Most compensation agreements may be restricted or procedures may be put in place to allow for greater transparency and predictability. This is most often the case with a complaint of intellectual property (IP) infringement. As a general rule, in the face of claims of intellectual property infringement, the SaaS provider`s obligation is to settle the claim by 1) granting the necessary rights, 2) replacing the infringing intellectual property with non-counterfeit intellectual property, or 3) terminating the contract. These limitations on the scope of compensation correspond to the realities that the agreement cannot continue without intellectual property and that the SaaS provider has only certain options to provide a non-counterfeit service. In this article (admittedly longer than usual), we look at what set-off clauses are, what they are supposed to achieve, how they can be abused, and how they should be treated. Reverse indemnification allows indemnifying parties to assert claims if the third party does not pay. (a) Luna hereby grants Customer the following limited compensation in connection with products purchased hereunder: Here are answers to some frequently asked questions about the general indemnification clauses: If both parties are exposed to the same risk, neither party will generally indemnify them. However, if one party presents a unique risk to the other, a well-designed compensation provision is intended to reduce the risk and create a more balanced agreement that is accessible to all parties. However, its customer exposes the SaaS service provider to the risk of claims from its end users due to the breach of its contractual obligations – such as the obligation to download only the data it is allowed to download. Given these risks, the Customer shall indemnify claims related to the breach of its contractual commitments to the SaaS Provider, including claims by a User that his personal or financial information has been misused by the Customer. Naked indemnification is when there is no limitation of liability. For example, a SaaS service provider that processes financial data exposes its customers to both intellectual property infringement claims and data breach claims. Therefore, the SaaS provider can only provide compensation for the infringement of intellectual property and loss of data from its systems.
Each of these five considerations will have an impact on whether a compensation provision is fair and proportionate and on the impact it may have on each party`s business in the short and long term. If you go through the risk analysis mentioned at the beginning of this article, you will be on your way to the right balance between rights and obligations when it comes to compensation. In addition to limiting what a compensating party must do in response to certain claims, you can also list actions that could void the indemnification obligation. For example, in the case of claims of intellectual property infringement, it is customary to waive the obligation if the violation is caused by misuse of the SaaS service by the customer or any other breach of contract. Many other refinements are possible, but the fact is that the parties can do more than agree on an indefinite indemnification obligation. Indemnification clauses consist of two key elements: a description of the specific event or circumstances that trigger the compensation (trigger) and a description of the types of losses for which the compensating party should be held liable (payment). Christopher is an experienced business lawyer, litigator and entrepreneur. He assists clients in strategic analyses, contracts, business start-ups, intellectual property and technology law, marketing and advertising issues as well as general business processes. He specializes in technology licensing and agreements, as well as commercial contracts with partners, developers, suppliers, and vendors, among others. He is a former partner at Big Law and has served as General Counsel for public and venture capital-backed companies.
With caution! When it comes to compensation clauses, the devil is really in the details. Common contracts with set-off clauses are as follows: Indemnification clauses in service contracts require one party to “compensate” the other in service companies. The word compensation comes from the Latin word compensation, which means “to suffer unharmed or unharmed, without prejudice or loss”. A indemnification clause is a promise made by one party (the indemnifying party) to be liable and to cover the loss of the other party (the indemnified party) if it would be unfair for the indemnified party to bear the loss. In this way, a clearing clause is a risk management tool. A surprising number of indemnification provisions in all types of contracts do not limit the scope of compensation to third-party claims – which is all a compensation provision should cover. The former would impose the impractical and often impossible requirement to prove the cause of the alleged violation by a third party in order to be compensated – but the cause is usually not determined until legal action on the claim takes place, which is rare as more than 95% of all claims are dismissed or settled before a trial. The latter option reasonably presupposes only that the third party asserts a link between its claim and the triggering indemnification provision.
Depending on the context, third-party compensation is generally acceptable (e.g.B. compensation for third-party claims for intellectual property infringement under software development agreements and compensation for third-party claims for bodily injury or property damage related to manufacturing and manufacturing contracts). .