Indefinite isn’t perpetual: Court of Appeal clarifies termination of never‑ending licences

The decision in outline

Drawing on the Winter Garden Theatre line of authority, the Court of Appeal adopted a two‑stage approach. First, identify whether the parties intended a truly perpetual commitment (which would not end unless expressly provided) or an indefinite one. Second, if the agreement is indefinite, recognise that the parties must be able to bring it to an end on reasonable notice—either as a matter of interpretation or as a ‘kind of implied term’. Applying that framework, the court found that indefinitely did not mean perpetual, and that the commercial context made it implausible that the parties intended to be locked together forever.

A critical point was the interaction between the indefinite term and the express, one‑sided termination regime. The court held that a bilateral right to terminate on reasonable notice could sit alongside express licensor‑only rights (including a right to terminate on three months’ notice). In some scenarios, reasonable notice might be longer than three months; in others, it might be shorter. Either way, the presence of one‑sided rights did not exclude an additional, general right to terminate on reasonable notice.

Why it matters

Contracts that ‘continue indefinitely’ are, absent clear language to the contrary, generally terminable on reasonable notice by either party.

One‑sided termination clauses will not necessarily prevent a court from recognising a separate, bilateral reasonable‑notice right if the overall agreement is indefinite.

The decision underscores a judicial reluctance to trap parties in unintended perpetual arrangements and reflects commercial reality: markets evolve, brands change, and enduring obligations without an exit route are disfavoured without unequivocal drafting.

Practical drafting points

This demonstrates that practitioners should aim to adopt the following approaches when it comes to drafting:

Using clear duration language. If a truly perpetual arrangement is intended, stating it expressly and ensuring the termination regime is consistent. If the intention is indefinite, anticipating that a reasonable‑notice right is likely to be read in for both parties.

Calibrating express rights carefully. Where the licensor needs short‑notice termination for IP protection or compliance, retaining specific licensor rights might be a key but recognising that these may coexist with a broader reasonable‑notice right is crucial.

Defining ‘reasonable notice’ contextually. Considering factors such as investment cycles, brand transition needs, regulatory lead times, and customer communications when specifying or constraining what notice will be “reasonable” in that relevant sector.

Aligning royalties and use. If fees are payable regardless of use, ensuring there is an appropriate exit mechanism; otherwise, the contract might risk being characterised as indefinite with an implied right to terminate.

Audit legacy agreements. Licences that say “indefinite” or contain open‑ended terms may already be terminable on reasonable notice, notwithstanding one‑sided termination clauses. It’s important to review positions and plan accordingly.

Key takeaway

Courts have generally been hesitant to read commercial agreements as lasting indefinitely unless the wording clearly points that way. Where a contract is framed as “indefinite,” it is often understood that either party may be able to bring it to an end on reasonable notice.

For businesses dealing with older contracts or licences that do not set out clear termination provisions, the decision may be useful in considering how those arrangements could be interpreted. It also underlines the importance of drafting terms on duration and termination with clarity and precision. If you would like tailored advice on intellectual property clauses or help reviewing your contracts in light of this decision, please contact our commercial team.