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(Message started by: mike on May 30th, 2005, 6:16am)

Title: Hold Harmless & Indemnify
Post by mike on May 30th, 2005, 6:16am
Hey All,

I am looking at a proposed exclusive patent license agreement. The licensee want the licensor to indemnify and hold harmless the licensee in the event of a claim or suit of infringement.

Both parties can agree that there would be no infringement without the product, but the licensee states that the licensor should be responsible for licensee's losses. I do not agree.

What is usually the case ?

Title: Re: Hold Harmless & Indemnify
Post by mike on May 31st, 2005, 7:29am
Good Morning,

Anybody with some thoughts on this topic?

It appears that indemnification can be very costly, and is an unknown or not predictable future cost. Looking at the possible royalty compared to the cost of possible hold harmless and indemnification It is not such a good idea.

The interested and potential licensee says that he would not leave me hanging and that he will back me up if something should arise. Wow, that make me want to sign the agreement. ....warm and fuzzy.

It is possible that he knows that I will not sign, and just wants a way to negotiate the royalty down.

Does this guy seem slimmy or should I think he is just doing business move ??

Thanks,       mike

Title: Re: Hold Harmless & Indemnify
Post by JimIvey on Jun 2nd, 2005, 5:57pm
It's really impossible to answer your question with the information you've given.

I don't believe there's any "usual" party (licensee vs. licensor) to assume risk that a particular product/service might infringe another's patent(s).  Generally speaking, one side assumes that risk and the other side gives up something in exchange, usually money.

If the licensee doesn't mind assuming that risk, I don't see how that makes him/her slimy.

If the contract includes no indemnification clause, my understanding is that each party assumes their own risk for infringing activity.  As licensor, you're probably not going to make, use, or sell anything and therefore do not substantially risk infringement liability.  Some might argue that your license is an inducement to infringe, but I think that's a stretch under current law.  

On the other hand, the licensee is going to be making, using, and/or selling something (presumably).  If you don't promise to indemnify them, it seems they've assumed that risk themselves.

However, all of these issues are often very specific to the specific contract and it's not clear what those terms are.  And, from what I've read here, it's impossible to say whether anybody is slimy or unreasonable in any way.

Good luck.

Title: Re: Hold Harmless & Indemnify
Post by mike on Jun 4th, 2005, 8:00am

Thanks for taking the time to comment.

Since I am not a seasoned business person, I can often let emotion take over my thinking.

Considering negotiation tatics, I will agree that the potential licensee is not necessarily slimmy.

Can you please explain your "inducement to infringe" comment ?

Thanks Again,        mike

Title: Re: Hold Harmless & Indemnify
Post by JSonnabend on Jun 6th, 2005, 7:28am
Mike -

From the direction this thread is taking, I fear you are trying to "go it alone" in these negotiations.  That's likely a Big Mistake.

While Jim is very generous in his advice in these forums -- advice which is sound in every instance I know of -- even he will tell you not to rely on the general advice you obtain here in making substantive, real world decisions.

If you are as inexperienced as you suggest, you should seriously consider hiring a qualified IP attorney to handle the negotiations for you.  Even well seasoned business people do that.

- Jeff

Title: Re: Hold Harmless & Indemnify
Post by mike on Jun 6th, 2005, 11:00am

I very much appreciate your concern.

Please be advised that I am working with an IP attorney on this matter.

The insight and information I gain from this forum and other sources are used to better my understanding of the processes / concepts involved and improves communication between myself and my attorney. The forum has been very helpful in this regard.

For the record, the indemnification and hold harmless line item was originally deleted from the draft agreement by my attorney.

The potential licensee has asked me to add the line item back to the agreement. I have advised that I will not sign an agreement with such a line item.

The negotiation process is slow as our legals are not part of the routine discussions, but are consulted before decisions are made.

Thanks Again,         mike

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