Representations, Warranties, Indemnification, Other Commercial Terms

From Suffolk Software Licensing
Jump to: navigation, search

Contents

Representations and Warranties

Example Representations and Warranties

Simple Representations and Warranties

No Infringement. Supplier warrants to Customer that Licensed Materials, and their use do not violate any patent, copyright or trade secret of any third person. The warranty of this paragraph shall not apply if infringement is due to the use or incorporation of any materials not supplied by Developer to Customer or and any change or modification of such materials by anyone other than Developer.
Performance. Supplier warrants to Customer that Licensed Program shall perform substantially in accordance with its Documentation.
Limitations of Warranties. EXCEPT AS SPECIFIED IN "No Infringement" and "Performance" above, DEVELOPER MAKES NO WARRANTY OF ANY KIND RELATED TO THE PRODUCTS OR SERVICES PROVIDED HEREUNDER, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

More Specific Examination of Certain Concepts

Difference Between "Title" and "Noninfringement"

Does an non-infringement warranty make sense for a patent license or license to trade secrets?

What is the difference between "title" and "noninfringement" warranties

Warranty of Title

Example:

Supplier represents and warrants that (1) except as provided in Section [ ] hereof with respect to certain identified preexisting works licensed to Customer, it is and will be the sole author of all works employed by Supplier in preparing any and all Deliverables; (2) it has and will have full and sufficient right to assign or grant the rights and/or licenses granted in the Deliverables pursuant to this Agreement and all Deliverables or parts thereof specified herein as being owned by Customer shall be owned by Customer free and clear of any third party claims (including claims by any supplier or employee of Supplier); (3) all Deliverables, including all preexisting works addressed in Section 6.4 hereof, have not been and will not be published under circumstances that would cause a loss of copyright therein; and (4) all Deliverables, including all preexisting works addressedin Section [ ] hereof, do not and will not infringe any Intellectual Property Rights of any third party, nor has any claim (whether or not embodied in an action, past or present) of such infringement been threatened or asserted, nor is such a claim pending, against Supplier (or, insofar as Supplier is aware, any entity from which Supplier has obtained such rights).
Variations on "Noninfringement"

Specific warranties regarding open source software:

Supplier has not and will not take any actions that: (i) create, or purport to create, any obligation on behalf of, or (ii) grant, or purport to grant, any rights or immunities to any third party under Customer’s intellectual property or proprietary rights. By way of example but not limitation of the foregoing, Supplier has not and shall not incorporate any software or technology (collectively, “Open Source Technology”) in whole or in part in the development of any part of any Deliverable that requires as a condition of use, modification, and/or distribution of such Open Source Technology that such Open Source Technology or other Open Source Technology incorporated into, derived from, or distributed with such Open Source Technology (x) be disclosed or distributed in source code form; (y) be licensed for the purpose of making Derivative Works, as that term is defined under U.S. copyright law; or (z) be redistributable at no charge. Examples of Open Source Technology include any materials distributed as free software, open source software, shareware (e.g. Linux), or similar licensing or distribution models, including but not limited to software licensed or distributed under any of the following licenses or distribution models, or licenses or distribution models similar to any of the following: (a) GNU's General Public License (GPL) or Lesser/Library GPL (LGPL), (b) The Artistic License (e.g., PERL), (c) the Mozilla Public License, (d) the Netscape Public License, (e) the Berkeley software design (BSD) license including Free BSD or BSD-style license, (f) the Sun Community Source License (SCSL), (g) an Open Source Foundation License (e.g., CDE and Motif UNIX user interfaces), and (h) the Apache Server license.

Warranty Regarding Performance

For an overall review of express and implied warranties regarding performance, see Understanding Warranties.

Warranty of performance is normal for physical goods and software products.

Does a warranty of performance make sense:

  • For an OEM agreement
  • For a reseller agreement
  • For a book?
Example Longer Form Warranty of Performance
Supplier represents and warrants (1) that the Supplier Product was prepared in a workmanlike manner and with professional diligence and skill; (2) that the Supplier Product will function on the machines and with operating systems for which it was designed; (3) that the Supplier Product conforms to the specifications and functions (including any related Documentation); and (4) that Supplier will perform all services hereunder in compliance with applicable law manner and with professional diligence and skill.
Standard of Performance

"strict" performance, vs. "materially comply"

Time of Making of Warranty
  • At time of execution
  • At time of delivery
  • At time of acceptance
Term of Warranty
  • Limited to short period of time (30 days? 90 days?)
  • For term of relationship
Remedies
  • Repair or refund
  • Commercially reasonable efforts to repair
Impact of Magnuson Moss

