Infringement indemnity: Overview, definition, and example
What is an infringement indemnity?
An infringement indemnity is a provision in a contract where one party agrees to protect and compensate the other party for any losses, damages, or legal costs arising from the infringement of intellectual property (IP) rights, such as patents, copyrights, trademarks, or trade secrets. Essentially, this clause ensures that if one party's use or possession of intellectual property causes the other party to face legal claims, the indemnifying party will cover the costs associated with defending those claims and any resulting damages.
For example, if a company sells a product that infringes on a patent owned by another entity, the indemnity clause may require the company to cover the legal costs and any damages if the intellectual property owner sues.
Why is infringement indemnity important?
Infringement indemnity is important because it provides financial protection for one party if the other party's actions lead to IP infringement claims. It helps allocate risk in situations where intellectual property rights are involved, allowing the indemnified party to seek compensation for legal costs or losses caused by such claims. This is particularly crucial for businesses that deal with third-party IP, as it mitigates the potential financial burden of defending against infringement allegations.
For businesses, having an infringement indemnity clause helps manage the risks associated with using third-party intellectual property, licensing agreements, or product development. For the indemnifying party, it is essential to understand the extent of their liability and the potential risks they are assuming when agreeing to such indemnification.
Understanding infringement indemnity through an example
Imagine a software company licenses a third-party software component to use in their product. The license agreement includes an infringement indemnity clause stating that the software provider will indemnify the company in the event the third-party software infringes on any patents or copyrights. Later, the software company is sued by another entity claiming that the licensed software violates their patent. Under the indemnity clause, the software provider would be required to cover the legal defense costs and any potential damages the company may face.
In another example, a manufacturer produces and sells a product that uses patented technology. The company includes an infringement indemnity clause in its contract with suppliers, agreeing to cover any potential legal costs if a third party claims that the product infringes on their patent. This way, the manufacturer is protected from bearing the full financial burden of defending against such a claim.
An example of an infringement indemnity clause
Here’s how an infringement indemnity clause might appear in a contract:
“The Supplier agrees to indemnify, defend, and hold harmless the Buyer from any and all claims, liabilities, damages, and expenses (including legal fees) arising from the infringement or alleged infringement of any third-party intellectual property rights related to the Products supplied under this Agreement.”
Conclusion
Infringement indemnity is a contractual provision that provides protection against the financial risks of intellectual property infringement. By including this clause, parties can allocate responsibility for defending and covering the costs of infringement claims. It is particularly important in industries involving intellectual property, as it ensures that the party benefiting from IP use or licensing is not left financially vulnerable due to third-party claims. Understanding and negotiating infringement indemnity clauses is essential for businesses to manage legal and financial risks effectively.
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.