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Indemnification clauses mystify you? Negotiating a contract of indemnity? Check out our latest video on the indemnification contract clause for goods and services contracts and learn how to write a contract regarding an indemnify definition now.
Today we are going to cover how to draft a contract clause known as an indemnification clause. This video explains these common issues and types of disputes involved in an indemnity (or hold harmless agreement sample):
- Third party lawsuits
- Defining types of claims
- Defining losses, including damages, fines, arbitration awards and settlements
- Violation of any patent, copyright, trademark, trade secret, or other intellectual property or proprietary right
- Disputes regarding bodily illness and injury, death, tangible property damage and theft
- Failure of the goods or services to conform with the contract requirements
- Violation (or “breach”) of the contract
- Eliminating claims
- Notice of claims
- Conduct of the defense attorneys and litigants
Click play below to learn these key points now.
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As noted in the video, you really want to be sure that you consider the following key indemnification issues:
- Indemnification for violation of any patent, copyright, trademark, trade secret, or other intellectual property or proprietary right. This will commonly come up when a vendor provides technology such as software to a customer, but the vendor illegally copied some of the code in the product from a third party competitor. That competitor might decide to not only sue the vendor, but also sue the vendor’s customers (typically for contributory copyright infringement). In that kind of situation, the customer wants to be sure that there is a strong indemnification clause in the vendor contract that requires the vendor to indemnify the customer for all claims and losses by the vendor’s competitor, to hire attorneys and defend the lawsuit, and to hold harmless the customer and avoid liability. Vendors might also want to have their customers provide them with this kind of an indemnity, because sometimes customers take the vendor’s technology and incorporate it into a new product with other technologies that could implicate a third party intellectual property lawsuit which the vendor never anticipated or should be responsible for litigating.
- Indemnification for bodily illness and injury, death, tangible property damage and theft. This commonly becomes an issue when the vendor’s employees are going to be on site at the customer’s facilities and could cause damage or other problems that would subject the customer to liability. In that instance, the customer wants to be able to turn to the contract for an indemnity that will provide relief from these kinds of third party claims that the vendor should really be responsible for on an ongoing basis.
- Indemnification for failure of the goods or services to conform with the contract requirements. Sometimes a customer knows that the goods or services provided must meet exacting specifications or they will be of little value to the customer or, even worse, cause damage. For instance, if the vendor is supplying a key component for the customer’s factory line, and if that component’s failure to meet specifications would throw off the entire line and grind the factory to a halt, then the customer could be facing a good deal of fallout claims from that kind of error, including being unable to meet customer orders in a timely manner.
Keep It Going! Want to learn more about indemnification? Catch out blow by blow breakdown of a sample hold harmless clause, or read all about how to limit the scope of an indemnify definition.
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{ 4 comments }
A good presentation – very consise and effective – can u pl send me MS Word of this to rajesh_narang@mindtree.com
1.Also typically what are items of indmenity carved – eg Ip breach , con in fo breach and what are cappeed
2. Also are in case of carve outs indirect consequential damages always included
Thanks, Rajesh. We’ll be going into limitation of liability in another post and will explain carve-outs, consequential damages and caps there.
The topic of indemnification for 3rd party claims as you indicated is always a hot topic during negtotiations. The question if have is I am starting to see the large prime contractors state indemnification for 3rd party claims lives well beyond the contract period of performance, basically “forever”.
Do you have thoughts about the “forever” be liable and what suggestions do you have to limit the “foreverness” being discussed.
Thx
Robert
Robert, that’s an interesting question that I find comes up often.
Ultimately, I believe that it’s a good idea to let the indemnification clause survive without a time limit. In the long run, the good or service involved will likely lose value over time or cease to be used at all, which greatly lessens any economic incentive for a third party to sue for, say, an intellectual property claim.
In fact, as a customer eventually ceases to use a good, indemnification for violation of specifications will not be needed since no consequential harm can occur. Even goods that stay in use for a surprisingly long period of time, such as IBM mainframes, have such little competition regarding any core patent or trade secret technology that a lawsuit is highly unlikely, particularly because any relevant patents have likely expired and applicable trade secrets have entered the public domain. Indemnification for breach of the contract is also unlikely to come up as the years go by, since usually the only surviving contractual obligations are disclaimers, limitation of liability, indemnity, and the boilerplate general clauses. Indemnification for illness, injury, death, theft and harm is also unlikely to come up in later years since all services will have likely ceased long after contract termination, or are subject to a separate, new, ongoing contract.
However, if a vendor feels forced to agree to indemnity for a product meeting specifications, or for surviving obligations that create ongoing responsibilities (such as a surviving warranty), putting a time limit on the indemnification obligation might make a lot of sense.
In light of all that, what do you think now?
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