Negotiating Patent Indemnification Provisions

Transcription

1 Presenting a live 90-minute webinar with interactive Q&A Negotiating Patent Indemnification Provisions Allocating Patent Infringement Risk Through Indemnification Clauses, Reps and Warranties, and Limitation of Liability TUESDAY, JULY 17, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Robert E. Krebs, Partner, Nixon Peabody, Palo Alto, Calif. Eleanor Hynes Yost, Atty, Goodwin Procter, Washington, D.C. Ira A. Schreger, Partner, Vinson & Elkins, New York The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 10.

2 Tips for Optimal Quality Sound Quality If you are listening via your computer speakers, please note that the quality of your sound will vary depending on the speed and quality of your internet connection. If the sound quality is not satisfactory and you are listening via your computer speakers, you may listen via the phone: dial and enter your PIN -when prompted. Otherwise, please send us a chat or sound@straffordpub.com immediately so we can address the problem. If you dialed in and have any difficulties during the call, press *0 for assistance. Viewing Quality To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again.

3 Continuing Education Credits FOR LIVE EVENT ONLY For CLE purposes, please let us know how many people are listening at your location by completing each of the following steps: In the chat box, type (1) your company name and (2) the number of attendees at your location Click the SEND button beside the box

4 Conference Materials If you have not printed the conference materials for this program, please complete the following steps: Click on the + sign next to Conference Materials in the middle of the lefthand column on your screen. Click on the tab labeled Handouts that appears, and there you will see a PDF of the slides for today's program. Double click on the PDF and a separate page will open. Print the slides by clicking on the printer icon.

5 Patent Indemnification Provisions: Negotiating Indemnification Clauses to Allocate Patent Infringement Risk Introduction Eleanor M. Yost Goodwin Procter, LLP 2012 Goodwin Procter LLP

6 Patent Indemnification Provisions We are going to cover Definitions Common clauses Types of transactions Sales of goods/services Patent/technology license Joint R&D agreement Goodwin Procter LLP 6

7 What is a patent indemnification provision? A promise to compensate someone from losses resulting from third party claims of patent infringement Losses can be astronomical Allocating risk appropriately among the parties Boilerplate indemnification provisions are a big mistake! Seller, at its own expense, will indemnify, defend, and hold harmless Buyer against any claim, suit, action, or other proceeding brought against Buyer based on a claim that the Product(s) as delivered to Buyer infringes in any manner any patent right of a third party. Excellent for Buyer, terrible for Seller Doesn t address many issues Must consider type of agreement and parties involved Goodwin Procter LLP 7

8 Common Clauses: Indemnity Provisions Questions to Ask Type of agreement? Which parties are covered? Who does that extend to? What types of activities are covered? Limitations on liability? What type of costs or damages are covered? What types of claims are covered? Cooperation and duty to defend; remedy available When is indemnity triggered; when will I be paid? Choice of law; venue; location of infringement When does the obligation end? Goodwin Procter LLP 8

9 Definitions: Indemnity An indemnity is [a] collateral contract or assurance, by which one person engages to secure another against an anticipated loss. Resolution of patent validity is not required for resolution of indemnity Goodwin Procter LLP 9

10 Definitions: Representation A representation is a statement as to the existence of a fact, or state of mind which acts as an inducement to contract Examples: The Licensor is the legal owner of the Licensed Patent. (Existence of fact) To the best of the Licensor s knowledge the Licensee s practice of the rights is subject to no valid claims of infringement by any third party. (State of mind) Key elements Point in time Duration of reliance True but misleading representations Goodwin Procter LLP 10

11 Definitions: Warranty A warranty is a contractual promise that assures the existence of a fact or conduct upon which the other party may rely E.g., The Licensed Patent is not [representation], and during the Term of this Agreement shall not become [warranty], subject to any liens Remedies Contractual damages Rescission Goodwin Procter LLP 11

12 Definitions: Duty to Defend The duty to defend arises at the earliest stages of litigation and generally exists regardless of whether the party is ultimately found liable In contrast, indemnification only requires the indemnitor reimburse the indemnitee Goodwin Procter LLP 12

13 Types of Transactions: Sales of Goods and Services The Uniform Commercial Code Implied Warranty of Non-infringement Merchant/Dealer No specifications No other agreement Rightful claim of infringement Disclaim the UCC Warranty But does not matter if you expressly warrant against IP infringement Buyer may still want some sort of representation Can be limited by Seller Goodwin Procter LLP 13

14 Types of Transactions: Sales of Goods and Services Simple sale of goods or provision of services Indemnification is typically unilateral Seller indemnitor/buyer indemnitee Custom goods/services Buyer may have better knowledge of patent infringement risks Sellers should consider pushing risk to the Buyer Component products Seller does not know how Buyer will use the product or what the end product will be Seller should consider pushing risk to the Buyer Add special exclusion provisions Goodwin Procter LLP 14