Indemnification

General Concept

  • Similar to insurance -- Indemnifying party takes on the responsibility to defend the other party against third party claims, even if frivolous.
  • In order for this to make sense, the claims in question should have a very high probability of being the fault of the indemnifying party.
  • If you are going to indemnify someone (i.e. pay claims), you want to be in charge of the defense
  • If you are going to let someone indemnify you, you want to make sure their defense is appropriate (they are capable of defending you), and they don't have any conflict of interest
  • In general, software license and book publishing agreements contain indemnification for third party infringement claims
  • It would be somewhat less usual for security issues

Simple Example -- Intellectual Property Infringement

If a third party claims that the Software infringes any patent, copyright, trade secret, trademark or other intellectual property right, Supplier will defend Licensee against such claim at Supplier's expense and pay all damages that a court finally awards, provided that Licensee promptly notifies Supplier in writing of the claim, allows Supplier to control, and cooperates with Supplier in, the defense or settlement of such action.
However, Supplier has no obligation for any claim based on a modified version of the Software or its combination, operation, or use with any product, data, or apparatus not provided by Supplier.

Similar Example -- With Mitigation Clause

If a third party claims that the Software infringes any patent, copyright, trade secret, trademark or other intellectual property right, Supplier will defend Licensee against such claim at Supplier's expense and pay all damages that a court finally awards, provided that Licensee promptly notifies Supplier in writing of the claim, allows Supplier to control, and cooperates with Supplier in, the defense or settlement of such action.
If such a claim is made or appears possible, Supplier may, at its option, secure for Licensee the right to continue to use the Software, modify or replace the Software so they are noninfringing, or, if neither of the foregoing options is available in Supplier's judgment, require Licensee to return the Software for a credit equal to the portion of previously paid License fees allocable to the remaining term of the License. (If the License is perpetual, the License Fee will be amortized over a five-year useful life.)
However, Supplier has no obligation for any claim based on a modified version of the Software or its combination, operation, or use with any product, data, or apparatus not provided by Supplier.
THIS SECTION STATES SUPPLIER'S ENTIRE OBLIGATION TO LICENSEE WITH RESPECT TO ANY CLAIM OF INFRINGEMENT.

See Exceptions to Indemnification Provisions for Additional Issues

More Extensive Indemnification

In some instances, more extensive indemnification is requested:

Supplier will indemnify, defend and hold Customer, its affiliates and, subsidiaries, and its and their respective directors, officers, employees and agents (collectively, "Customer Persons") harmless from any and all damages, liabilities, costs and expenses incurred by any Customer Person as a result of any breach of this Agreement by Supplier, including without limitation resulting from:
(i) any claim, judgment or adjudication against Customer Person that alleges that any Deliverable infringes any Intellectual Property rights of any third party;
(ii) any actual or alleged defect in any Deliverable which would cause the warranties of Supplier in Section [__] to be breached;
(iii) any claim for injuries to persons (including death) or loss of, or damage to, tangible property, occasioned by negligence, unlawful act, or willful misconduct of Supplier or its personnel, subcontractors, or agents; or
(iv) any claim for payment of compensation, employee benefits, or salary asserted by any employee, agent, or subcontractor of Supplier.

Similarly, a more extensive and specific procedure may be requested:

The person seeking indemnification (the "Indemnified Person") shall promptly notify the other party (the "Indemnifying Party") in writing of any claim for which it seeks indemnification, provided the failure or delay in doing so shall not relieve the Indemnifying Party from any obligation to indemnify any Indemnified Person except to the extent such delay or failure materially prejudices the defense of any such claim. The Indemnifying Party will have control of the defense of any action and all negotiations for settlement and compromise, but shall not make any settlement binding on any Indemnified Person without the Indemnified Person's consent except if such settlement provides a complete and absolute release of such person. The Indemnified Party shall provide the Indemnifying Party with reasonable assistance and information necessary to perform the above, with the Indemnifying Party to be responsible for any out-of-pocket expenses of any Indemnified Person in providing such assistance. If any Indemnified Person desires to have separate legal representation in any such action, such Indemnified Person shall be responsible for the costs and fees of its separate counsel.

Contractual Remedies and Restrictions on Remedies

  1. Termination
    • Effect of Termination
    • Survival of Sections
  2. Indemnification
  3. Refund
  4. Damages

Limitations on Liability

As a back-stop to limit obligations under an agreement, many contracts contain limitations on liability. This is true both in the licensing context and in other commercial agreements.

Simple Limitation on Liability

General limitation on damages that are not "direct damages"

NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES OF ANY KIND IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT, WHETHER IN CONTRACT, TORT OR OTHERWISE, EVEN IN THE EVENT THAT IT IS ADVISED OF THE POSSIBILITY THAT SUCH DAMAGES MAY ARISE, OCCUR OR RESULT.

