While it may seem like a simple question, sometimes its worth reviewing just the same – when is a contract a contract? General speaking it is when two or more parties exchange mutual promises. Often the determining factor is whether the mutual promises of the parties are supported by consideration. Consideration involves the giving of something of value, rather than a mere promise. The reason that the courts and legislatures generally require some form of consideration is to insure that the promises being made are not merely a casual statement, an accident, or gratuitous – in short – to make sure the people making the agreement really mean it. Consideration looks at whether the parties have assumed an obligation on the condition of an act or forbearance of another. Except in cases of employment matters, Minnesota courts generally do not look at the adequacy of the consideration being offered – only whether some consideration has been exchanged. For written agreements, the court presumes valid consideration.
In contracts related to intellectual property rights this means that things like royalties might be subject to discontinuance even if the only thing the licensor does is grant a right to use the IP and it turns out the licensor in fact does not have the rights in the first place (assuming the licensor did not know that the rights were invalid). However, if the contract also goes on to provide that the licensor will discontinue use of the rights for their own use, this forbearance may be viewed as adequate consideration.