15 Types of Transactions: Patent & Technology Licenses Implied Obligations No implied warranty under common law principles Typically unilateral, but subject to negotiation If you are the licensor, limit your obligations by: Putting a cap on liability Location Avoid providing an express warranty against IP infringement! No consequential, special, indirect damages No modifications Goodwin Procter LLP 15

16 Types of Transactions: Joint Ventures Joint Venture Agreements No standard common law principles Need clear unequivocal provisions to shift risk Each party agrees to indemnify the other according to the technology in which they have expertise/component they provide Joint ventures cannot be implied Indemnification obligations not automatically terminated Goodwin Procter LLP 16

17 Common Clauses: Limitations of Liability Claims Indirect infringement Personal injury, death or property damage Specific events Wrongful acts Goodwin Procter LLP 17

18 Common Clauses: Limitations of Damages Consequential Costs and expenses incurred to procure the services from an alternate source as a result of vendor s breach Expenses incurred due to breach Payments or penalties Third party Lost profits Goodwin Procter LLP 18

19 More to come! Eleanor M. Yost Goodwin Procter, LLP Goodwin Procter LLP 19

20 Negotiating and Drafting Patent Indemnification Provisions July 17, 2012 Ira Schreger Vinson & Elkins LLP

21 Agenda General Considerations Implied Warranty for Sales of Goods and Services General Drafting Considerations Considerations Unique to Patent Law 2012 Vinson & Elkins LLP 21

22 General Considerations 22

23 Purpose of an Indemnification Clause The purpose of an indemnification clause is to allocate risk between the indemnifying party (the indemnitor) and the indemnified party (the indemnitee). The first and most important step is to determine what your client desires to achieve under an indemnification clause. This will be your starting point for both drafting and negotiating Vinson & Elkins LLP 23

24 A Word of Caution Indemnification clauses are frequently negotiated at the end of the drafting process. This is the point where many people do not want to be bothered to spend the time negotiating what is perceived to be a boiler-plate provision. However, due to the far-reaching impact of indemnification clauses it is important to spend time thinking about how to best protect your client (whether the indemnitee or indemnitor). Indemnification clauses should not be rushed Vinson & Elkins LLP 24

25 Defend, Indemnify and Hold Harmless The indemnitor hereby agrees to defend, indemnify and hold harmless the indemnitee against any claims of patent infringement brought by third parties Vinson & Elkins LLP 25

26 Defend, Indemnify and Hold Harmless The indemnitor hereby agrees to defend, indemnify and hold harmless the indemnitee against any claims of patent infringement brought by third parties Vinson & Elkins LLP 26

27 What do these terms mean? Defend the indemnitor has to defend the indemnitee against any claims covered by the indemnification clause. But how does the indemnitor do this? Indemnify to reimburse (another) for a loss suffered because of a third party s or one s own act or default. 1 Hold harmless to absolve (another party) from responsibility for damage or other liability arising from the transaction. 1 Black s Law Dictionary states that indemnify and hold harmless are synonyms. Using both of these terms may create ambiguity where none needs to exist. 1 Black s Law Dictionary 2012 Vinson & Elkins LLP 27

28 A Sample Indemnification Provision Scope. The Licensor (the Indemnitor ) hereby indemnifies the Licensee and its directors, officers, employees, and agents and their respective successors, heirs and assigns (the Indemnitee ) against any and all damages arising out of, resulting from or related to any claim of patent infringement brought by a Third Party accusing any product manufactured by Licensee pursuant to this Agreement of infringing a U.S. patent (a Third Party Claim ), subject to the limitations set forth below. Notice. If the Indemnitee seeks indemnification, it shall give written notice to the Indemnitor promptly after the Indemnitee becomes aware of the facts giving rise to such claim for indemnification (an Indemnified Claim ), and in any event within 30 days, specifying in reasonable detail the factual basis of the Indemnified Claim and stating the amount of the damages (or if not known, a good faith estimate of the amount of damages). Control. In the event of receipt of notice of a Third Party Claim, the Indemnitor shall have the right to control and defend such Third Party Claim, in such manner as it may deem appropriate. Should the Indemnitor decline to control and defend the Third Party Claim, the Indemnitee shall have the right to control and defend the Third Party Claim in such manner as it may deem appropriate. The controlling party shall select counsel, contractors, experts and consultants of recognized standing and competence reasonably acceptable to the other party, shall take reasonable steps necessary in the investigation, defense or settlement thereof, and shall diligently and promptly pursue the resolution thereof. All parties shall cooperate fully with the party conducting the defense of any Third Party Claim. Settlement. The party controlling the defense of any Third Party Claim shall be authorized to consent to a settlement of, or the entry of any judgment arising from, any Third Party Claims subject to the following provisions. If the Indemnitor is controlling the litigation, Indemnitee must consent to any such settlement, such consent not to be unreasonably withheld. Indemnitee s consent will be deemed unreasonably withheld unless the settlement would encumber any of its assets or contains any restriction or condition that would apply to the Indemnitee or to the conduct of its business. If the Indemnitee is controlling the litigation, it may not enter into a settlement or consent to an entry of judgment with respect to any Third Party Claim without the express written consent of the Indemnitor, not to be unreasonably withheld. Limitations. The Indemnitor s minimum liability to Indemnitee hereunder shall be $750,000. The Indemnitor s maximum liability to Indemnitee hereunder shall be $10,000,000. In no case shall Indemnitor be liable for any consequential, incidental, indirect, special, punitive or exemplary damages (including, without limitation, lost profits, business or goodwill) suffered or incurred by Indemnitee. In no case shall Indemnitor be liable for any damages arising out of Indemnitee s negligent or reckless conduct. Reimbursement. Indemnitee shall responsible for paying any damages arising out of a Third Party Claim to the Third Party. Indemnitor shall reimburse Indemnitee within thirty (30) days of Indemnitee making such a payment. The amount of the reimbursement shall be reduced by any amount Indemnitee receives or will receive from (a) an insurance carrier or (b) a joint infringer Vinson & Elkins LLP

