In today’s fast paced and ever-evolving global tech market, Software License Agreements are critical for buying and selling the latest and greatest in software and software-as-a-service (SaaS). On their face, Software License Agreements may seem like benign formalities for buying and selling software – a quick means to an end; however, they are anything but.
A Software License Agreement will contain many of the standard terms and conditions you would expect to find in a commercial agreement, including an intellectual property (IP) indemnification provision. An IP indemnification provision establishes several obligations between the parties and states which party assumes responsibility for defending an IP infringement lawsuit
During contract negotiations, the Licensor must pay close attention to any redlines made to the IP indemnification provision by the Licensee. The IP indemnification provision will contain certain carve outs designed to relieve the Licensor from its indemnification obligations if the Licensee causes the software to infringe a third party’s IP. Common examples include, but are not limited to:
- A Combination Carve Out: Under a combination carve out, if the Licensee combines the software with hardware (or other software) not provided or expressly approved by the Licensor, and that combination results in an IP infringement claim, then the Licensor is not obligated to indemnify the Licensee for the infringement.
- A Modification Carve Out: A modification carve out relieves the Licensor from its IP indemnification obligations if it makes modifications to the software based on specifications provided by the Licensee, which causes the software to infringe a third party’s IP.
Savvy Licensees will negotiate hard over IP indemnification provisions and the carve outs associated with them – and for good reason. An IP infringement lawsuit can cost a business owner hundreds of thousands (if not millions) of dollars to defend. As such, a Licensor must closely analyze any edits the Licensee proposes to the IP indemnification provision of the Software License Agreement. Even the slightest tweak of the contract language can unwittingly shift full indemnification liability from one party to the other.
Software License Agreements should be thoroughly analyzed. Contact Hunter Business Law and have an experienced contracts attorney review your Software License Agreements to ensure that your interests are protected.
This Blog was written by Hunter Business Law Attorney Elisa Keller. View her profile HERE.
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