Ip Indemnity Clauses In Technology Contracts
📌 1. What Is an IP Indemnity Clause?
It’s a contractual promise that:
The vendor will defend, indemnify, and hold the customer harmless against claims that the software/service infringes third-party IP rights.
It covers:
Copyright
Patents
Trademarks
Trade secrets
📌 2. Why It’s Critical in Tech Contracts
Technology providers supply code, platforms, APIs, SaaS, AI tools — all of which can accidentally infringe.
Without indemnity:
Customer bears litigation cost
Product use may be stopped by injunction
📌 3. Legal Nature
IP indemnity is governed by:
| Law | Relevance |
|---|---|
| Indian Contract Act, 1872 | Indemnity obligations |
| Copyright Act, 1957 | Software infringement |
| Patents Act, 1970 | Patent violation risk |
| Trade Marks Act | Brand misuse |
| Commercial contract principles | Risk allocation |
📌 4. What IP Indemnity Typically Covers
✔ Defense of claims
✔ Court damages
✔ Settlement costs
✔ Legal fees
Usually triggered when:
Customer uses product as permitted
No unauthorized modification
📌 5. Common Limitations Vendors Seek
❌ No coverage for customer modifications
❌ No coverage for combination with third-party tools
❌ No coverage if customer ignores updates
❌ Liability cap tied to contract value
📌 6. Remedies Instead of Paying Damages
Vendor may choose to:
Obtain license for customer
Modify product to avoid infringement
Replace product
Refund fees
📌 7. Major Legal Risk Areas
| Risk | Impact |
|---|---|
| Patent trolls | Expensive litigation |
| Open-source contamination | GPL disclosure risk |
| AI training data IP claims | Emerging issue |
| Trademark misuse in UI | Brand disputes |
| Third-party components | Hidden infringement |
📌 8. Important Case Laws
⭐ 1) Engineering Analysis Centre of Excellence v. CIT (2021, SC)
Principle: Nature of software license rights clarified.
Impact: License scope affects infringement exposure.
⭐ 2) Tata Consultancy Services v. State of Andhra Pradesh (2004, SC)
Principle: Software treated as goods in legal context.
Impact: Reinforces commercial value and risk in software supply.
⭐ 3) Microsoft Corp. v. Yogesh Papat (Delhi HC)
Principle: Unauthorized software copying is infringement.
Impact: Vendors liable for unauthorized software distribution.
⭐ 4) Super Cassettes v. MySpace (2016, Delhi HC)
Principle: Digital platforms must act upon knowledge of infringement.
Impact: Liability for IP violations in hosted services.
⭐ 5) Google India Pvt. Ltd. v. Visaka Industries (2020, SC)
Principle: Liability tied to control and knowledge.
Impact: Tech intermediaries cannot fully escape responsibility.
⭐ 6) Shreya Singhal v. Union of India (2015, SC)
Principle: Digital intermediary liability boundaries.
Impact: Affects hosted service IP exposure.
⭐ 7) Ferid Allani v. Union of India (2019, Delhi HC)
Principle: Software-related inventions may be patentable.
Impact: Patent infringement risk in software products.
📌 9. Essential Drafting Elements
✔ Definition of IP claims
✔ Defense control
✔ Notice obligations
✔ Settlement approval
✔ Exclusions
✔ Liability cap carve-out
✔ Continued service during dispute
📌 10. Corporate Risk Management
IP clearance checks
OSS compliance
Vendor due diligence
Patent landscape review
Indemnity carve-outs from liability cap
📌 11. When Disputes Escalate
Serious exposure when:
Injunction stops business operations
Patent infringement in core system
Indemnity capped too low
Vendor insolvent
Cross-border IP litigation
📌 12. Key Legal Takeaway
IP indemnity clauses are risk transfer tools in tech contracts.
Protection depends on:
Scope + exclusions + cap carve-outs + defense control.
Weak drafting = customer carries infringement risk.
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