Indemnification by licensee: Overview, definition, and example
What is indemnification by licensee?
Indemnification by licensee is a contractual provision in a licensing agreement where the licensee agrees to protect, defend, and reimburse the licensor for any losses, damages, or liabilities that arise from the licensee's use of the licensed material or from breaches of the agreement. Essentially, it shifts the risk of potential legal claims or financial losses from the licensor to the licensee.
Why is indemnification by licensee important?
This provision is crucial because it safeguards the licensor from the financial and legal repercussions of the licensee's actions. By requiring the licensee to indemnify the licensor, the licensor minimizes its exposure to lawsuits, third-party claims, or regulatory penalties that may result from misuse of the licensed property or failure to comply with contractual terms. It also encourages the licensee to exercise due care in using the licensed assets and adhering to the agreement's conditions.
Understanding indemnification by licensee through an example
Imagine a company licenses a piece of proprietary software for its operations. The licensing agreement includes an indemnification clause stating that if the licensee's use of the software leads to a lawsuit—for instance, due to a breach of copyright by improperly integrating third-party code—the licensee must cover all legal fees, settlements, and related expenses incurred by the licensor. This protects the licensor from bearing the cost of the licensee’s error and motivates the licensee to follow best practices in utilizing the software.
An example of an indemnification by licensee clause
Here’s how an indemnification clause might appear in a licensing agreement:
“The Licensee agrees to indemnify, defend, and hold harmless the Licensor, its affiliates, and their respective officers, directors, and employees from and against any and all claims, damages, liabilities, losses, and expenses (including reasonable attorneys’ fees) arising out of or in connection with (i) the Licensee’s use of the licensed material, and (ii) any breach of this Agreement by the Licensee.”
Conclusion
Indemnification by licensee is a key risk management tool in licensing agreements. It protects the licensor from potential liabilities resulting from the licensee’s use or misuse of the licensed material and ensures that any financial or legal burdens arising from the licensee’s actions are appropriately managed. By clearly outlining these obligations, both parties understand their responsibilities, which helps maintain a balanced and secure contractual relationship.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.