Intellectual Property Indemnity – Generally

Indemnity clauses (sometimes called disclaimers, indemnity agreements, or indemnity agreements) are common in agreements in which one party wishes to transfer certain risks to another party. In intellectual property indemnity clauses, the risk is commonly associated with patent infringement, trademark infringement, copyright infringement, trade secret misappropriation, software problems, or some other risk related to the intellectual property (IP). An indemnification clause may be limited to indemnification or may also include obligations to “defend” and/or “hold harmless” the other party. Intellectual property indemnity clauses are particularly dangerous for providers because the costs to defend a typical IP claim could far exceed payments to the provider under the agreement.

Intellectual Property Indemnity – Limits of Liability

Because the potential liability for indemnification obligations, particularly for intellectual property indemnification claims, can be so high, providers will normally attempt to limit or limit their liability. One way to accomplish this is to include a limitation of liability clause in the agreement and expressly apply it to limit the indemnification clause. For example, if the settlement provides a fee of $50,000 to the vendor to develop and deliver a software solution, the vendor will likely be liable for a significantly higher amount if it has to defend itself against a third-party copyright infringement claim. . However, if the limitation of liability clause limits the provider’s total liability to payments actually received under the agreement and that limitation applies to the indemnification clause, then the provider’s liability is potentially capped at $50,000, even though litigation of the claim could cost $100,000 s. Many leveraged buyers will demand unlimited or uncapped IP indemnity. One potential compromise is for the buyer and seller to agree that indemnity liability will be limited to some multiple of the seller’s payments under the agreement.

Intellectual Property Indemnification – Representations and Warranties

Intellectual property indemnification clauses often include representation and warranty provisions, which provide a trigger for indemnification obligations. For example, software purchasers/licensors often require a statement and warranty provision that the software being delivered is free from third-party claims of infringement and, furthermore, that no third-party materials or materials have been incorporated. for which the developer does not have permission. deliverable software. These provisions are intended to protect the purchaser/licensor in the event a third party brings a claim of copyright infringement or trade secret misappropriation. If this occurs, the buyer/licensor will likely try to force the developer to defend the claim and pay damages or settlements.

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