Indemnification: Exceptions and Exclusions

Commercial Contract

Indemnification: Exceptions and Exclusions

Basic Limitations

As illustrated in the following exemplars, a party may reject indemnification liability to the extent that a claim arises from the acts or omissions of the indemnified party seeking indemnification:

Exemplar C38E-1

Except to the extent caused by the acts, errors, or omissions of the indemnified party, each party shall indemnify, defend, and hold harmless each other party and its Affiliates and their respective officers, directors, employees, and agents from and against third party claims made against the indemnified party, including but not limited to claims for death, bodily injury, or physical damage to or loss or destruction of any real or tangible personal property, to the extent caused by the indemnifying party’s gross negligence or willful misconduct.

Exemplar C38E-2

This indemnity does not apply to the extent any such loss, damage, liability cost or expense arises from Contractor’s actions or omissions that are: (i) outside the scope of the agreed-upon Services; or (ii) reckless, wanton, malicious, illegal or negligent. To the extent that a third-party claim, action, demand, or suit arises out of one or more of the conditions stated in the sentence immediately preceding this sentence (“Services Claims”), Contractor will at its expense indemnify, defend, and hold harmless Customer from such loss, damage, liability, cost, or expense (including reasonable legal fees and expenses) arising from such Service Claims.

Exemplar C38E-3

The Client shall indemnify and hold harmless the Provider and its officers, directors, employees, shareholders, delegates and agents (the “Indemnitees”) from and against any losses, costs, damages or expenses, including reasonable attorneys’ fees and expenses, which the Indemnitees may incur or pay out by reason of (i) the Indemnitees acting in accordance with the directions of the Client; (ii) the Client’s exercise and performance of its powers and duties hereunder, unless the same are determined to be due to the Provider’s gross negligence, bad faith, willful misconduct, or breach of this Agreement or applicable law; or (iii) any (alleged or actual) action or inaction on the part of the Client, unless such losses, costs, damages or expenses arise out of the Provider’s gross negligence, bad faith, willful misconduct, or breach of this Agreement or applicable law.

Exemplar C38E-4

Supplier will indemnify, defend, release, and hold Buyer, its Affiliates and their respective officers, directors, employees and agents, past, present and future, harmless from and against any liability, damages, losses, costs, judgments, fines, penalties or expenses, including legal expenses (collectively, “Costs”), arising out of claims, demands, actions, causes of action, proceedings or suits, whether in law or in equity (each a “Claim”), due to, arising out of, incidental to or in connection with any (1) acts or omissions of Supplier or Supplier Personnel except to the extent caused by Buyer’s sole negligence; (2) claim relating to the infringement or use of a third party’s intellectual property rights by Supplier, provided Supplier’s infringement indemnity obligation will not apply to the extent a Claim arises from a drawing or design specification provided by Buyer; (3) breach by Supplier of any of the terms of this Agreement.

Specific Exclusions

In the following exemplar, the parties enumerate specific claims that are exempted from the indemnifying party’s indemnification obligations:

Exemplar C38E-5

Contractor shall have no obligation or liability to Licensee under this Section:

(a) if Contractor is not: (i) promptly notified in writing of any such claim; (ii) given the sole right to control and direct the investigation, preparation, defense and settlement of such claim, including the selection of counsel; and (iii) given full reasonable assistance and cooperation by Licensee in such settlement and defense;

(b) to the extent that any such claim arises from: (i) modification of the License Software if the claim of infringement would have been avoided by use of the unmodified License Software; (ii) design, specifications or instructions furnished by Licensee; or (iii) the combination of the License Software with any other product, service or technology; or (iv) the use of the License Software or any part thereof in the practice of a process if Licensee does not incorporate the Licensed Software into a device of which the end-user is a consumer;

(c) to the extent the claim is based directly or indirectly upon the quantity or value of products manufactured by means of the License Software and or Licensed Product, or upon the frequency of use or the amount of use of the License Software and/or Licensed Product irrespective of whether such claim alleges the License Software and/or Licensed Product as such, or its use, infringes or contributes to the infringement of any intellectual property rights of the claimant;

