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>Tip: IP Indemnification

>As patent and other intellectual property lawsuits continue to litter the video game landscape, it makes a mind wander to one of everyone’s favorite clauses in developer and publisher agreements: indemnification (which we have discussed before). This is one of those clauses that gets buried at the end of the agreement, often on the hope that it never gets discussed. And, certainly neither party ever hopes to have to invoke the indemnity clause. The problem arises that, while the clause generally does not see the light of day, should the clause ever become necessary — the dollars and stakes are bigger than ever anticipated.

A publisher will generally try to seek a broad indemnity from a developer, so that, if a patent owner sues the publisher alleging that the developer’s game infringes the patent (or other intellectual property), the publisher will be protected. The indemnity clause will be used to shield the publisher from the patent lawsuit (i.e., have the developer pay for the legal costs). The publisher’s position is that “you designed and developed the game — you should bear the risk if the game violates someone else’s intellectual property.”

A developer will generally try to limit the scope of the indemnity so that the developer’s obligations to shield are limited only to those specific things developed by the developer. For example, if the developer uses third party libraries or tools — is the developer willing to indemnify the publisher if those libraries or tools are the reason for the lawsuit? What if the publisher demands that certain development tools be used? Will the publisher indemnify the developer for the use of those tools? How about the scenario where the developer is developing a sequel to the publisher’s original game? Who should indemnify who for what?

I could write pages of questions to illuminate the different scenarios involved in the back-and-forth of negotiations on the indemnification clause, but that would probably only serve to further glaze your eyes over. Instead, if you take only one thing from this posting, then I hope that, should you ever have to read an indemnity clause because a lawsuit was filed, it won’t the first time you’re reading the clause.

Andy Ehmke focuses his practice on intellectual property portfolio issues facing companies in the software, computer, video game and mobile device industries. Prior to joining Haynes and Boone, Andy was an information systems manager and consultant, and also worked as a programmer designing object-oriented programs for hand-held computing devices.

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January 2011