In addition to limiting what a compensating party must do in response to certain claims, you can also list actions that could void the indemnification obligation. For example, in the case of claims of intellectual property infringement, it is customary to waive the obligation if the violation is caused by misuse of the SaaS service by the customer or any other breach of contract. Many other refinements are possible, but the fact is that the parties can do more than agree on an indefinite indemnification obligation. If you are the licensee, you first want to make sure that compensation is not just a temporary provision until the end of the initial agreement. For example, you can use software for a specified compensation period without any problems, only for the license agreement to end. If the indemnification clause only applies to the term of the original license agreement and you are suddenly affected by an intellectual property action after the term, you may not have recourse to the licensor. Therefore, make sure that the compensation goes beyond your initial contract. Even if the agreement contains provisions on compensation, you need to carefully consider how they will be implemented. For example, does the licensor pay the legal fees and defend the claim or simply reimburse you as soon as the claim is „definitively“ granted? In the latter case, you cannot be compensated until the final verdict on the trial is rendered, which can take years. A surprising number of indemnification provisions in all types of contracts do not limit the scope of compensation to third-party claims – which is all a compensation provision should cover.

If both parties are exposed to the same risk, neither party usually compensates them. However, if one party presents a unique risk to the other, a well-designed compensation provision is intended to reduce the risk and create a more balanced agreement that is accessible to all parties. For example, a SaaS service provider that processes financial data exposes its customers to both intellectual property infringement claims and data breach claims. Therefore, the SaaS provider can only provide compensation for the infringement of intellectual property and loss of data from its systems. There are certain things that the law does not allow people to compensate them. For example, „sole negligence“ and „wilful misconduct“ in California cannot be compensated under Section 2782(a) of the Civil Code, and most states have similar provisions. But if not, you can negotiate compensation for everything in your contract. Most compensation agreements may be restricted or procedures may be put in place to allow for greater transparency and predictability. This is most often the case with a complaint of intellectual property (IP) infringement. As a general rule, in the face of claims of intellectual property infringement, the SaaS provider`s obligation is to settle the claim by 1) granting the necessary rights, 2) replacing the infringing intellectual property with non-counterfeit intellectual property, or 3) terminating the contract. These limitations on the scope of compensation correspond to the realities that the agreement cannot continue without intellectual property and that the SaaS provider has only certain options to provide a non-counterfeit service. A indemnification provision exists to reduce or eliminate the risk of third party claims, not the risk of a party breaching the Agreement.

Such wording turns a indemnification provision into a backdoor to include a provision for attorneys` fees and can provide additional causes of action in an infringement action. Always avoid this. The impact and adequacy of a promise of indemnification may be affected by other provisions of your SaaS Service Agreement: the monetary limits of your limitation of liability clause (or lack thereof), the scope of your representations and warranties, the existence of an informal dispute resolution process to resolve inconsistencies in indemnification provisions, and last but not least, your insurance coverage for claims entitled to compensation. When it comes to trade agreements, a key element that is often included is a compensation provision. This is essentially an obligation for the licensor to be held liable for any loss that may arise in the event of a problem (sometimes the licensor may also receive compensation from the customer, but this is less common). For example, if you license a technology and there is an inherent flaw that led to a data breach, the indemnification clause would specify that you are responsible for things like attorneys` fees or damages to the third party. While a set-off clause is a fairly standard part of technology licensing agreements, there are some potential parts of a clause that can lead to larger problems. Here are some examples. International companies should also be very careful to read the fine print when it comes to clearing clauses.

Very often, a technical licensor limits its indemnification obligations to violations of U.S. laws. If you distribute products with the licensed technology in other countries, you may be held responsible for all claims. Since intellectual property laws can vary from country to country, you should consider whether you should insist that the licensor be responsible for foreign claims. In some cases, a licensor may refuse to be compensated abroad, so your ability to obtain this protection depends on your leverage. This is the second article for non-lawyers on key issues in SaaS service contract negotiations. The first item dealt with representations and warranties, and this position moves on to another provision often discussed and negotiated between lawyers – promises of compensation. This blog series concludes with a final article on limitations of liability. In general, with licensing agreements, the majority of the potential pitfalls you`ll find regarding indemnification clauses are based on intellectual property issues. For example, some clauses provide that a technical licensor will not compensate you if the intellectual property rights on which an infringement claim is based are issued/registered after the original date of the contract. This may sound right on paper, but you should be aware that even if the rights are registered after your contract expires, you can still be sued, and without this protection, you will be caught defending the claim out of your own pocket. Compensation is usually one of the most negotiated provisions in enterprise software and SaaS contracts.

As a supplier, how should you decide when and how to pay your customers? What should you demand and expect from the supplier as a customer? The words have meaning and there is a big difference between whether compensation is triggered by claims „caused“ by a party`s violation versus claims „related to“ or „of“. (3) The SELLER has several strong defences against each claim. Compensation is one of the key issues in any licensing transaction and must be carefully considered. A brief overview and some thoughts on this important topic. (1) The SELLER must spend $ to defend the CUSTOMER (or the Seller is liable under the indemnification ($ to be paid in the future)) even before it is proven that the Seller is to blame, and think of it this way: the Seller must spend $ to protect the Customer from the claim, and the Customer does not have to spend $, to achieve this.. .