Desired Result

This chapter applies only if your agreement has an early termination clause. Not to the termination of the contract due purely to expiration.

An Early Termination clause establishes the permissible grounds for you or the publisher to end the license agreement prior to the agreed-upon expiration date. It also determines each party’s rights and obligations in effecting an early termination. It may also include the survival of rights and obligations post-early termination—though we recommend simply addressing survival of terms holistically following any termination (early or otherwise) in a separate Survival clause.

What it means

What is “termination”?

What does “termination” actually mean? Does it mean one party ending the contract prior to when the contract was set to expire? Or could it also mean the contract expiring “naturally” at the conclusion of the agreed-upon term? ^[1] Depending on how the agreement is drafted, it could mean either or both. Regardless, under the typical rules applicable to sales agreements: Termination of any sort discharges “all obligations which are still executory on both sides [except that] any right based on a prior breach or performance survives.” ^[2] “Executory” here means that the contractual obligations haven’t been “executed” or performed yet. So, the point is that under the U.C.C. and in most jurisdictions, and unless otherwise provided for in the agreement, termination extinguishes remaining obligations of the parties—unless the right or performance obligation arose prior to the termination.

What does that general principle look like in action? Suppose a publisher notifies you that it intends to terminate the license agreement. However, prior to their issuing the notification, one of your Authorized Users violates the agreement’s prohibition on use of artificial intelligence, and you become aware of this. If the agreement obligates you to report this violation to the publisher, then the publisher’s subsequent termination does not excuse the user’s breach or discharge your reporting obligation. This is because both the breach and the reporting obligation arose prior to the issuance of the termination notice.

Effect of Termination

In the context of an electronic license agreement, courts regularly uphold that termination extinguishes your right to use the licensed content, unless you’ve made a special carve-out allowing for ongoing use. ^[3] Moreover, in the absence of a contractual provision otherwise, some jurisdictions find that termination also requires the return of (or destruction of local copies of) the licensed content. ^[4] So, the takeaway is: If you want to preserve Authorized Users’ rights to use materials they have already downloaded, or you want to be able to archive copies of what you licensed for perpetual use, it’s essential to carve out those rights expressly. You can certainly do that within the Early Termination clause if the publisher frames the agreement this way (and doesn’t budge!) but we recommend addressing archival copies separately in Perpetual Rights.

Ongoing retention or usage of materials are likely not the only rights or obligations that you are interested in preserving post-termination. For instance, what if the agreement concludes but you later discover that materials your Authorized Users incorporated into their scholarship are actually infringing, and thus that the publisher breached the warranty of non-infringement it made in the agreement? You would want to still be able to pursue remedies set forth in the agreement, along with the right to enforce the governing law and venue clauses for any claims you file. If those clauses do not “survive” the termination of the agreement, you could be out of luck obtaining suitable redress. Like ongoing usage or access rights, survival can be handled through the Early Termination provisions, but we recommend addressing Survival more comprehensively in a separate clause.

Grounds for Termination

The Early Termination in your license agreement may set forth several grounds upon which early termination is permitted.

In most cases, publishers will require that early termination be based on “cause”^[5] —such as one party’s breach in performance obligations. If early termination is allowed for breach, in our view, it’s better to limit early termination rights to material breaches in one party’s performance. You wouldn’t want the publisher to be able cancel your agreement for something inconsequential, like if you made an inadvertent interlibrary loan when none was permitted.

Another type of “cause” you may include as permissible grounds for early termination is financial hardship. This proviso typically would not be enforceable against a debtor in bankruptcy, but shy of bankruptcy this can be an important “out” for your library in the face of budget volatility. Say, for instance, your institution suddenly suffered a multi-million dollar budget shortfall, causing the cancellation of millions in electronic resources (read: this happened to us!) You may want or need to terminate various e-resource license agreements based on these significant financial events.

Finally, you may want to include force majeure as an additional cause for termination. Typically you’ll have a Force Majeure clause that provides for early termination, but if the force majeure clause in your agreement isn’t broad enough to encapsulate events of longer duration, you can build the concept into your Early Termination provision through language like, “Early Termination is permitted by either party upon the occurrence of a Force Majeure Event that lasts longer than [NUMBER] days,” and then defining qualifying events.

