Website Development Contracts, Part 4: Indemnification

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TECHNOLOGY LAW CORNER
Website Development Contracts, Part 4: Indemnification

As utilized in web site improvement contracts, indemnification sometimes considerations whether or not the seller will defend you in court docket for those who later get sued in your use of the know-how, together with Intellectual Property (IP), or companies offered by the web site improvement vendor.

In some cases, a well-drafted indemnity clause can shield you in litigation ensuing out of your violation of a web site improvement contract which ends up in third-party claims towards you and/or your vendor. Whether it’s your vendor or a 3rd get together that initiates the lawsuit, it would be best to know the place the proverbial “buck” stops when the authorized payments begin to roll in — and who can pay these authorized payments.


This is Part Four of a sequence offering recommendation to e-commerce companies on key provisions and issues for web site improvement contracts. Also see:

Part 1: How to Avoid Major Disasters
Part 2: Who Owns the IP on Your Site?
Part 3: Important Cloud and SLA Considerations


One technique to deal with the dangers of potential litigation for unknown dangers is to agree within the web site improvement contract earlier than it’s signed who can be liable for paying these authorized prices — ought to they come up. In broad authorized phrases, that is what is often known as an “indemnification” clause.

Indemnification merely refers to a contractual discount the place one get together guarantees to defend the opposite get together within the occasion of a lawsuit — probably tied to sure unknown or maybe even recognized dangers.

Prepare in Advance

Not all indemnity provisions are created equally, although, as they are often fairly slim and issue-specific, or far-reaching. The sensible implications of the vary of indemnification protection necessitates a well-informed understanding of the obligations and dangers specified by your particular web site improvement contract.

At a minimal, you must evaluate the indemnification phrases in your web site improvement contract so that ought to you be served with a lawsuit, you recognize what diploma, if any, of obligation the web site improvement vendor could have. Knowing the place to show when an surprising lawsuit pops up is definitely comforting.

Here is an instance of an Indemnification/Non Infringement provision from a pattern website development contract offered by Columbia University:

In performing companies below this Agreement, DEVELOPER agrees to not design, develop, or present to COMPANY any gadgets that infringe a number of patents, copyrights, logos, or different mental property rights (together with commerce secrets and techniques), privateness or different rights of any particular person or entity. If DEVELOPER turns into conscious of any such potential infringement in the midst of performing any work hereunder, DEVELOPER shall instantly so notify COMPANY in writing. DEVELOPER agrees to indemnify, defend, and maintain COMPANY, its officers, administrators, members, workers, representatives, brokers, and the like innocent for any such alleged or precise infringement and for any legal responsibility, debt, or different obligation arising out of or on account of or regarding (a) the Agreement, (b) the efficiency of the Agreement, or (c) the Deliverables. This indemnification shall embody attorneys’ charges and bills, except DEVELOPER defends towards the allegations utilizing counsel moderately acceptable to COMPANY. DEVELOPER’s complete legal responsibility below this Agreement shall not exceed twice the quantity of income derived by DEVELOPER below this Agreement.

It is protected to imagine that each web site improvement contract has an indemnity clause.

What to Do if Sued for Improper Use of IP

Assuming these indemnity provisions exist in your web site improvement contract and also you get sued by a 3rd get together for improper use of their IP, what then do you do?

The very first thing to do is instantly present your web site improvement vendor a written copy of the lawsuit together with a letter particularly requesting that the seller defend you within the lawsuit. Your letter ought to embody particular references to the contract’s relevant indemnification language. Then, at the least one in every of two issues might occur:

First, the web site developer vendor because the indemnitor agrees to defend you because the indemnitee within the lawsuit, however you could help if, and when the event vendor asks for any particular details about your use of the IP in dispute. In addition, it’s possible you’ll want to help within the litigation course of by offering paperwork or offering witnesses for depositions. Ultimately, if the lawsuit doesn’t settle then you could have to offer witnesses at trial. However, the event vendor can pay all of the authorized charges and bills except there’s a dispute between you and the event vendor.

Or…

Second, the web site improvement vendor refuses to indemnify you and you could defend you firm within the IP litigation. Of course this may be costly to organize for trial, and whether or not you ever get to trial or not you could have the appropriate to develop the lawsuit and convey the web site improvement vendor into your lawsuit as what’s known as a “third party defendant.” Therefore, for those who lose the lawsuit you’ll be able to assert a declare within the court docket motion towards the web site improvement vendor.

Alternatively, you could possibly defend your self within the lawsuit, all over trial, with none involvement by the web site improvement vendor. In that occasion, for those who settled the case earlier than trial or tried the case to a judgment, you could possibly then carry a separate lawsuit towards the web site improvement vendor to get better your attorneys’ charges and bills.

What if the web site improvement vendor is sued in your alleged IP violation?

It is feasible {that a} third-party vendor might sue your web site improvement vendor for some IP infringement. It can be potential in that state of affairs that the web site improvement vendor claims no accountability for and asks you to defend their pursuits in that litigation, that’s you indemnify the web site improvement vendor within the litigation.

Whether it is a potential state of affairs is dependent upon the language and breadth of your web site improvement contract’s indemnification clause. Whether or not you’d conform to that sort of an indemnification would, after all, be dictated by the specifics of your distinctive set of information and circumstances.

Let us assume your web site improvement contract has a broadly worded indemnity clause. What occurs then for those who refuse to indemnify the web site improvement vendor on the premise that you just did nothing improper and also you didn’t infringe the third-party IP?

Well, the web site improvement vendor might defend itself in litigation after which — as soon as the case is settled or ends in a closing judgment — carry a separate go well with towards you for breach of the contractual indemnification. Alternatively, the web site improvement vendor might foist you into the primary lawsuit by bringing you in as a “necessary third-party defendant.”

Conclusions

Every web site improvement contract addresses the problem of indemnification, so hopefully you could have a greater concept about what indemnification means and the way it might have an effect on your authorized rights and obligations sooner or later. If you could have questions concerning the scope or interpretation of your contract’s indemnification provision(s), it is a good suggestion to interact a lawyer who has expertise in drafting and negotiating web site improvement contracts and statements of labor, together with indemnification provisions.

This web site improvement sequence ought to enable you be taught extra about authorized points to think about and what to barter. So please keep tuned for the longer term installments in our sequence, which is able to embody matters equivalent to, lawsuits and arbitrations, and associated matters.


Peter VogelPeter Vogel has been an ECT News Network columnist since 2010. His focus is on know-how and the legislation. Vogel is Of Counsel at
Foley & Lardner LLP, and focuses on cybersecurity, privateness and knowledge administration. He tries lawsuits and negotiates cloud contracts coping with e-commerce, ERP and the Internet. Before practising legislation, he obtained a grasp’s in laptop science and was a mainframe programmer. His
blog covers IT and Internet matters.
Email Peter.

Chelsea HilliardChelsea Hilliard has been an ECT News Network columnist since 2019. As an affiliate at Foley & Lardner LLP, she focuses her enterprise
litigation apply on commerce secret noncompetition and securities enforcement. She additionally helps purchasers with advanced digital discovery disputes and has been
acknowledged as Texas Rising Star legal professional by Texas Monthly, and a Top Lawyer below 40 by D Magazine. Email Chelsea.



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