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Fundamentals of Intellectual Property Indemnity

Intellectual property compensation – generally

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

Intellectual Property Indemnification – Limits of Liability

Because the potential liability for indemnification obligations, in particular for intellectual property indemnification claims, can be so high, providers will normally attempt to limit or cap their liability. One way to do this is to include a limitation of liability clause in the agreement and expressly apply that clause to limit or limit the indemnification clause. For example, if the settlement provides a $ 50,000 fee to the vendor to develop and deliver a software solution, the vendor is likely to be liable for a significantly higher amount if asked to defend a claim of copyright infringement of a third. However, if the limitation of liability clause limits the supplier’s total liability to payments actually received under the agreement and that limitation applies to the indemnification clause, then the supplier’s liability is potentially limited to $ 50,000 even though the litigation of the claim could cost $ 100,000. . Many buyers with leverage will demand unlimited or unlimited intellectual property compensation. One potential compromise is for the buyer and the supplier to agree that the liability for indemnification will be limited to a multiple of the supplier’s payments under the agreement.

Intellectual Property Indemnification: Declarations 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 claims of infringement by third parties and furthermore that they have not been incorporated into the material. Third-party materials for which the developer does not have permission. deliverable software. These provisions are intended to protect the buyer / licensor in the event that a third party subsequently files a claim for 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 for any damages or settlement.


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