify the effective date, the suspension of contractual performance generally becomes effective from the time the party entitled to suspend the agreement gives notice of such suspension to the other party. According to Article 315 of the Law on Commerce 2005, the suspending party must promptly notify the other party of the suspension; otherwise, if the failure to provide notice causes damage, the suspending party shall be liable for compensation.

2. How should a party's abuse of the right to suspend the performance of a license agreement be handled?

In case a party abuses its right to suspend the performance of a license agreement, the matter shall be handled in accordance with the legal provisions governing contractual breaches and civil liability.

  • If the suspension is conducted without contractual or statutory grounds, such conduct may constitute a breach of contractual obligations. According to Article 351 of the Civil Code 2015, the breaching party shall take civil liability towards the aggrieved party, including liability for compensation for damages where losses have been incurred.
  • Furthermore, the aggrieved party may terminate the agreement if the abuse of the right to suspend the performance of the license agreement constitutes a contractual ground for termination agreed upon by the parties, or if such conduct amounts to a serious breach of contractual obligations under Clauses 1 and 2, Article 423 of the Civil Code 2015.
  • In addition, based on Article 315 of the Law on Commerce 2005, a party suspending contractual performance must promptly notify the other party. Failure to provide such notice, or suspending the agreement without lawful grounds and thereby causing damage, shall lead to liability for compensation.

3. Legal consequences of unlawfully suspending the performance of a license agreement

If the suspension of the performance of a license agreement is conducted in violation of the law, the suspending party may be subject to the following legal consequences:

  • Obligation to continue performing the agreement: If the suspension lacks lawful grounds, the affected party is entitled to require the breaching party to continue properly performing its contractual obligations in accordance with Clause 1, Article 297 of the Law on Commerce 2005 concerning compulsory performance of contracts.
  • Liability for damages: If the unlawful suspension causes damage to the other party, the breaching party must compensate for all actual and direct losses in accordance with Article 302 of the Law on Commerce 2005 and Clause 1, Article 351 of the Civil Code 2015 governing liability arising from the breach of obligations.
  • Application of other commercial remedies: Depending on the severity of the breach and the parties' contractual agreement, the breaching party may also be subject to other commercial remedies, including contractual sanctions, suspension, cessation, or termination of the contract under Article 292 of the Law on Commerce 2005.

IV. Questions regarding the suspension of the performance of a license agreement

1. May the parties agree on contractual sanctions in the case of the suspension of the performance of a license agreement?

Pursuant to Article 3 and Article 398 of the Civil Code 2015, the parties are free to agree upon the contents of their contract. Accordingly, the parties may agree to impose contractual sanctions if one party's breach of contractual obligations results in the other party having to suspend the performance of the license agreement.

If the license agreement arises from commercial activities, the contractual sanction must not exceed 8% of the value of the contractual obligation that has been breached, as prescribed in Article 301 of the Law on Commerce 2005. Such a limitation is intended to ensure an appropriate deterrent effect while maintaining a fair balance between the parties' rights and interests.

2. Does the suspension of the performance of a license agreement affect its enforceability against third parties?

By its legal nature, the suspension of the performance of a license agreement does not terminate the validity of the agreement but merely interrupts the performance of contractual obligations for a specified period. Thus, the legal relationship between the parties continues to exist throughout the suspension period.

According to Clause 2, Article 148 of the Law on Intellectual Property 2005, as amended and supplemented, certain agreements on the licensing of industrial property subject matter are enforceable against third parties only upon registration with the competent state authority responsible for industrial property rights. The suspension of the performance of a license agreement merely results in a temporary interruption of the parties' rights and obligations and does not alter the legal contents of the agreement or invalidate its registration. Accordingly, the agreement remains recorded in the registration system and continues to have legal effect against third parties.

Thus, the enforceability of a license agreement against third parties is, in principle, maintained unless the agreement is amended, terminated, or cancelled in accordance with the applicable laws.

3. How are disputes relating to the suspension of the performance of a license agreement resolved?

Disputes arising from the suspension of the performance of a license agreement may first be resolved through negotiation or mediation on the basis of the principle of freedom of contract. If the parties fail to reach an amicable settlement, the dispute resolution mechanism shall be determined in accordance with the dispute resolution clause agreed upon in the agreement.

If the agreement is entered into for profit-making purposes, the dispute constitutes a commercial business dispute falling within the jurisdiction of the People's Court under Article 30 of the Civil Procedure Code 2015, as amended and supplemented in 2025. Alternatively, the dispute may be resolved by commercial arbitration if the agreement contains a valid arbitration clause in accordance with Clause 1, Article 5 of the Law on Commercial Arbitration 2010.

4. Is it permissible to simultaneously suspend the performance of a license agreement and claim contractual sanctions?

In many cases, if one party breaches its contractual obligations, resulting in the other party having to suspend the performance of the license agreement, the non-breaching party is entitled to apply legal remedies to protect its legitimate rights and interests. The suspension of contractual performance is generally intended to mitigate losses and provide the breaching party with an opportunity to remedy its breach.

Pursuant to Article 292 of the Law on Commerce 2005, commercial remedies include contractual sanctions, compensation for damages, suspension of contractual performance, cessation of contractual performance, and cancellation of the contract. The law permits these remedies to be applied independently or concurrently, provided that the applicable legal conditions are satisfied.

5. May the parties agree to expand or restrict the right to suspend the performance of a license agreement?

The parties may agree to expand or restrict the right to suspend the performance of a license agreement, provided that such agreement does not violate any mandatory provisions of law or contravene social ethics.

Pursuant to Clause 2, Article 3 of the Civil Code 2015, one of the fundamental principles of civil law is the freedom and voluntariness of commitments and agreements. Based on such a principle, the parties to a license agreement are entitled to agree on the conditions governing the exercise of the right to suspend contractual performance, including specifying the circumstances in which suspension is permitted, the duration of the suspension, prior notice requirements, or remedial measures to be undertaken before suspension is exercised.

However, such agreement must satisfy the validity requirements applicable to civil transactions under Clause 1, Article 117 of the Civil Code 2015, meaning that its contents must neither violate mandatory provisions of law nor contravene social ethics. Furthermore, the contents of a license agreement must comply with Clause 2, Article 144 of the Law on Intellectual Property 2005, as amended and supplemented, which prohibits the inclusion of unreasonable restrictive provisions imposed upon the licensee.

V. Why should you seek legal advice from NPLaw regarding the suspension of the performance of a license agreement?

When issues arise concerning the suspension of the performance of a license agreement, obtaining legal advice from experienced lawyers is essential for identifying the correct legal grounds and minimizing the risk of disputes. Legal counsel can assist in reviewing the agreement, advising on appropriate legal solutions, and safeguarding the legitimate rights and interests of the parties. At NPLaw, our team of experienced lawyers specializing in intellectual property and commercial contracts is ready to assist businesses in resolving such matters promptly and in full compliance with applicable laws.

The above information is provided for general reference purposes only. Should you require legal advice regarding your specific circumstances, please contact NPLaw Firm for prompt professional assistance.