Article October 6, 2017

Indemnity clauses in IP – read the fine print!

When businesses enter into contractual negotiations, there are dozens of priorities in mind, the main one usually concerning getting the deal done! However, the provision of indemnities under contract are an important area to consider and it is vital that businesses identify where these are in place, because they can make an organisation contractually liable for some very costly sets of circumstances.

An indemnity clause defines the allocation of risk within a contract. It allows organisations to transfer their exposure to a defined loss by agreeing, under contract with another party, to give or receive an indemnity or to share the costs in the event this loss occurs.

As an example, as part of the indemnity clause in a licence agreement, a supplier providing components to a customer could be required to defend and indemnify their customer in the event their customer receives an allegation of intellectual property infringement relating to the components supplied.

Some contracts may go further, requiring the indemnifying organisation to take out an insurance policy with a specifically stated limit of liability in order to ensure that they can in fact pay in case of an infringement allegation.

Indemnity clauses are not only present within traditional supply chain contracts. They are often incorporated into collaboration agreements, partnership agreements, purchase agreements, outsourcing contracts and many other types of contract where intellectual property is shared. The extent of the indemnities provided is sometimes used as negotiating tools between contracting parties. Further still, the provision of an indemnity can often be non-negotiable requirement, particularly when dealing with large corporate organisations.

Some general risk management points for organisations to consider:

  • Do you have any agreements where your products or intellectual property is disclosed?
  • Do you provide any indemnities in these agreements?
  • Is due diligence on contracting partners undertaken prior to agreeing to provide indemnities?
  • Do you provide indemnities as standard or by exception?
  • Do you receive any indemnities?
  • Are all contractual indemnity provisions recorded centrally?

Now that you know, on to our sales pitch (just a wee one). Our IP insurance can protect organisations in the event they provide indemnities to customers, partners and other third parties, whether these indemnities are provided as standard, or as part of a one-off agreement.

For more information, please get in touch.

The below article by Taylor Wessing provides useful information about indemnities, as well as warranties, in commercial agreements: