Patent indemnity: Overview, definition, and example
What is patent indemnity?
Patent indemnity is a provision in a contract where one party agrees to protect and compensate another party against legal costs, damages, or liabilities arising from a claim that a product or service infringes on a third party’s patent rights. The indemnifying party promises to defend the other party against any such claims and to cover any associated costs, including attorney fees and settlements. Patent indemnity clauses are often included in licensing agreements, product supply contracts, or vendor agreements to mitigate the risk of intellectual property (IP) disputes.
Why is patent indemnity important?
Patent indemnity is important because it provides financial protection and legal defense to companies that may face patent infringement lawsuits, which can be costly and damaging. In industries like technology, pharmaceuticals, or manufacturing, where patents play a critical role, having indemnity coverage ensures that a business is not left financially vulnerable if they unknowingly use or sell a product that infringes on another company’s patent. It helps allocate the risk of patent disputes, protecting businesses from significant legal and financial consequences.
Understanding patent indemnity through an example
For example, a software company enters into an agreement with a hardware manufacturer to supply components for their product. The contract includes a patent indemnity clause where the hardware manufacturer agrees to defend the software company against any patent infringement claims related to the components. If a third party sues the software company for patent infringement, the hardware manufacturer will cover the legal fees and any damages related to the lawsuit.
In another example, a company that licenses technology from another firm might include a patent indemnity clause to ensure that if the technology infringes on any patents, the original technology provider will take responsibility for defending the company against any infringement claims and will cover any resulting costs.
An example of a patent indemnity clause
Here’s how a patent indemnity clause might appear in a contract:
“The Supplier agrees to indemnify and hold harmless the Purchaser against any claims, damages, or liabilities arising from any patent infringement related to the Products provided under this Agreement. The Supplier shall defend any such claims at its own expense, including attorney fees, and shall settle or pay any resulting judgments or damages.”
Conclusion
Patent indemnity is a critical protection for businesses that engage in activities involving patented products or technologies. By including patent indemnity clauses in contracts, companies can safeguard themselves from the risks and financial consequences of patent infringement claims. It ensures that the indemnifying party bears the responsibility and costs associated with defending against patent-related legal disputes, allowing the other party to operate with greater security and confidence.
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.