This clause excuses a party from performing their contractual obligations when government action makes performance impossible or illegal. Government actions covered typically include new laws, regulations, licensing denials, embargoes, nationalization, or official orders that directly prevent contract fulfillment. For example, if a new export regulation prohibits shipping goods to a particular country, a supplier could invoke this clause to avoid breach liability. This matters because businesses cannot always control regulatory environments, and forcing performance of now-illegal acts would be unconscionable. However, the clause creates ambiguity about what constitutes "government action"—does it include tax increases, zoning changes, or only direct prohibitions? Without clear definition, parties may dispute whether performance is truly impossible or merely more expensive.
The intellectual property context makes this particularly important because IP licensing, technology transfer, and software distribution are heavily regulated across jurisdictions. A licensor might suddenly face export controls on encryption technology, or a licensee might lose the legal right to use patented processes in their territory due to new regulations. Both parties need clarity on whether such regulatory shifts trigger force majeure or whether one party bears the risk of changing legal landscapes.
When negotiating this clause, define "government action" with specificity rather than relying on broad language. Distinguish between actions that make performance illegal (which should trigger force majeure) versus actions that merely increase costs or create inconvenience (which should not). Include a notice requirement obligating the affected party to promptly inform the other party and specify a timeline for attempting to obtain necessary permits or variances. Consider adding language that the party invoking the clause must demonstrate they exercised reasonable efforts to comply with new regulations. For IP contracts specifically, clarify whether regulatory changes affecting only one party's territory excuse that party alone, or whether they affect the entire agreement.
Frequently Asked Questions
What does this clause mean in simple terms?
This clause excuses a party from performing their contractual obligations when government action makes performance impossible or illegal. Government actions covered typically include new laws, regulations, licensing denials, embargoes, nationalization, or official orders that directly prevent contract fulfillment.
Why should I care about this clause?
For example, if a new export regulation prohibits shipping goods to a particular country, a supplier could invoke this clause to avoid breach liability. This matters because businesses cannot always control regulatory environments, and forcing performance of now-illegal acts would be unconscionable.
What are my options?
However, the clause creates ambiguity about what constitutes "government action"—does it include tax increases, zoning changes, or only direct prohibitions? Without clear definition, parties may dispute whether performance is truly impossible or merely more expensive.
How does this affect small businesses?
The intellectual property context makes this particularly important because IP licensing, technology transfer, and software distribution are heavily regulated across jurisdictions. A licensor might suddenly face export controls on encryption technology, or a licensee might lose the legal right to use patented processes in their territory due to new regulations.