This is the fourth in a series of five posts on Open Source in Software Procurement. Click here for the prior post, and click here for the intro, which lists all five topics.
In most cases, the licensee does not need an “open source indemnity.” It doesn’t need terms specifically addressing copyleft open source software because the typical IP indemnity already does the trick. In other words, if someone sues the licensee for redistributing the vendor’s copyleft software without using the open source model, the usual IP indemnity should protect the licensee. It should require that the vendor defend the suit and pay any settlements or judgments. That’s because a copyleft suit would in most cases be an IP suit, covered by an IP indemnity.
Typical IP Indemnity
Here’s a typical IP indemnity, based on the one in The Tech Contracts Handbook: “Vendor shall defend, indemnify, and hold harmless Licensee against any third party claim, suit, or proceeding arising out of, related to, or alleging infringement of any patent, copyright, trade secret, or other intellectual property right resulting from Licensee’s exercise of its rights to the Software granted in this Agreement.” A copyleft suit against our licensee/distributor would claim infringement of copyright, so that indemnity should protect the licensee. (BTW, much more text goes into an indemnity clause. See the sample language in the Clauses library under II.J: Indemnity — and see The Tech Contracts Handbook, Chapter II.J.)
Open Source (Copyleft) Indemnity
The indemnity above should cover just about any copyleft claim. But some contract drafters prefer to leave not doubt: they want specific language addressing their concerns directly. Plus, it’s at least possible to imagine a copyleft suit claiming breach of contract, instead of IP infringement (despite the fact that open source licenses are not supposed to be contracts). A more narrowly tailored indemnity could address that issue.
The following is an open source indemnity — a clause specific to copyleft claims: “Vendor shall defend, indemnify, and hold harmless Licensee against any third party claim, suit, or proceeding arising out of, related to, or alleging a restriction on Licensee’s right to distribute the Licensed Program, or any modification thereof: (a) for a fee, (b) with or without source code or source code rights, or (c) with such restrictions as Licensee sees fit to place on its customers’ modification or distribution rights.”
Limits of Open Source Indemnities
Keep in mind that indemnities like the ones above usually only address litigation and the damages claimed by the plaintiff: settlements and judgments. What if the vendor defends the case, loses, and pays the plaintiff’s damages? The vendor is then off the hook: it’s complied with the indemnity. But the licensee could still have a big problem. It might have to stop distributing its own software product (unless it’s willing to use the open source model). The indemnity, in other words, doesn’t fully solve the licensee’s copyleft problem.
To address the remaining issue — possibly the biggest one — you need to go back to warranties and their remedies, discussed in the previous post. (That’s why warranties remain valuable to licensees, even if the vendor also grants an indemnity, despite the claims of some lawyers.)
Click here for the next post in this series.
David Tollen is the author of The Tech Contracts Handbook, the American Bar Association’s bestseller on IT agreements. He is an attorney and the founder of Sycamore Legal, P.C., a boutique IT, IP, and privacy law firm in San Francisco. His practice focuses on software licenses, cloud computing agreements, and privacy. And he serves as an expert witness in litigation about those same topics. Finally, David is the founder of Tech Contracts Academy and our primary trainer.
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