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October 7, 2003 01:57 PM

Categories: Licensing Issues

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Jim

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Joined: 10/07/2003

My company has a vertical database application with a click wrap license agreement. Like many other contributors to this board, we are seeing an increase in our customers requiring custom agreements. The particular item we have a problem with is ¬?warranty that the product will not infringe or otherwise violate intellectual property rights of any third party¬?. My attorney in naturally advising us against this.

What are the risks of accepting such a clause? Does anyone have experience with this?

Discussion:    Add a Comment | Comments 1-9 of 9 | Latest Comment

October 7, 2003 2:10 PM

Hopefully Chip (who is an attorney) will jump in here. I'm not -- I'm speaking from experience only. You should continue to work with your attorney.

In my experience, yes, this is pretty typical. You're probably stuck with the risk. See if you cannot get away with inserting a clause that says that your entire obligation is to replace the offending material, obtain a license for the user, or if you can't, then the user must return the software. That latter clause limits your exposure quite a bit, in my non-legal opinion. Again, check with your attorney.

Chip has a Web-based license drafting service called http://digicontracts.com/. My recollection is that that clause is in there.

October 7, 2003 2:34 PM

Non-warranty for infringement is standard in nearly all software licenses, and yes, more and more customers are pushing back on this -- and it's a fair request, imho.

Your job (or your attorney's) is to limit your liability should any infringement be uncovered. Typically, this means you agree to give them back the software license fees, but nothing beyond that.

You also might take a look at attorney Lawrence Rosen's analysis of the problem, and the solution he came up with for his client; seems like a pretty sensible way out to me: http://www.rosenlaw.com/html/GL14.pdf

... offered with the usual disclaimer, of course: I'm no lawyer.

October 7, 2003 3:22 PM

Non-warranty for infringement is standard in nearly all software licenses
In my experience, only at the low end and only in click and shrinkwrap licenses where the user is assumed to be naive and have little ability to push back. In my experience licensing medium bucks software on a signed license, we ALWAYS had to eat some amount of liability for infringement.

Lawrence Rosen's solution may not solve most of the problems for most readers of this list. First, his client is giving away free software, which puts their licensees in less of a position to push back. Second, he deals only with copyright infringement. As he himself points out, you should certainly be 100% willing to take on all of the liability for copyright infringement: you know whether or not you wrote the software, don't you? Well, you might not know if one of your employees stole some of it, but you certainly ought to be willing to take on that responsibility. If you created the software without stealing anything, then you own the copyright (subject to some fine print, but basically this is true).

PATENT infringement, however, is a different can of worms entirely. You could be as pure as the driven snow in your development process, but it still could turn out that someone has patented (or is currently in the "secret" process of patenting) your method of doing things -- or could allege that he or she has. Your potential liability is zillions of dollars. The same situation is true to a much lesser extent for trademark infringement.

Disclaimer: general info, not legal advice, check with your lawyer.

October 7, 2003 4:47 PM

OK, so I should have said the standard opening stance in nearly all software licenses.

I.e., in days past when I was selling the big stuff, we caved in on the infringement issue all the time -- but we still started out with it in our litany of things not covered by warranty.

October 7, 2003 5:44 PM

Btw, I went through the first 200 Google hits I got on "software warranty infringement." I found 199 references to "no warranty, explicit or implied, blah blah blah" in regards to infringement, and exactly one that takes partial responsibility and provides for a reasonable (imho) resolution:

http://www.intellij.com/buy/idea/IDEA_license.jsp

(It's in the paragraph headed "Patent and Copyright Indemnity.")

October 8, 2003 7:43 AM

Thanks for sharing your insight. I like the ideas of charging more for the custom licenses, standing behind the copyright ownership, and limiting exposure to the cost of the software or a reasonable.

I¬?m also in the process of procuring new Error & Omissions insurance, is this ever covered in these types of policies?

Are there any other ways of ¬?accepting the risk¬? of this infringement. We¬?ve been in business for 15 years, own the copyrights (and stand behind them), and never had any infringement issues. It is the ¬?can of worms¬? patent infringement that has us worried.

October 8, 2003 10:17 AM

Two very quick answers:

In my experience, meaningful E&O insurance was virtually unaffordable, so we went without. Things may have changed.

Don't lose sleep over the patent issue. I'll try to find the time to post a longer note on the subject, but briefly, at my company we innocently (in intent) infringed a big deal "stealth" software patent. Ultimately it ended up costing us a little money but it was no big deal.

October 11, 2003 8:25 PM

I'm still not a lawyer, but I recently received a development agreement contract (from someone who's doing some work for SoftwareCEO) that has a fairly tasty section re: indemnification; it seems to my non-lawyerly mind like this ought to satisfy most clients (I've replaced my vendor's name with "Developer"):

8. INDEMNIFICATION.
8.1 DEVELOPER Indemnification of Client. DEVELOPER will indemnify, defend and hold Client harmless from and against any and all costs, liabilities, losses, and expenses (including, but not limited to, reasonable attorneys¬? fees) (collectively, ¬?Losses¬?) resulting from any claim, suit, action, or proceeding (each, an ¬?Action¬?) brought against Client alleging the infringement of any third party registered U.S. copyright or issued U.S. patent resulting from the provision of the Work pursuant to this Agreement provided that Client: (i) gives DEVELOPER prompt written notice of any such Action; (ii) allows DEVELOPER to direct the defense and settlement of the Action; and (iii) provides DEVELOPER with the authority, information, and assistance that DEVELOPER deems reasonably necessary for the defense and settlement of the Action.

Notwithstanding the foregoing, DEVELOPER will have no liability for any infringement or misappropriation Action of any kind to the extent it is based on or related to (i) Client¬?s modification of the Work or combination with non-DEVELOPER Work, if the claim would have been avoided had the Work not been so modified or so combined or (ii) Client Technology.

8.2 Client¬?s Indemnification of DEVELOPER. Client will indemnify, defend and hold DEVELOPER, its affiliates and customers harmless from and against any and all Losses resulting from or arising out of any Action brought by or against DEVELOPER alleging, with respect to the Work or Client¬?s use thereof, infringement or misappropriation of any intellectual property rights of any third parties relating to Client Pre-existing Technology or Client Confidential Information.

View unverified member's comment - posted by memphishank

Discussion:    Add a Comment | Back to Top | Comments 1-9 of 9 | Latest Comment

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