Desired language

From California Digital Library’s model license:

EARLY TERMINATION:

Early Termination for Financial Hardship.  The Licensee may terminate this Agreement without penalty if sufficient content acquisitions funds are not allocated to enable the Licensee, in the exercise of its reasonable administrative discretion, to continue this Agreement. In the event of such financial circumstances, Licensee will notify Licensor of the intent to terminate the Agreement as soon as is reasonably possible, but in any case, no less than 30 days prior to next payment date, and  this transaction shall terminate on the last day of the subscription period for which payment has been made without penalty of expense to the Licensee of any kind whatsoever, except as to the portions of payments herein agreed for which funds shall have been appropriated and budgeted or otherwise available. In the event of such termination the Licensee shall maintain its perpetual right to materials licensed under the subscription periods for which it has fully paid, subject to Section __.

Termination for Breach.  If either party believes that the other has materially breached any obligations under this Agreement, such party shall so notify the breaching party in writing. The breaching party shall have sixty (60) days from the receipt of notice to use all reasonable means to cure the alleged breach and to notify the non-breaching party in writing that cure has been effected. If the breach is not cured within the sixty (60) day period, the non-breaching party shall have the right to terminate the Agreement without further notice. Once this Agreement ends, by early termination or otherwise, the Licensor may terminate access to the Licensed Materials by Licensee and Authorized users, subject to Section XII, below. In addition, authorized copies of Licensed Materials made by Authorized Users may be retained for educational purposes and used subject to the terms of this Agreement.

Refunds.  In the event of early termination permitted by this Agreement, except for termination for a material breach by the Licensee, Licensee shall be entitled to a refund of any fees or pro-rata portion thereof paid by Licensee for any remaining period of the Agreement from the date of termination.

Tricks and traps:

Opportunity to cure

It’s important to try to build in an opportunity for you as licensee to “cure” any alleged breach (or material breach) prior to the publisher’s right to trigger early termination. We discuss Efforts to Cure in a separate clause and chapter, but typically what you’ll ask for is an opportunity to cure the alleged breach within a specified time period like 30 days after the publisher notifies you or you learn of the breach. After that point, if you have not cured, the publisher can move forward with early termination. If you don’t build in an opportunity to cure, then the publisher could terminate a license for, say, excessive downloads by an Authorized User when you could easily have squelched the activity by cutting off that user’s access.

Refunds

The more likely scenario is that a publisher argues the library or its Authorized Users have breached the agreement as grounds for early termination. Nevertheless, you want to make sure your library is properly compensated in the (albeit uncommon) event that the publisher terminates the agreement. To that end, it’s best to be explicit that in the event the publisher terminates for any reason (other than your breach), the publisher must refund any fees already paid by the library on a pro-rata basis relative to the remaining period of the agreement.

“Termination” vs. “Cancellation”

Finally (and fair warning: you may want a cold compress over your eyes for this next one): A publisher’s draft agreement may waver between the use of “termination” and “cancellation.” It’s worth at least keeping an eye open for this nuance.

Mirroring the distinctions in terminology used in the U.C.C., some publishers use “termination” to refer to the end of an agreement expiring “naturally” or termination for reasons other than breach; and then use “cancellation” to describe ending a contract early due to breach. ^[6] As we’ve said elsewhere, it’s least ambiguous to just use “termination” throughout—and then distinguish instances in which early termination is permitted.

Destruction of Content

Be careful about provisions that require destruction of materials at the termination of the agreement. As a practical matter, it would be impossible to ensure that Authorized Users have actually deleted or destroyed copies. If a publisher or vendor requires destruction, it’s advisable to qualify it with language like:

• Least restrictive: “Authorized copies of Licensed Materials made by Authorized Users may be retained for research and educational purposes and used subject to the terms of this Agreement.”
• More restrictive: “It is mutually understood that Licensed Content provided under this clause may be retained by Authorized Users throughout the lifecycle of their research projects and as necessary for replication and validation of research results. Licensed Content retained under this clause shall remain subject to the terms of this Agreement.”
• Most restrictive: “University/Licensee shall use reasonable efforts to notify Authorized Users that Materials shall be destroyed at the termination of this Agreement.”

This way you can undertake whatever notification and discovery efforts you already use to advise Authorized Users of the terms of your agreements, without taking on liability for ensuring that they comply—when you have no authority to be able to control them.

Importance and risk

It’s likely evident that Early Termination rights and obligations are critical to your license agreement. Many of the most important concerns upon early termination (i.e. opportunity to cure, survival, ongoing access) can be addressed in the early termination clause, though we recommend addressing them in separate holistic clauses. For instance, if you can, have a separate provision on “survival” so that what governs survival isn’t addressed piecemeal across multiple clauses—i.e. so that you’re not addressing some aspects of survival in Early Termination and others after “natural” termination.