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This Wisdom of the Crowd, compiled from questions and responses posted on the Intellectual Property Law eGroup*, addresses a Web Developer's Reluctance to Indemnify a Law Firm Against Patent Infringement of Developer's Work Product For the Firm.*(Permission was received from the ACC members quoted below prior to publishing their eGroup Comments in this Wisdom of the Crowd resource.)
We're in negotiations to hire a website developer to build an e-commerce website for us. The developer is resisting indemnifying us, the client, for patent infringement for fear of patent trolls. While I'm sympathetic to the developer's concerns, I think that, as between the developer and the client, the developer is in a better position to bear the risk that the developer's work product infringes on a patent. The developer disagrees, saying that they are just building what we've asked for and, thus, we should be responsible for patent infringement arising from the functionality of the website. I'm wondering whether any of you have encountered this or a similar position from web developers and what sort of creative solutions you've considered. Thanks.
Wisdom of the Crowd:
Response #1: My prior client was a custom software developer so I have dealt with this issue many times. My standard approach was establishing that each party is responsible for what it brings to the table. If the client wanted features A, B, and C, then client was responsible for the IP consequences of those features. If the developer suggested that the client needed features D, E, and F, then the developer was responsible for the IP consequences of those features.
The rationale for my approach is that the developer is an expert in writing code but not in IP. In fact, my developers were told that they could not advise clients on IP consequences or run any types of IP searches for clients. When they received those questions and were escalated to me, I would discuss with the client's counsel that, if there were concerns, then they would need to have an IP attorney run patent/freedom to operate checks or obtain IP insurance. 100% of the time, the clients agreed with this approach and I have started to see it echoed more frequently in standard contracts. The basic "carve-out" for IP indemnification that I used was along the lines of this: The foregoing indemnification obligations will not apply to any suit for which the service and/or deliverable is created pursuant to designs, ideas, instructions, materials, requirements, or specifications of client.
I hope that this helps. Feel free to email me if you would like to discuss further.1
Response #2: If the developer is using home grown tools - which is unlikely - full patent indemnification is proper. However they're likely bundling tools and adding some design work. I've often worked around this by requiring indemnification for original work and pass through indemnification from the vendors whose technology is in the site.2
Response #3: I've encountered this situation many times and view this from two extremes:
Extreme One: This is an off-the-shelf configuration that used the vendor's proprietary template(s) and vendor-owned set of tools, which they deploy for their other clients (e.g., software as a service "SaaS" products). In this case, it's reasonable to ask the vendor to indemnify you against third party IP claims, including patent infringement claims. They've designed the website templates, and all they're doing is "configuring" the code to provide you functionality that's already integrated within their template application and tool sets.
Extreme Two: This is a custom design and build, which is based on your individual specifications. You determine the features and functionality of the website, and they code the site from the ground-up. No Wordpress, no Wix, etc. Just hypertext markup language (HTML), extensible markup language (XML), etc. Under this extreme, it's reasonable for the vendor to resist indemnifying you against third party patent infringement claims. That said, you'd want IP indemnification from the vendor to ensure that any ideas or routines and vendor toolsets used do not infringe on any third party's IP rights (including patent rights). This is sometimes accomplished by having certain representations and warranties hang off of the indemnification provision (e.g., the vendor has not provided the same or similar designs or code to any third party, the tool sets (each specified in the scope of work) are owned by the vendor, and the vendor has the right to provide you (the client) the license grant to such vendor tool sets.)
Your engagement might fall between these two extremes. The closer you are to one extreme, the stronger your argument for patent infringement coverage. You should also conduct some due diligence to determine whether the vendor has sufficient pockets to stand behind any such indemnity. Likewise, have they been subject to patent infringement claims?3
1Angelo Spenillo, Corporate Counsel, Siteimprove, Inc. (October 18, 2016).
2William Snead, General Counsel, cPanel, Inc. (October 18, 2016).
3Steven Rosenboro, Managing Attorney, Operations, Cox Media Group (October 18, 2016).
Region: United States
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