When a licensee stops paying and keeps selling: what it costs to be wrong
When a licensee stops paying royalties yet keeps selling under the licence, the cost of waiting falls on you, not on them. Continued sales without objection can be read as acceptance of the new terms. The licensor who delays termination risks losing both the unpaid royalties and the strongest ground for an injunction.
This usually surfaces in one of two ways. The licensee treats a dispute over quality, exclusivity, or scope as its own licence to stop paying while it keeps shipping, or a distributor several tiers down the chain never learns that the head licence has already lapsed. Either way, the licensor who reacts on file, in writing, and before the correct forum keeps more options than the licensor who calls first and documents later.
Basis
The forum depends on the patent's legal form. If the licensed right is a Unitary Patent granted under Regulation (EU) No 1257/2012, disputes over its use sit with the Unified Patent Court under the Agreement on a Unified Patent Court. The translation regime for that patent follows Council Regulation (EU) No 1260/2012, which matters whenever the licence and the granted claims are not drafted in the same language.
A classic European patent that has not been opted out of the new system falls under the same Agreement on a Unified Patent Court for infringement and revocation actions. Where continued sales cross the external border of the EU customs territory, an application under Regulation (EU) No 608/2013 can have the goods detained while the licence dispute is resolved. This mechanism does not require a judgment first; it is filed with customs directly, and it works against the goods, not against the licensee's right to argue the underlying case later. Contract remedies for the non-payment itself sit outside these instruments and are governed by the law and forum chosen in the licence.
Practical consequence
Three clocks start the moment payment stops. The limitation period on the unpaid royalties begins running from each missed instalment, not from the date you notice. The window for terminating without the delay being read as a waiver narrows with every invoice you do not chase. If the goods move across an EU external border, the deadline to lodge a customs application before the next shipment clears is measured in days.
Accepting even a partial payment after the breach, without a written reservation of rights, can be read as continuing to affirm the licence — the opposite of what a licensor chasing termination wants on the record. Sales figures that only the licensee holds are also harder to prove later than sales figures logged now, from your own invoices, customs filings, or the platform through which royalties were meant to flow.
What to do
- Freeze the file: your finance team logs every missed instalment with dates and invoice numbers, before any conversation with the licensee, and before accepting any further payment.
- Check the patent's status: your patent counsel confirms whether the right is a Unitary Patent, a classic European patent, or a national grant, since this decides the forum and the applicable deadlines.
- Send a formal notice: your counsel issues a notice of breach under the licence's own termination clause, in writing, rather than an informal reminder that can later be read as tolerance.
- If goods cross an EU external border, file a customs application without waiting for the litigation to start; the two tracks run in parallel, not in sequence.
- Decide on interim relief: ask counsel whether an application for a provisional injunction is available before the main claim is filed, and what evidence it needs.
- File the claim: bring the royalty claim and the infringement claim together, before the forum identified in step two, rather than splitting them across two proceedings.
If the sales data you rely on includes personal information about resellers or end customers, check what the Data processing agreement and what to prepare covers before that data is passed to counsel or to customs.
Who decides
| Situation | Decision maker | What is already running |
|---|---|---|
| Unitary Patent, royalty and infringement claim | Unified Patent Court, under the Agreement on a Unified Patent Court | Limitation on each missed instalment |
| Classic European patent, not opted out | Unified Patent Court | Same limitation, plus the notice period in the licence |
| Goods crossing an EU external border | National customs authority, on an application under Regulation (EU) No 608/2013 | Deadline to file before the next shipment clears |
| Payment dispute alone, no cross-border movement | Court or arbitral forum named in the licence | Limitation and any contractual notice period |
The decision maker is fixed by the patent's legal form and by what the licence itself names as the forum, not by where the licensee happens to be selling today. Evidence in every row is the same in kind: the licence, the payment ledger, and proof that sales continued after the breach.
Forks
If the licence is silent on what happens after a missed instalment, general contract law fills the gap, and the notice period you invent must still be reasonable on the facts. When the contract says work for hire and nothing shows how the same kind of silence in a related agreement can leave a comparable gap unfilled, with comparable cost.
If royalties are collected through a payment platform rather than paid directly, the licensee's apparent failure to pay may in fact be the platform withholding funds further up the chain. When custody is held by a platform and its covers what changes once a third party sits between the money and the licensor.
If the licensed patent is not a Unitary Patent and was never validated in a Unified Patent Court member state, the claim proceeds before the national court named in the licence, and neither the customs mechanism nor the Unified Patent Court route above applies.
Limits and sources
This page does not set the amount of the unpaid royalties, does not draft the termination notice, and does not decide whether a provisional injunction will be granted on your facts. It also does not cover counterfeiting by a third party who is not your licensee — that sits on a separate track with its own evidence. Before you renew or extend any licence with a history of late payment, a Counterparty report before renewing a contract and the deadline sets out the ordering of checks we run before advising on renewal terms.
Checked on 2025-01-15. Sources: Regulation (EU) No 1257/2012; Council Regulation (EU) No 1260/2012; Agreement on a Unified Patent Court; Regulation (EU) No 608/2013.
Related publications
See also When a rival launches an obvious workaround in practice, on a different way patent value leaks out through someone else's decision rather than yours.
FAQ
What is the first step when a licensee stops paying and keeps selling?
Log every missed instalment with dates and invoice numbers before contacting the licensee. This record fixes when the limitation period on each payment began running, and it is the first thing counsel will ask for. Do this before any informal reminder, and before accepting anything that looks like a partial payment.
Which deadline is already running?
At least two run from the first missed instalment: the limitation period on that payment, and the window for terminating the licence without the delay being read as a waiver. If the goods cross an EU external border, a separate and much shorter deadline applies to any customs application under Regulation (EU) No 608/2013.
Who decides, and on what evidence?
For a Unitary Patent or an opted-in classic European patent, the Unified Patent Court decides, on the licence, the payment ledger, and proof of continued sales after the breach. For a national patent outside that system, the forum named in the licence decides on the same three pieces of evidence.