Intellectual Property Indemnity in IT Vendor Contracts

Whether you are a seller or purchaser of software products and services, you will likely enter into a contract with a host of terms and conditions related to the use of the software (if there’s no contract, then we need to have a different conversation!).  

Customers expect more than just functionality from the software solution they are purchasing. They expect to have peace of mind. And that’s where IP indemnification comes into play. 

• Third-Party Claims: Imagine that a third-party alleges that a customer’s use of software provided by a vendor infringes their intellectual property rights, such as a patent, trademark, or copyright. Without proper IP indemnification, the customer will be left to try to defend this claim on its own. 

• Tailored Indemnification: The purpose of the IP indemnification clause is to protect the customer. However, as a vendor, you want to ensure that you aren’t taking on more than you should. Careful drafting of these provisions will ensure the correct party(ies) are protected, that the scope of the indemnification is appropriate, and will determine who has the authority to defend or settle any third-party claim. 

• Limitations: Contracting parties can limit potential liability for IP infringement claims through the use of limitations of liability and appropriate insurance for such claims. Whether you are the customer or the vendor, careful contract drafting and negotiation will ensure you appropriately manage the risks and protect your interests. 

Remember, an IP indemnity clause is important whether you are providing or purchasing software products or services. Make sure you consult with your legal counsel and give this clause the attention it deserves.