Intellectual property indemnity: Overview, definition, and example
What is intellectual property indemnity?
Intellectual property indemnity is a protection clause in a contract that ensures one party (usually the seller or service provider) will compensate or "cover" the costs for the other party (usually the buyer or client) if they face any legal issues related to the use of intellectual property (IP). This includes protection from lawsuits or claims that the IP (like patents, trademarks, copyrights, or software) being used or sold violates someone else’s rights.
In simpler terms, if a company buys or uses intellectual property—like software or a logo—covered by an indemnity clause, and that IP later turns out to infringe someone else’s rights, the seller or provider agrees to handle the legal costs, including any damages or settlements.
Why is intellectual property indemnity important?
Intellectual property indemnity is important because it protects businesses from the financial risk of accidentally using IP that infringes on someone else’s rights. For SMBs, this is crucial because defending against IP infringement claims can be expensive and time-consuming.
By including an intellectual property indemnity clause in contracts, businesses can shift the risk to the party providing or licensing the IP, ensuring they don’t have to bear the financial burden if a legal issue arises. For those selling or licensing IP, it ensures they are held accountable for the quality and legality of the IP they provide.
Understanding intellectual property indemnity through an example
Imagine a small business buys software from a vendor to help with their accounting. The software comes with an intellectual property indemnity clause that says if the software is later found to violate another company’s copyright, the vendor will cover any legal costs or damages.
A few months later, the business gets a lawsuit saying the software infringes on a competitor’s patent. Because of the indemnity clause, the vendor takes responsibility for handling the lawsuit and covering any legal fees or settlements. The business doesn't have to pay for those costs.
Example of an intellectual property indemnity clause
Here’s how an intellectual property indemnity clause might appear in a contract:
"The Seller agrees to indemnify and hold harmless the Buyer from any claims, damages, or legal costs arising from the use of the intellectual property provided under this Agreement. If any third party claims that the intellectual property infringes on their rights, the Seller will handle the defense and pay for any costs, including legal fees or settlements."
Conclusion
Intellectual property indemnity is a crucial safeguard for businesses, especially small business owners, to protect against the risks of using or selling intellectual property that could later cause legal trouble. By having a clear indemnity clause in place, SMBs can focus on running their business without worrying about unexpected legal costs related to IP issues.
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.