Eighty-five years ago Benjamin Cardozo handed down Wood v. Lady Duff-Gordon, 222 N.Y. 88 (1917), and set forth the principle that an exclusive licensee has a duty to use best efforts to exploit the exclusive license when that license is granted in exchange for a promise to pay royalties to the licensor. Despite the many years that have passed, Wood remains the guideline that courts follow. Some courts, however, have refused to imply a best-efforts obligation in cases where the exclusive licensing agreement calls for a minimum guarantee or advance payment of royalties.
Those courts have based their decisions on the assumption that a licensing agreement that calls for a substantial advance or guaranteed royalty payment always provides the licensee with an incentive to make the license profitable, thereby minimizing the chances that the licensee will neglect to exploit the license. This assumption is invalid.
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