Patent Infringement Risk & Contractual Indemnities

I don't know if there's been an actual spike in patent infringement suits lately, or it's just that popular perception is catching up to something that's been trending for a while.

The radio show This American Life had a great episode about patent trolls recently. You might not think the subject lends itself to 60 Minutes treatment, but it does, or in any event the NPR show made it work.

The British news outfit, The Guardian, ran a widely tweeted story last month under the headline, "App developers withdraw from US as patent fears reach 'tipping point.'"

Indemnity_Bar_LightingIn any event, I do see the problem weighing on the minds of the CFOs and the business development people and the lawyers who work out license and development contracts.

The problem is hard and getting harder, though, ironically, it is easier today to put an indemnity provision on the table and talk about it. Parties in the negotiation appreciate they are apportioning risk that is ever more attenuated from actual culpability.

Here are some approaches to indemnity I see being discussed:

  • Eliminate patents altogther from IP infringement reps and/or indemnities
  • Restrict indemnity against patent infringement to knowing infringements
  • Narrow scope to cover only damages awarded from finally adjudicated damage awards
  • Substitute for indemnity against patent infringement an obligation to procure a license (or pay the extortion exacted by a troll, depending on your point of view)

Different parties have different hot buttons, but it is typical now for everyone on the conference call to acknowledge that patents should be handled differently than copyrights and trade secrets. After all, you can't really infringe a copyright or trade secret in perfect innocence.

But patent infringement is a different matter. It can be like trespassing on a piece of property that magically appears underneath your feet.

Pictured: Fred MacMurray, a/k/a Will Ferrell's Dad, in Double Indemnity.


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