When a licensee stops paying and keeps selling: what to do first
A licensee who stops paying royalties but keeps selling is no longer acting under the licence. The first step is a written notice that fixes the date the breach started and states whether the licence is suspended or terminated. That notice starts the clock for everything that follows.
Which forum applies
The relevant forum depends on what kind of patent is being licensed. If the patent is a European patent with unitary effect, infringement claims go to the Unified Patent Court, under the Agreement on a Unified Patent Court. Unitary protection itself rests on Regulation (EU) No 1257/2012, and the translation regime that accompanies it comes from Council Regulation (EU) No 1260/2012. Classical European patents that have not been opted out of the new court's jurisdiction fall under the same agreement during the transitional period. National patents stay outside this framework and follow the national court with jurisdiction over the licensee.
If the licensee's stock crosses an external EU border, Regulation (EU) No 608/2013 lets the rights holder ask customs authorities to detain suspected infringing shipments while the underlying dispute is resolved. This is a border measure, not a ruling on the licence.
What changes once payments stop
Once payments stop, every unit sold afterwards sits outside the scope of the licence. A payment dispute turns into a patent enforcement question, and the two are decided on different tracks and by different evidence. Delay narrows the choice of remedy, because interim measures depend on the claim being brought before the unlicensed sales become an established pattern in the market.
What to do, in order
- Fix the date. Ask finance to confirm the last payment received and the date the breach began.
- Send written notice. Instruct counsel to issue a formal notice stating the breach, the cure deadline, and the consequence of non-cure.
- Preserve evidence. Ask whoever monitors distribution to record invoices, listings, and stock movements dated after the breach.
- Assess interim relief. Ask counsel whether an interim injunction is available before the cure period expires.
- Check border exposure. If goods cross an external EU border, ask counsel to prepare a customs application under Regulation (EU) No 608/2013.
- Confirm the forum. Establish with counsel whether the patent sits under the Unified Patent Court or a national court before filing anything.
Who decides, and on what
| Patent type | Forum | Decides |
|---|---|---|
| European patent with unitary effect | Unified Patent Court, under the Agreement on a Unified Patent Court | Infringement, validity counterclaim, injunctions |
| Classical European patent, not opted out | Same court, transitional jurisdiction | Same scope, unless opted out before filing |
| National patent | National court with jurisdiction over the licensee | Infringement and licence termination, under national procedure |
Evidence turns on dated invoices, delivery records, and the notice itself. The forum wants a clear line between sales made under the licence and sales made after it ended.
Common branches
If the licence agreement carries its own termination clause with a cure period, that clause governs first, and the notice must match its wording rather than a generic template. If the licensee disputes the breach and argues the patent is invalid, expect a validity counterclaim to run alongside the infringement claim, which slows the timeline. If the licensed bundle also includes data assembled by contractors rather than the patent alone, the ownership question is decided on a separate track; the parallel walkthrough, What to do first in this situation step by, covers that boundary. Where the licensed asset is a token rather than a patent, the closest parallel is When a fork duplicates the token and its limits. If the licensee's continued sales are a deliberate copy rather than a lapsed licence, the starting point is different again, and a related file walks through it: When a rival launches an obvious workaround in practice.
What this page does not resolve
This page does not fix a royalty rate, a filing fee, or a damages figure. It does not replace the licence agreement, which controls notice periods and cure rights before any court does. It does not tell you whether your specific patent has been opted out of the Unified Patent Court's jurisdiction; that check sits in the file, not on this page. About the firm and its scope sets out who prepares this kind of notice and where our involvement stops.
Verified
Checked against the sources below at the time of publication. Regulation (EU) No 608/2013, in force from 1 January 2014. Regulation (EU) No 1257/2012, Council Regulation (EU) No 1260/2012, and the Agreement on a Unified Patent Court, all in force from 1 June 2023. Where the underlying question is not the patent but the party on the other side of the contract, a source-based check exists separately: Counterparty in Denmark explained sets out what such a report can and cannot establish.
Frequently asked questions
What is the first step when a licensee stops paying and keeps selling?
Fix the date payments stopped and send a written notice that states the breach and the cure deadline. Everything else follows from that date.
Which deadline is already running?
The cure period set out in the licence agreement, if one exists, starts running from the date of breach, not from the date of the notice. Check the agreement's own clause before assuming a general limitation period applies.
Who decides, and on what evidence?
The forum depends on the patent type: the Unified Patent Court for unitary and most classical European patents, a national court for national patents. Both decide on dated invoices, delivery records, and the notice itself.