42 Assignment & Transfer

Desired Result:

The goal of this anti-assignment clause is to ensure that neither party can reassign the rights granted under the license to a third party, nor reassign its contractual obligations to another party. The effect of such a clause is to assure that the rights and obligations created by a license agreement are solely between the original listed Licensee and Licensor. Under such a clause, for example, Library A would not be able to independently decide that they want to transfer their license, the right to use all materials and/or the obligation to make payments, to Library B without the Licensor’s consent. Likewise, if the circumstances surrounding rights and obligations change, such as a publisher merging with another company, then a new agreement would need to be signed to signify that both parties agree to continue the contract.

Essentials of the Law:

An “assignment” is a formal transfer of property or rights from one party to another. By default, contract rights are freely assignable to third parties, so a specific clause is required if parties are to be prohibited from doing so.

Desired Language:

“Neither party may assign, directly or indirectly, all or part of its rights or obligations under this Agreement without the prior written consent of the other party, except as otherwise provided in this Agreement. Neither party to this Agreement may unreasonably withhold or delay such written consent.” (CDL Model License)

Alternative language if the preferred language is not accepted:

Option A: “In the event the non-assigning party determines that the assignment is not in its best interest, it may terminate this Agreement with no further liability to the other.”

Option B: “In the event Licensor intends to assign this Agreement, it shall give Licensee notice as soon as it is legally able to do so. In the event the Licensee determines that the intended assignment is not in its best interest, it may terminate this Agreement with no further liability except to pay fees due and owing at the time of termination.”

Option C: “In the event Licensor assigns this Agreement to any entity that is debarred from doing business with any state or federal entity; connected to organized crime; on a government “excluded persons” list; determined by the Licensee to be an irresponsible vendor due to previous uncured breaches of contract or other dishonest or disreputable conduct; associated with sales of illegal drugs, alcohol, tobacco, firearms, gambling, adult entertainment or adult entertainment products; or otherwise engaged in or associated with activities that would be likely to harm the Licensee’s reputation or its contractual or business relationships with other entities, Licensee will terminate this Agreement with no further liability except to pay fees due and owing at the time of termination.”

Tricks and Traps:

It would not be ideal for one party to be able to make unilateral decisions about the contract that could affect the other. For example, if a Licensor were to unilaterally delegate their obligation to provide technical support to another company that has limited service hours, this would greatly impact the Licensee. In practice, providing mutuality is usually the key to negotiating such a clause, as mutual limitation ensures that both parties are able to make informed decisions about the goods and services they’re sending and receiving and/or the organization(s) they’ll be working with.

In the event that Licensor wants to reserve a right to unilateral assignment in the event of merger or acquisition, you should ensure that both obligations and rights are transferred, and that a reasonable notice provision is included. In this case, ideally, the Licensor’s successor will inherit the Agreement’s contractual obligations without requiring that the Licensee go through the work of renegotiating the terms.

You should also ensure that both rights and obligations are collectively and explicitly restricted from assignment in the clause, because a court may reasonably interpret “assign” to mean only beneficial contract rights. “Delegate” is often used to refer to the transfer of obligations, so leaving no room for interpretation is best.

Lastly, the second sentence of the desired language ensures that parties cannot unreasonably withhold consent of assignment. What is considered “unreasonable” could ultimately be up to a court, but clearly this statement guards against either party withholding consent to assign to achieve unfair leverage (General Contract Clauses: Assignment and Delegation, Practical Law Standard Clauses, Thomson Reuters).

Importance and Risk:

Since contract rights are freely assignable, it’s important to have a clause restricting parties’ ability to do so without mutual consent, so that both parties remain fully aware of, and are in agreement about, who is receiving certain rights and who is performing certain obligations during the course of the Agreement. Without this clause, rights and obligations may be assigned in a way that is unfavorable or undesirable to a party.

While this clause primarily protects parties from unforeseen contract changes, it can also oblige the parties to reasonably provide consent in the event of an assignment. There is inherent risk in agreeing to a provision that obliges a party to perform in a way that is not precisely defined, but rather subjective. However, the risk could be considered low for many organizations, assuming that most assignments from one publisher to another will be benign and not adversely affect the quality of service received.