Indemnification clauses are among the most consequential — and most overlooked — parts of a technology licence. If you are the licensee, a few standard limitations can leave you carrying the risk of someone else’s patent claim.
What indemnification does — both ways
Indemnities usually protect both parties:
- As licensor/vendor, you agree to compensate the licensee for losses from third-party IP infringement claims — if someone sues your customer saying the licensed tech infringes their patent, you cover legal fees and damages.
- As licensee, you agree to compensate the licensor for losses from breach of confidentiality or misuse of the product (especially software).
Each side wants limited liability for itself and unlimited for the other — so always read the “limitation of liability” provisions alongside the indemnity.
The licensee’s key protection
If you are the licensee, focus on the indemnity for third-party IP infringement. If a court finds the licensed tech infringes another’s patent, you need business continuity. A sound licensor indemnity typically requires the licensor to do one of:
- secure the right to keep using it on the same terms;
- modify the tech to be non-infringing while keeping substantially equivalent performance;
- supply substantially equivalent alternative tech; or
- refund all payments.
Four limitations to reject
- Temporal limitation — “indemnification only during the term.” Post-contract IP suits still threaten you. Reject.
- Future IP rights — refusing indemnity for IP issued after signing leaves you exposed to later patents. Reject.
- Geographic restriction — excluding indemnity for international distribution undermines a global strategy; if unavoidable, negotiate lower royalties for unprotected territories.
- “Finally awarded” language — indemnity only after a final judgment can mean years of exposure. Reject; you need cover as the exposure arises.
Practical guidance
- Read the indemnity and the liability cap together — one can gut the other.
- Push for a real remedy menu (procure rights / modify / replace / refund), not a token indemnity.
- Get experienced counsel before signing — the financial stakes justify the review.
Frequently asked questions
What does an indemnification clause do in a tech licence? It allocates who bears the cost if a third party sues — typically the licensor covers third-party IP infringement claims, and the licensee covers confidentiality breaches or misuse.
What should a licensee insist on? An indemnity for third-party IP infringement that requires the licensor to secure rights, modify, replace, or refund — with no crippling limitations.
Which limitations should a licensee reject? Term-only cover, exclusion of future IP, geographic carve-outs, and “only after a final award” language.
Why review the liability cap too? Because a low or one-sided limitation of liability can neutralise the protection an indemnity appears to give.
Legislation referred to
- The Indian Contract Act, 1872