(d) for unauthorized use or distribution of the License Software or use beyond the specifications of the License Software;

(e) to the extent any such claim arises from Licensee’s manufacture, use, sale, offer for sale, importation or other disposition or promotion of the Licensed Products incorporating the License Software after CONTRACTOR’ notice to Licensee that Licensee should cease any such activity, provided such notice shall only be given if the License Software is, or in CONTRACTOR’ opinion is likely to become, the subject of such a claim of infringement;

(f) for any costs or expenses incurred by Licensee without CONTRACTOR’ prior written consent;

(g) to the extent the claim is based on any prototypes or risk production units;

(h) to the extent any such claim arises from any infringement or alleged infringement of any patent, copyright, trademark, trade secret or other intellectual property rights covering a standard set by a standard setting body and/or agreed between at least two companies; or

(i) for infringement of any third party’s intellectual property rights covering the manufacture, testing or application of any assembly, circuit, combination, method or process in which the License Software may have been used; or

(j) for infringement of any third party’s copyright or trade secret with respect to which CONTRACTOR has informed Licensee or has published (in a datasheet or other specifications concerning the Licensed Software or elsewhere) a statement that a separate license has to be obtained and/or that no implied license is granted.

Patent Infringement Exclusions

As the following exemplars confirm, the indemnifying party’s obligation to indemnify against claims of patent infringement are commonly subject to a variety of exemptions and exclusions, including the following:

Claims Arising from Indemnified Party’s Acts or Omissions

In the following exemplar, the parties agree that an indemnifying party will be relieved of its indemnification obligations against IP infringement claims to the extent the infringement claim arises from specified acts or omissions of the indemnified party:

Exemplar C38E-6

Company will have no indemnification obligation with respect to any infringement or misappropriation claim based upon (A) any use of the Product not in accordance with the Agreement or for purposes not intended by Company; (B) any use of the Product in combination with other products, equipment, software, or data not supplied by Company; (C) any use of any release of the Product other than the most current release made available to Licensee; or (D) any modification of the Product made by any person other than Company. THE FOREGOING STATES THE ENTIRE LIABILITY OF COMPANY AND LICENSEE’S SOLE AND EXCLUSIVE REMEDY WITH RESPECT TO INFRINGEMENT AND MISAPPROPRIATE CLAIMS OR ACTIONS.

In the following exemplar, not only may an indemnified party lose indemnification protection against claims arising from its acts and omissions, but it may actually acquire indemnification liability for such claims:

Exemplar C38E-7

This indemnity does not apply to the extent any such loss, damage, liability cost or expense arises from Vendor’s actions or omissions that are: (i) outside the scope of the agreed-upon Assessment Services; or (ii) reckless, wanton, malicious, illegal or negligent. To the extent that a third-party claim, action, demand, or suit arises out of one or more of the conditions stated in the sentence immediately preceding this sentence (“Services Claims”), Vendor will at its expense indemnify, defend, and hold harmless Customer from such loss, damage, liability, cost, or expense (including reasonable legal fees and expenses) arising from such Services Claims.

Compliance with Specifications

In the following exemplar, the indemnification exception that applies when the indemnifying party follows an indemnified party’s specifications is itself subject to qualifications:

Exemplar C38E-8

SUPPLIER shall not have liability or obligation hereunder to the extent that an Infringement Claim is based on:

i. a use of the Accused Element by the Indemnified Parties in contravention of this Agreement,

ii. any modification or alteration of the Accused Elements by an Indemnified Party that is unauthorized by SUPPLIER, but only to the extent that absent such modification or alteration, there would be no claim of infringement, or

iii. Indemnified Party Specifications, but only to the extent that

1. there was no technically feasible non infringing alternative means of complying with those specifications;

2. the relevant elements of the Accused Elements are not in compliance with nor conform to an industry standard;

3. the Accused Elements (or the accused functionality therein) are not and have not been, at any time, provided by or on behalf of the SUPPLIER to any third party;

4. the Accused Elements are not available and have not been at any time available on the open market (i.e. provided or offered at any time by a third party to another party other than Customer); and

5. the infringing aspects of the Accused Elements are not of SUPPLIER’s (or their sub-SUPPLIER’s) origin, design or selection.

