Lots of agreements involving technology have both an express warranty of non-infringement, as well as a third party indemnity against non-infringement. For instance, if you’re licensing a piece of your company’s software to a third party, the third party might ask for both a warranty of non-infringement, as well as a third party indemnity obligation. Sounds innocuous enough, right? An easy give in the negotiation? Maybe not.
Think about what could happen if someone comes out of the woodwork and asserts an infringement claim against your client. They’ll most certainly tender the claim to you for indemnification. However, if you have an IP warranty as well, they could conceivably also assert a breach of warranty claim against you for breach of the non-infringement warranty. This could allow the other side to “double dip” on damages, seeking both indemnification and direct damages.
“Good information,” you say. “No more warranties, just indemnification.” Not necessarily. An IP warranty does something that the indemnity does not…for certain types of IP claims, it can give the recipient of the warranty an “innocent infringer” defense to a claim of infringement, as they would allege that their allegedly infringing behavior was in reliance on the warranty. So, what you can do is give the warranty (it should be a “to the best of its knowledge” warranty ideally), but specifically state that the sole and exclusive remedy for breach of the IP warranty is indemnification pursuant to the IP infringement indemnity elsewhere in the agreement. This gives your client the best of both worlds, while ensuring you’re protecting your client.
On the flip side, if you’re licensing software, you always want to request both an IP warranty and an IP indemnity, and if the other side gives you trouble, just explain why the warranty is needed in addition to an indemnity, and offer the exclusive remedy language to placate any “double dipping” concerns they may have.
Jesus, this was incredibly helpful.
Thank you for this. Extremely helpful.
Very helpful write-up that I can use to explain to business people who care about the practical effect of the contract but don’t always understand why we lawyers are making a fuss about these terms. That said, I have found that I have to reframe this with clearer language about who “you” and the “third party” and the “client” are. Here’s my edit:
Lots of agreements involving technology have both an express warranty of non-infringement, as well as a third party indemnity against non-infringement. For instance, if a licensor (the Technology Company) is licensing a piece of its software to an end user (the Customer), the Customer might ask that the Technology Company both provide a warranty of non-infringement and agree to indemnify the Customer against third party claims that Technology Company’s software infringes the third party’s IP. Sounds innocuous enough, right? An easy give in the negotiation? Maybe not.
Think about what could happen if a third party comes out of the woodwork and asserts an infringement claim against the Customer. The Customer will most certainly tender the claim to the Technology Company for indemnification. However, if the Technology Company has also made a non-infringement warranty, the Customer could conceivably also assert a breach of warranty claim against the Technology Company for breach of the non-infringement warranty. This could allow the Customer to “double dip” on damages, seeking both indemnification and direct damages.
“Good information,” you say. “When representing sellers and licensors like the Technology Company, we will give no more non-infringement warranties, just indemnification.” Not necessarily. The Customer has a reasonable case for asking for the warranty as well (even without any motivation to “double dip”). An IP warranty gives the Customer something that the indemnity does not…for certain types of IP claims, it can give the recipient of the warranty (here, the Customer) an “innocent infringer” defense to a third party claim of infringement. In other words, if a third party sues the Customer, and the Technology Company has made a non-infringement warranty, the Customer can answer the third party claim by asserting that the Customer’s allegedly infringing behavior was in reliance on the warranty that the Customer received from the Technology Company.
So, as the Technology Company, if you want to help protect your Customer by enabling the Customer to make use of the “innocent infringer” defense, your Technology Company can give the warranty (to limit the Technology Company’s liability, it should be a “to the best of its knowledge” warranty ideally), but specifically state that the sole and exclusive remedy for breach of the IP warranty is indemnification pursuant to the IP infringement indemnity elsewhere in the agreement. This gives the Customer greater protection than an indemnity alone, without allowing the Customer to go after the Technology Company for direct damages.
On the flip side, if you’re representing the Customer that is in-licensing software, you always want to request both an IP warranty and an IP indemnity, and if the supplier gives you trouble, just explain why the warranty is needed in addition to an indemnity, and offer the exclusive remedy language (i.e., agree that as the Customer, your exclusive remedy for the Technology Company’s breach of its warranty that the software is non-infringing is getting the Technology Company to cover the infringement claims you face from third parties) to placate any “double dipping” concerns they may have.