But note the problem with the above provision in the case of use outside the scope of a license term.

Sometimes it would be appropriate to put the following in:

THE PROVISIONS OF THIS SECTION SHALL NOT LIMIT EITHER PARTY’S RIGHTS UNDER ANY APPLICABLE INTELLECTUAL PROPERTY PROTECTION LAW (SUCH AS THE COPYRIGHT ACT) IN THE EVENT OF THE USE BY THE OTHER PARTY OR ITS END USERS OF ANY PRODUCT IN VIOLATION OF THE LICENSE TERMS IN THIS AGREEMENT.

Limitation on amount of even direct damages

Example:

THE CUMULATIVE LIABILITY OF SUPPLIER TO LICENSEE FOR ALL CLAIMS ARISING UNDER OR RELATED TO THIS AGREEMENT, WHETHER IN CONTRACT, TORT OR OTHERWISE, SHALL NOT EXCEED THE TOTAL AMOUNT OF ALL LICENSE FEES PAID TO SUPPLIER FOR THE RELEVANT SOFTWARE WITHIN THE PRIOR YEAR.

Exceptions to dollar limitations of liability

  • Personal injury or death
  • Infringement liability
  • Confidentiality
  • Breach of license terms

Example of more extensive limitation term:

EXCEPT FOR (1) THE PARTIES' RESPECTIVE CONFIDENTIALITY AND INDEMNIFICATION OBLIGATIONS, AND (2) LIABILITY FOR BODILY INJURY DAMAGES AND DAMAGE TO TANGIBLE PROPERTY ("EXCLUDED CLAIMS"), IN NO EVENT SHALL EITHER PARTY’S LIABILITY PURSUANT TO THIS AGREEMENT EXCEED THE AMOUNTS PAID BY THE CUSTOMER TO SUPPLIER UNDER SECTION [__] IN CONNECTION WITH THIS AGREEMENT DURING THE TWELVE (12) MONTH PERIOD PRIOR TO THE DATE THE CLAIM FIRST AROSE (IT BEING UNDERSTOOD THE FOREGOING DOES NOT LIMIT CUSTOMER'S LIABILITY FOR PAYMENT UNDER SECTION [__], BUT ONLY SERVES AS A MEASURE OF MAXIMUM DAMAGES APART FROM FAILURE TO PAY). THIS LIMITATION OF LIABILITY IS CUMULATIVE, WITH ALL PAYMENTS FOR CLAIMS OR DAMAGES UNDER THIS AGREEMENT BEING AGGREGATED TO DETERMINE SATISFACTION OF THE LIMIT. THE EXISTENCE OF ONE OR MORE CLAIMS OR SUITS WILL NOT ENLARGE THE LIMIT. THESE LIMITATIONS APPLY TO ALL CAUSES OF ACTION UNDER OR RELATING TO THIS AGREEMENT. EXCEPT FOR THE PARTIES' RESPECTIVE CONFIDENTIALITY AND INDEMNIFICATION OBLIGATIONS, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR INCIDENTAL, CONSEQUENTIAL, INDIRECT, OR SPECIAL DAMAGES TO THE OTHER PARTY ARISING OUT OF THIS AGREEMENT EVEN IF PREVIOUSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
NO OFFICER, DIRECTOR, EMPLOYEE OR AGENT OF A PARTY OR OF ANY SUBSIDIARY OR AFFILIATE, NOR ANY SUBSIDIARY OR AFFILIATE, OF EITHER PARTY SHALL HAVE ANY LIABILITY HEREUNDER.
THE PROVISIONS OF THIS SECTION [__] SHALL NOT LIMIT EITHER PARTY’S RIGHTS UNDER ANY APPLICABLE INTELLECTUAL PROPERTY PROTECTION LAW (SUCH AS THE COPYRIGHT ACT) IN THE EVENT OF THE USE BY THE OTHER PARTY OR ITS CLIENTS OF ANY PRODUCT IN VIOLATION OF THE LICENSE TERMS IN THIS AGREEMENT.

Other Significant Terms

  1. Protection of IP rights
    • Confidentiality (p. 299)
      • A "second bite" at the license restriction
    • Quality Control (p. 302)
    • Third Party Infringement (p. 304)
  2. Delivery and Acceptance
  3. Assignment/change of entity (p. 309)
    • Assignment
    • Merger
    • Sale of Assets
    • Bankruptcy
  4. Ownership of IP
    • Co-Ownership (p. 314)
    • Allocation of Ownership (p. 329)
      • Ownership of improvements (p. 296)
Personal tools
Namespaces
Variants
Actions
Navigation
Toolbox