The Licensing Corner

• Citation: Vol. 47 No. 1
• Publication year: 2022
• Author: Sean Hogle
• topic: Business of Law,Commercial Litigation,Contracts,Intellectual Property,Corporate / Commercial,Civil Procedure

THE LICENSING CORNER

Sean Hogle
Rooney Nimmo PC

IMAGINING A WORLD WHERE BREACH OF CONTRACT IS AN AMORAL ACT

The basic assumption of our daily work as lawyers is that as a general proposition, people will follow the terms of an agreement, and that compliance is the default mode of operation. A widespread normative aversion to intentionally breaking contracts is a fundamental societal assumption. This assumption informs our work as lawyers in negotiating and drafting agreements. But what if this was not a valid assumption? What if we lived in a world where contract compliance was a simple matter of dollars and cents?

Efficient breach theory states that an economically rational actor will comply with or perform a contract only if the costs of breach exceed the costs or gains of compliance. If a party can calculate with reasonable certainty the losses arising from breach, including compensation for damages to the counterparty that may be payable under the terms of the contract, and weigh that against a measurable gain that exceeds those predicted losses, the breach-efficiency advocates would say that breach in this situation is socially beneficial.

In other words, breach as a result of a reasonable cost-benefit analysis should not be subject to sanction. Admittedly, the breaching party intentionally walked away from its obligations, but its conduct is rational—and certainly should not be considered socially undesirable, or subject to any kind of punitive or social sanction, or so the theory goes.

In An Information Theory of Willful Breach, (Michigan L. Rev. 2009), authors Oren Bar-Gill and Omri BenShahar ably describe the schism in US and European contract law between efficient breach doctrine, on the one hand, and restitutionary doctrine that punishes intentional breach, on the other:

Is willful (opportunistic) breach worse than inadvertent breach? Is it more wrongful and deserving of a harsher sanction?
Strikingly, two opposite views now have a longstanding tradition within contract law, and they have not been successfully reconciled. On one end, the official position of the common law, as expressed in the Restatement (Second) of Contracts, is that the intent to breach is largely irrelevant: "The traditional

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goal of the law of contract remedies has not been compulsion of the promisor to perform his promise but compensation of the promisee for the loss resulting from breach. 'Willful' breaches have not been distinguished from other breaches.... In general, therefore, a party may

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