The Licensing Corner

• Jurisdiction: California,United States
• Citation: Vol. 46 No. 2
• Publication year: 2021
• topic: Contracts,Intellectual Property,Technology

The Licensing Corner

John Pavolotsky

Intel Corporation

POTENTIAL PITFALLS (AND SOLUTIONS) IN TECHNOLOGY LICENSING AGREEMENTS

Words are tools of the trade for attorneys, and, perhaps, especially for those specializing in technology licensing agreements. The IP indemnification provision, ubiquitous in technology license agreements, represents the perfect crucible for forging language that will reflect the intent of the parties and withstand the test of time.

Typically, IP indemnification provisions are the "long pole in the tent," the last roadblock to the parties shaking hands, virtually of course, and downloading the software package (and, hopefully, getting paid). To make a point, during various presentations I have compared these provisions to the building of Gaudi's masterpiece, the Basilica de la Sagrada Familia, in Barcelona. Construction started in 1882 and is expected to finish after 2026. I last visited in 2018 and, like many, have my doubts about the projected end date. Thankfully, most IP indemnifications are not multi-year affairs, although some may require considerable time to conclude, especially if the parties are updating an older agreement (which itself had been heavily negotiated) and/or there are unusual indemnification carve-outs.

Here's a typical (i.e., not necessarily optimal) IP indemnification provision, where the LICENSOR is a software vendor and the LICENSEE is the customer:

LICENSOR will, at its expense, defend, indemnify and hold harmless LICENSEE against any claim brought against LICENSEE that LICENSEE's use of the Software infringes any intellectual property right of any third party (the "Claim"). LICENSEE will give LICENSOR prompt written notice of the Claim. LICENSOR will have the exclusive right to defend and settle the Claim. LICENSEE may participate in the defense of the Claim with counsel of its own choice, at its own expense. LICENSOR's obligation under this Section will not apply where: (1) LICENSOR enhanced or modified the Software to meet LICENSEE's specifications; (2) LICENSEE modified the Software without LICENSOR's prior written permission; or (3) LICENSEE combined the Software with any third-party product.

An entire article, if not a set of articles, can be written on IP indemnification provisions. That said, as this article focuses on discrete phrases with legal significance, I will draw the reader's attention to the following five words: defend, indemnify and hold harmless. Defend and indemnify are straightforward enough. In the example above, an obligation to defend would require the LICENSOR to defend a third party IPR infringement claim (regardless of whether that claim ultimately leads to an adverse judgment). Without more, the LICENSEE could be responsible for the losses from any adverse judgment. In contrast, an indemnity obligation would require the LICENSOR to pay for the losses incurred by the LICENSEE from a covered claim. In California, unless the parties intend differently, "[t]he person indemnifying is bound, on request of the person indemnified, to defend actions or proceedings brought against the latter in respect to the matters embraced by the indemnity, but the person indemnified has the right to conduct such defenses, if he chooses to do so[.]"¹ Put otherwise, the duty to defend is subsumed in the duty to indemnify. Still, as laws can vary, it is best practice to separately list out the duty to defend and the duty to indemnify.

This brings us to hold harmless, and in particular, the difference (if any) between indemnify and hold harmless. Unfortunately, legal dictionary definitions are unhelpful, sometimes equating indemnify...