The Overuse of Indemnities
This week’s musings on tech contracts… Many American IT contracts feature a strange clause. One party (usually the customer) asks the other for an indemnity against, “any third party claim resulting from SuspectCo’s breach of this Agreement,” or words to that effect. That indemnity doesn’t just cover claims about data incidents or personal injury or […]
Your limit of liability might not work on your indemnity
The parties to IT contracts generally agree that the limit of liability (LoL) won’t apply to indemnities. After all, if one party takes responsibility for a third party lawsuit against the other (a third party indemnity) why would that responsibility suddenly end? If the vendor indemnifies against IP claims, for instance, why would it stop […]
Third Party Indemnities (in the Michael/Donald contract)
IT indemnities almost always address third party claims. That generates confusion, and contract-drafters often don’t even realize they misunderstand. Most clauses address the relationship between the parties. But in an indemnity against third party claims, the indemnitor isn’t liable to the other party (unless it breaches the indemnity). A third party indemnity is a no-fault […]
There is no such thing as a mutual indemnity
Tech contracts use indemnities to address third party lawsuits. The indemnitor promises to defend a lawsuit against the indemnified party and to pay any judgments. (Those terms imply that the indemnitor will pay for settlements too — and many contracts make that explicit.) Given that structure, a “mutual indemnity” makes no sense. [We’ll discuss this […]
Insurance companies give nuclear indemnities; tech vendors should not
This is what I call a nuclear indemnity: “Vendor shall indemnify Customer against any third party claim arising out of or related to Vendor’s breach of this Agreement.” It’s nuclear because it destroys all in its path. It’s not limited to a type of claim, like IP, data breach, or personal injury. Tech vendors should […]
IP Indemnity Exception: “Registered after the Effective Date”
This article has been superseded by an updated version. Some intellectual property indemnities exclude claims about IP registered after the contract’s effective date. The tech provider argues that it shouldn’t be responsible for IP it didn’t know about when it created its product — or at least when it signed the contract. “If we couldn’t […]
Limits of Liability Don’t Work for Indemnities
This post has been superseded by a more recent (and more nuanced) article. See, “Your limit of liability might not work on your indemnity.” Contracting parties often debate whether the limit of liability should apply to indemnities. But few notice the problem. Even if the contract specifically says the limit applies to an indemnity … […]
Announcing The Tech Indemnities Pocket Guide
I’m excited to announce the publication of my new e-book, THE TECH INDEMNITIES POCKET GUIDE: Indemnities in Software and Other IT Contracts for Lawyers and Businesspeople (ABA Publishing 2020 – IP Section). There is nothing on the market like this book. Businesspeople and lawyers argue over indemnities more — and understand them less — than […]
Open Source in Software Procurement – 4. IP Indemnities
By David W. Tollen 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 […]