In Fetch Interactive Television LLC v. Touchstream Technologies Inc., C.A. No. 2017-0637-SG (Jan. 2, 2019), a licensee sued to enjoin a licensor from canceling a license agreement. A provision of the license agreement prohibited the licensee from “tak[ing] any action on account of…infringement [with respect to a third party] without first obtaining the written consent of [the licensor].” A provision of the license agreement provided that after the time permitted to the licensee to cure the breach, the licensor could terminate the license agreement if the breach was, in the general counsel’s opinion, a “bona-fide, materially significant threat” to the licensor’s intellectual property rights or its business.
The licensor canceled the agreement, citing the licensee’s emailed offer to an infringer to sublicense the infringed technology as a material breach. The licensee argued that the emailed offer was not a material breach because the infringer did not take it seriously. The Court disagreed and pointed to DV Realty Advisor LLC v. Policemen’s Annuity and Ben Fund where the Delaware Supreme Court held that “bona fide” was a purely subjective standard based upon the point of view and knowledge of the determining party. Given that the licensee was trying to undercut the licensor in a material dispute with the infringer and refused to disclose the extent of the attempt, the Court ruled that the determination of material breach by the licensor’s general counsel was bona fide.
BOTTOM LINE: Avoid using the phrase “bona fide” in an agreement if you want more certainty.