If you purchase a technology or contract someone for development of technology or for technology-based services without sufficiently protecting yourself, you may end up being sued for intellectual property infringement even though you had no knowledge of such infringement. In a recent copyright infringement case, a website operator and its owner were sued for copyright infringement arising from a display of a spokesperson video on defendants’ website that a web developer provided for defendants to increase their website traffic. Plaintiff claims that the defendants used an infringing version of its software to display the video on the website. Even though defendants neither had any knowledge of the alleged infringement, nor host the allegedly infringing software, the court refused to dismiss the case.
This post explains what customers of technology development or other technology-based services need to know to minimize financial risks from third party IP infringement lawsuits and how to make sure that they will have funds for litigation.
There are several mechanism and tools that can be utilized for protecting your business from financial losses through intellectual property defense and indemnity provisions, non-infringement representations and warranties, and intellectual property defense insurance provisions.
Indemnities. Make sure that developer promises to protect your losses from lawsuits and to fund your defense in case of lawsuits concerning developed or purchased intellectual property. Include a provision allowing for survival of the indemnity provision after expiration or termination of your agreement because third party may file a claim against you after your relationship with developer has been terminated.
Protected people. Make sure that your agreement contains broad definition of people, who are protected by indemnity (e.g. directors, agents, employees of a party to the agreement) because non-signatories to your technology service or purchase agreement can also be sued.
Insurance policy. The indemnity and defense provision is only good if the indemnifying party has sufficient assets to fund IP litigation and to pay for your losses in lawsuit. Therefore, it is important to require that developer or owner of the IP obtain an IP defense insurance policy, which reimburses the litigation expenses to defend against charges of infringing third party’s IP rights.
Deferred payment provisions. In case insurance money might not be immediately available or in case cost of IP insurance may be prohibitive for a party in your transaction, your agreement should provide for deferred payment of developer’s fees with the right to offset litigation losses against the deferred amount.
Representations and Warranties. To provide for an additional protection, include guarantees of developer/seller of technology’s ownership of intellectual property rights to the technology and guarantee of non-infringement of third party rights.
This is an educational post by Olga Zalomiy, an Intellectual Property Attorney in Los Angeles, California. Our goal is to protect your interests. Call (310) 461-3776 for a consultation or send us an e-mail at firstname.lastname@example.org