“Indemnified Party Specifications” for the purposes of this Section shall mean requirements, information, input, code, trademarks, content or materials authored by, supplied by, and required of SUPPLIER by the Indemnified Parties under this Agreement.

Exemplar C38E-9

The foregoing indemnification obligation shall not apply to a Claim to the extent that it is based on; (1) use or sale of any of the Products in combination with other products or software not provided by Seller, which combination was not authorized by Seller, was not authorized or described in the specifications, and was not reasonably necessary for the intended use of the Product and the infringement resulted from such combination; (2) use of any of the Products in a manner or for a purpose for which they were not contemplated or consistent with their written specifications or this Agreement; (3) any modifications to the Products or Software (other than selection or de-selection of Product functions, features or capabilities that are available to Indemnitee or its customers, including by the payment of additional fees when specified by Seller, or any combinations or subsets thereof) not made by or for Seller or with Seller’s authorization and the infringement resulted from such modification; (4) compliance with the specific instructions or specifications of the Indemnitee, but only to the extent that Seller had no discretion as to the method or manner of so complying with Indemnitee’s specification and compliance with such specific instructions or specifications resulted in the infringement; and (5) any Intellectual Property right owned by Customer or Intellectual Property right licensed by Customer.

But-For Causation

In the following exemplars, the parties clarify that acts or omissions of the indemnified party which lead to indemnification forfeiture must have a “but-for” causal connection to the claim of infringement:

Exemplar C38E-10

The indemnifying party shall have no obligation under this Agreement to the extent any claim of infringement is caused by (i) use or sale of the infringing materials in combination with any other products not provided by the indemnifying party (other than combinations that may be reasonably anticipated by the indemnifying party) if the infringement would not have occurred but for such combination, except where there is no commercially reasonable non-infringing use for the product in any combination; (ii) any material alteration or modification of the product not intended, authorized by the indemnifying party, or subsequently incorporated into the product by the indemnifying party, if the infringement would not have occurred but for such alteration or modification; or (iii) the indemnifying party’s compliance with the indemnified party’s unique written specifications if there was no possible non-infringing implementation of such unique written specifications and the infringement would not have occurred but for such unique written specifications.

Exemplar C38E-11

Supplier will not be responsible for indemnifying Customer to the extent the Infringement Claim Liability results solely from: (i) the Deliverables or Supplier's Necessary Background being modified by Purchaser other than as approved, specified or directed by the Supplier or otherwise approved in the documentation and/or Specifications, if such infringement would have been avoided but for such modification; or, (ii) the Deliverables or Supplier's Necessary Background being used by Purchaser in combination with equipment or Software not approved, specified, directed or provided by Supplier or otherwise approved by Supplier in the documentation and/or Specifications and other than equipment or Software that would reasonably be expected to be used in combination with the Deliverables or Supplier's Necessary Background, if such infringement would have been avoided but for such combination.

In the following example, the but-for-causation qualifier is itself subject to qualifications:

Exemplar C38E-12

Notwithstanding the foregoing, Licensor shall have no obligation under this Agreement to the extent any Customer Claim of infringement is caused by (i) use of the Software or Deliverables in combination with products, software, or other technology not provided or authorized by Licensor or not provided for or described in the applicable technical documentation if the infringement would not have occurred but for such combination (except to the extent it is found by a court of competent jurisdiction that (a) the sale or use of the Software or Deliverables constitutes contributory or induced infringement by Licensor; (b) the combination is pursuant to Licensor’s written information or instructions applicable to the Software or Deliverables, or (c) there is no commercially reasonable non-infringing use for the Software or Deliverables other than in such combination); (ii) any material alteration or modification of the Software or Deliverables which Licensor did not authorize or later incorporate in Licensor’s generally available version of any Licensor product, if the infringement would not have occurred but for such material alteration or modification (the parties agree that the mere integration or incorporation of the Software or Deliverables into a Product shall be deemed an authorized alteration or modification); (iii) Licensor’s compliance with Customer’s detailed written design specifications, if the infringement would not have occurred but for Licensor’s implementation of such specifications; or (iv) Software distributed by Customer beyond a reasonable period after Customer’s receipt of the replacements or modifications provided by Licensor under this Agreement, provided that such reasonable period shall be of sufficient duration to enable Customer to implement the replacements or modifications (each of the foregoing, an “Excluded Claim”).