29 Implied Warranty for Sales of Goods and Services 29

30 Sale of Goods Under UCC Unless otherwise agreed, a seller that is a merchant regularly dealing in goods of the kind warrants that the goods shall be delivered free of the rightful claim of any third person by way of infringement or the like but a buyer that furnishes specifications to the seller must hold the seller harmless against any such claim that arises out of compliance with the specifications Vinson & Elkins LLP 30

31 Sale of Goods Under UCC The seller must be a merchant regularly dealing in the goods. The indemnity is limited to the goods themselves as delivered it does not cover the buyer s use of the goods. The implied warranty only covers rightful claims, which has been defined by courts to be more than frivolous or of a substantial nature. The implied warranty does not apply if the buyer gives the specifications for the product to the seller. Any patent infringement that arises here will trigger buyer s good faith duty to indemnify the seller for losses suffered Vinson & Elkins LLP 31

32 And Remember Two parties can always agree to not be covered by the implied warranty provided in UCC Vinson & Elkins LLP 32

33 General Drafting Considerations 33

34 Drafting an Indemnification Clause Drafting an indemnification clause is necessary when: The parties involved in a sale of goods do not wish to be bound by the implied warranty provided in UCC The parties are involved in a transaction not covered by UCC 2-312, including: A licensing agreement A joint research and development agreement 2012 Vinson & Elkins LLP 34

35 Indemnification Provision Scope. The Licensor (the Indemnitor ) hereby indemnifies the Licensee and its directors, officers, employees, and agents and their respective successors, heirs and assigns (the Indemnitee ) against any and all damages arising out of, resulting from or related to any claim of patent infringement brought by a Third Party accusing any product manufactured by Licensee pursuant to this Agreement of infringing a U.S. patent (a Third Party Claim ), subject to the limitations set forth below. Notice. If the Indemnitee seeks indemnification, it shall give written notice to the Indemnitor promptly after the Indemnitee becomes aware of the facts giving rise to such claim for indemnification (an Indemnified Claim ), and in any event within 30 days, specifying in reasonable detail the factual basis of the Indemnified Claim and stating the amount of the damages (or if not known, a good faith estimate of the amount of damages). Control. In the event of receipt of notice of a Third Party Claim, the Indemnitor shall have the right to control and defend such Third Party Claim, in such manner as it may deem appropriate. Should the Indemnitor decline to control and defend the Third Party Claim, the Indemnitee shall have the right to control and defend the Third Party Claim in such manner as it may deem appropriate. The controlling party shall select counsel, contractors, experts and consultants of recognized standing and competence reasonably acceptable to the other party, shall take reasonable steps necessary in the investigation, defense or settlement thereof, and shall diligently and promptly pursue the resolution thereof. All parties shall cooperate fully with the party conducting the defense of any Third Party Claim. Settlement. The party controlling the defense of any Third Party Claim shall be authorized to consent to a settlement of, or the entry of any judgment arising from, any Third Party Claims subject to the following provisions. If the Indemnitor is controlling the litigation, Indemnitee must consent to any such settlement, such consent not to be unreasonably withheld. Indemnitee s consent will be deemed unreasonably withheld unless the settlement would encumber any of its assets or contains any restriction or condition that would apply to the Indemnitee or to the conduct of its business. If the Indemnitee is controlling the litigation, it may not enter into a settlement or consent to an entry of judgment with respect to any Third Party Claim without the express written consent of the Indemnitor, not to be unreasonably withheld. Limitations. The Indemnitor s minimum liability to Indemnitee hereunder shall be $750,000. The Indemnitor s maximum liability to Indemnitee hereunder shall be $10,000,000. In no case shall Indemnitor be liable for any consequential, incidental, indirect, special, punitive or exemplary damages (including, without limitation, lost profits, business or goodwill) suffered or incurred by Indemnitee. In no case shall Indemnitor be liable for any damages arising out of Indemnitee s negligent or reckless conduct. Reimbursement. Indemnitee shall responsible for paying any damages arising out of a Third Party Claim to the Third Party. Indemnitor shall reimburse Indemnitee within thirty (30) days of Indemnitee making such a payment. The amount of the reimbursement shall be reduced by any amount Indemnitee receives or will receive from (a) an insurance carrier or (b) a joint infringer Vinson & Elkins LLP

