Basics of Intellectual Property
Intellectual Property Indemnity- Generally
Indemnity clauses (sometimes referred to as hold harmless clauses, indemnification agreements or indemnity agreements) are commonly used in agreements when one party is looking to shift certain risks to another. In the case of intellectual property indemnification clauses the risk is usually related to patent infringement, copyright infringement, trademark violation, trade secret misappropriation, software issues or any other intellectual property (IP) related risk. An indemnity clause may be limited to indemnification or it could also contain obligations to “defend” and/or “hold harmless” the other party. Vendors should be cautious of intellectual property indemnity clauses. The expenses involved in the defense of a typical IP claim could easily be more than the amount the vendor has to pay.
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Limits on Liability – Intellectual Property Liability
Vendors will often try to limit or limit their liability due to of the potential for liability for indemnification obligations, particularly for IP indemnity claims. One way this can be achieved is to include an indemnity limitation clause in the agreement and expressly applying this clause to cap or limit the indemnification clause. If the vendor receives $50,000 to create and provide software solutions, it could be held responsible for more if it has to defend copyright infringement lawsuits. If the clause on limitation of liability limit the liability of the vendor to only actual payments made under the agreement and the limitation is applicable to the indemnification clause then the liability of the vendor may be limited at $50,000, even though litigation in the case could be as high as 100,000. A majority of purchasers with leverage will require unlimited or uncapped intellectual propriety indemnification. Both the buyer and vendor may agree to limit their liability at an amount that is equal to a set number of vendor payments.
IP Indemnity Representations and Warranties
clauses frequently include representation and warranties provisions, which provide a trigger for indemnification obligations. Software purchasers and licensors typically require representations and warranties in order to assure that software is not subject to third-party claims and that third-party materials and materials without the author’s permission aren’t integrated into the software. These clauses are designed to safeguard the purchaser or licensor in the event that a third party makes an claim against the developer for copyright infringement or trade secret theft. The purchaser or the licensor can attempt to oblige the developer to defend the claim, and possibly paying compensation or settlement.
Darin M. Klemchuk, an intellectual property (IP) trial lawyer, has significant experience in enforcing copyright, trademark and trade secrets rights. Klemchuk LLP is a Dallas-based intellectual property and technology law firm. Additional information about Mr. Klemchuk can be found at his firm website.