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Consider Intellectual Property Indemnification—Just a worthless piece of paper?

2 Dec, 2015 By: Steve Weedon, Discover Imaging Products, LTD

There’s no hiding from the fact that we are in a litigious industry and in all probability, we should expect more patent infringement lawsuits will fly. Lawyers have come to like our industry and they love litigation.

Over the last 25 years or so we have become more familiar with the jargon, the legal process, respondents consent to stipulation orders and the weasel worded press releases that makes it unclear who won or lost.

More and more, “Buyers” want to protect themselves from any liability when buying from a “Seller.”  They are demanding their suppliers to indemnify them. But, when push comes to shove, are those indemnity letters worth anything?

This vs. That

Sellers and Buyers have opposing objectives when it comes to indemnities letters.

Lawyers acting for the Seller could cost their clients millions of dollars if they get the drafting of the indemnity wrong. Lawyers acting for the Buyer could find their letter of indemnity worthless if they fail to spot the clever drafting from the Seller’s lawyer. But how many Buyers even get a lawyer to take a look at an indemnity letter offered by a Seller before placing their order? Not so many, I wager, and that could prove a huge mistake.

Many Sellers draft only a statement regarding their IP position. Usually it tries to instill confidence but rarely goes beyond saying, “Don’t worry, our products are fine.” From a Buyer’s point of view, all too often an indemnity letter is just another tick box to check, little realizing that if and when the time comes and a third party sues, the Buyer is left holding a worthless piece of paper.

Patent Infringement defense costs are usually far higher than other Intellectual Property legal actions. So a lot is at risk.

The Buyer’s aim should be to mitigate his time, effort and costs of dealing with a third party patentee alleging infringement. Therefore the earlier that “protection” is triggered in the indemnity draft the better. “Upon the receipt of a letter or notice”, is better for the Buyer than at the “filing of a claim.” The Seller however will want to reduce his liability as far as possible and therefore his costs by drafting the indemnification, so as not to be liable for lost profits or business interruption. Holding the Buyer harmless against a third-party legal action could mean a form of Buyer’s protection that holds no bounds, and clearly puts the Seller at greater risk.

One way for the Seller to limit his liability to the Buyer is to remove blanket statements like, “defend, indemnify and hold the buyer harmless,” and replace with:

“Seller will defend, at its expense, a third party action, suit or proceeding against the buyer to the extent that such a claim is based upon an allegation that a product, as of its delivery date, infringes a valid patent from the claim.”

The Seller will usually make its indemnification conditional; that the Buyer promptly notifies, or gives sole authorization to Seller, or, Buyer gives full co-operation and assistance.

So, indemnification letters can be useful. But also can be worthless. It should not just be a checked box. Get a qualified lawyer to look over it. Understand that the Seller has opposing objectives to the Buyer but wants to sell his products. The best time to negotiate the wording is before you place your first order.


Steve Weedon is CEO of Cartridge World Global & Cartridge World North America, and a regular contributor of industry articles, including imageSource magazine and China-based Recycling Times. For info visit www.irecyclingtimes.com

About the Author: Steve Weedon

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