New Patents

In the following exemplar, the indemnification obligation does not apply to a claim of infringement of newly issued patents:

Exemplar C38E-13

Vendor shall hold Customer harmless from amounts actually paid to unaffiliated third parties resulting from a claim by such third party that: (i) a Product infringes any validly issued United States patent issued sixty (60) days or more before the beginning of the Software Services Term applicable to such Product; or (ii) a Product infringes any copyright or misappropriates any trade secret; or (iii) arises from an indemnification obligation pursuant to an indemnification obligation that is provided for in an applicable Exhibit; provided Vendor is promptly notified of any and all threats, claims and proceedings related thereto (provided that a failure to provide prompt notice shall not relieve Vendor of its obligations hereunder except to the extent Vendor is materially prejudiced by such delay) and given reasonable assistance by Customer at Vendor’s expense, and the opportunity to assume sole control over defense and settlement (without limiting the foregoing, Vendor will not be responsible for any settlement it does not approve).

Integrated Exemplar

Many of the exceptions and exclusions applicable to an indemnifying party’s indemnification obligation discussed above are incorporated into the following illustrative exemplar:

Exemplar C38E-14

Seller shall have no obligation or liability to Buyer under this Section if Seller is not: (i) promptly notified in writing of any such claim; (ii) given the sole right to control and direct the investigation, preparation, defense and settlement of such claim, including the selection of counsel; and (iii) given full reasonable assistance and cooperation by Buyer in such investigation, preparation, settlement and defense; (2) if the claim is made after a period of three (3) years from the date of delivery of the Product; (3) to the extent that any such claim arises from: (i) modification of the Product if the claim of infringement would have been avoided by use of the unmodified Product; (ii) design, specifications or instructions furnished by Buyer; or (iii) the combination of the Product with any other product, service or technology; or (iv) the use of the Product or any part thereof in the practice of a process if Buyer does not incorporate the Product into a device of which the end-user is a consumer; (4) to the extent the claim is based directly or indirectly upon the quantity or value of products manufactured by means of the Product or upon the frequency of use or the amount of use of the Product irrespective of whether such claim alleges that the Product as such, or its use, infringes or contributes to the infringement of any intellectual property rights of the claimant; (5) for unauthorized use or distribution of the Product or use beyond the specifications of the Product; (6) to the extent any such claim arises from Buyer's manufacture, use, sale, offer for sale, importation or other disposition or promotion of the Product after Seller’s notice to Buyer that Buyer should cease any such activity, provided such notice shall only be given if the Product is, or in Seller’s opinion is likely to become, the subject of such a claim of infringement; or (7) for any costs or expenses incurred by Buyer without Seller’s prior written consent; or (8) to the extent the claim is based on any prototypes, risk production units, or Excluded Software; (9) to the extent any such claim arises from any infringement or alleged infringement of third party's intellectual property rights covering a standard set by a standard setting body and/or agreed between at least two companies, (10) for infringement of any third party's intellectual property rights covering the manufacture, testing or application of any assembly, circuit, combination, method or process in which the Product may have been used, or (11) for infringement of any third party's intellectual property rights with respect to which Seller or any of its Affiliates has informed Buyer or has published (in a datasheet or other specifications concerning the Product or elsewhere) a statement that a separate license has to be obtained and/or that no implied license is granted.

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Indemnification: Exceptions and Exclusions

Commercial Contract

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