Software publishers that try to require an indemnification clause from their customers for use of the publisher’s software are often met with resistance. Providing software generally creates a risk to the customers that buy the software. But there are several occasions where an indemnity provision indemnifying the publisher for the end-user’s use of software may be appropriate because it creates a risk to the publisher or supplier.
- Misuse of the software
Customers may create a risk for the publisher or supplier of software if the customer misuses the software in a way that could create third-party claims. For such an indemnity to be appropriate,or even acceptable by a customer, the permitted uses for the software should be clearly included in a license agreement.
- Customer content
In hosted solutions, the publisher is usually providing a place for the customer to store data. The customer data,otherwise referred to as content, may pose a risk to the publisher if the content contains items such as items that may infringe upon a third-party’s trademark, copyright, patent, or other intellectual property.
Whether software customers may be wary of indemnifying its suppliers out of habit or from company policy, there are circumstances where an indemnity may be appropriate in both traditional software licenses, and SaaS agreements.
Indemnification provisions are a common source of concern because one party is asking another party to accept certain responsibilities that may not be obvious. Although a requested indemnity for misuse of software and proving content may be reasonable under certain circumstance, indemnification clauses may be drafted in ways that can be confusing,especially when indemnity terms are coupled with several exceptions or conditions.
When examining an indemnity clause, it can be helpful to inquire about the need for the indemnity. For example, identifying the indemnitee’s concerns is helpful, and how the indemnity clause would protect the indemnitee. Obtaining additional clarification can help a party better understand the motive behind the clause and provide information to help in deciding whether the clause is acceptable. If a boilerplate indemnity clause is being used, it may contain terms or conditions that are not applicable or appropriate to the transaction.
When reviewing and negotiating indemnity clauses, it can also be helpful to employ the assistance of legal counsel for guidance on the reasonableness of the indemnity clause, explanation of any confusing terms, and drafting of modifications to tailor the indemnity clause to the specific transaction between the parties.