What are Problems with IP Indemnity in Supply Contracts?
IP Indemnity in Supply Contracts
Indemnity provisions in supply contracts play a critical role in protecting purchasers and distributors from intellectual property infringement claims, but relying solely on default protections under the Uniform Commercial Code (“UCC”) can expose buyers to significant risk. Careful drafting of contractual indemnities is often necessary to close gaps left by the UCC and to align protection with how products and software are actually used in modern systems.
Limits of the UCC’s Default Intellectual Property Indemnity — UCC § 2-312(3) provides a default warranty that goods will be delivered free of “rightful” infringement claims, but it does not impose a duty to defend, leaves ambiguity around disputed claims, may not clearly apply to software, and fails to address infringement that arises only when products are used in combination with other components. These shortcomings can force purchasers to bear defense costs and liability even when suppliers’ products materially contribute to infringement.
Contractual Indemnities: Benefits and Common Pitfalls — Contract-based IP indemnity provisions can significantly improve buyer protection by adding defense obligations, defining procedures for handling claims, and addressing remedies if infringement is found. However, many supplier-drafted provisions narrow protection through geographic limits, combination and modification carve-outs, depreciation-based refund caps, and boilerplate disclaimers of implied warranties or liability caps that may effectively gut the indemnity.
Structuring Effective IP Indemnity Provisions — Well-drafted supply contracts should anticipate real-world use, including system integration and modified or combined products, and should preserve UCC non-infringement warranties while carving IP indemnities out of liability limitations. Ideally, agreements also include express IP warranties and mechanisms for allocating defense and indemnity obligations among multiple suppliers in combination infringement scenarios.
For more information, see our blog post IP Indemnity in Supply Contracts: Common Vexing Problems.
Klemchuk PLLC is a leading IP law firm based in Dallas, Texas, focusing on litigation, anti-counterfeiting, trademarks, patents, and business law. Our experienced attorneys assist clients in safeguarding innovation and expanding market share through strategic investments in intellectual property.
This article is provided for informational purposes only and does not constitute legal advice. For guidance on specific legal matters under federal, state, or local laws, please consult with our IP Lawyers.
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