36 Indemnification Provision Scope. The Licensor (the Indemnitor ) hereby indemnifies the Licensee and its directors, officers, employees, and agents and their respective successors, heirs and assigns (the Indemnitee ) against any and all damages arising out of, resulting from or related to any claim of patent infringement brought by a Third Party accusing any product manufactured by Licensee pursuant to this Agreement of infringing a U.S. patent (a Third Party Claim ), subject to the limitations set forth below. Notice. If the Indemnitee Scope. seeks The indemnification, Licensor it shall (the give Indemnitor ) written notice the Indemnitor hereby promptly after the Indemnitee becomes aware of the facts giving rise to such claim for indemnification (an Indemnified Claim ), and in any event within indemnifies 30 days, specifying the in reasonable Licensee detail the and factual its basis directors, of the Indemnified officers, Claim and stating the amount of the employees, damages (or if not and known, agents a good faith and estimate their of amount respective of damages). Control. In the event of receipt of notice of a Third Party Claim, the Indemnitor shall have the right to control and defend such Third successors, Party Claim, in such heirs manner and as it may assigns deem appropriate. (the Indemnitee ) Should the Indemnitor decline to control and defend the Third Party Claim, the Indemnitee shall have the right to control and defend the Third Party Claim in such manner against as it may any deem and appropriate. all damages The controlling arising party shall select out counsel, of, resulting contractors, experts and consultants from of recognized or related standing and to competence any claim reasonably of patent acceptable infringement to the other party, shall take reasonable steps necessary in the investigation, defense or settlement thereof, and shall diligently and promptly pursue the resolution brought thereof. by All parties a Third shall cooperate Party fully accusing with the party any conducting product the defense of any Third Party Claim. Settlement. The manufactured party controlling the defense by Licensee of any Third Party pursuant Claim shall be to authorized this to consent to a settlement of, or Agreement the entry of any judgment of infringing arising from, any a U.S. Third Party patent Claims subject (a Third to the following Party provisions. If the Indemnitor is controlling the litigation, Indemnitee must consent to any such settlement, such consent not to be unreasonably Claim ) withheld. Indemnitee s subject consent to the will be limitations deemed unreasonably set forth withheld below. unless the settlement would encumber any of its assets or contains any restriction or condition that would apply to the Indemnitee or to the conduct of its business. If the Indemnitee is controlling the litigation, it may not enter into a settlement or consent to an entry of judgment with respect to any Third Party Claim without the express written consent of the Indemnitor, not to be unreasonably withheld. Limitations. The Indemnitor s minimum liability to Indemnitee hereunder shall be $750,000. The Indemnitor s maximum liability to Indemnitee hereunder shall be $10,000,000. In no case shall Indemnitor be liable for any consequential, incidental, indirect, special, punitive or exemplary damages (including, without limitation, lost profits, business or goodwill) suffered or incurred by Indemnitee. In no case shall Indemnitor be liable for any damages arising out of Indemnitee s negligent or reckless conduct. Reimbursement. Indemnitee shall responsible for paying any damages arising out of a Third Party Claim to the Third Party. Indemnitor shall reimburse Indemnitee within thirty (30) days of Indemnitee making such a payment. The amount of the reimbursement shall be reduced by any amount Indemnitee receives or will receive from (a) an insurance carrier or (b) a joint infringer Vinson & Elkins LLP

37 What Types of Claims will be Covered? Indemnitor Goal to have as few claims covered as possible. Strategies: Limit to claims brought by specific third parties. Limit the time that the indemnification provision will apply. Limit the indemnification to the product itself, and not to use of the product. Indemnitee Goal cover as many claims as possible. Strategies: Do not accept limitations on the subject matter of the claims or who can bring them. Try to obtain indemnification for a claim that results from a misrepresentation or breach of a warranty Vinson & Elkins LLP 37

38 Who Will be Covered? Strategies Indemnitor include fewer people and entities Indemnitee include as many people and entities as possible Generally the indemnification should include the indemnitee s directors, officers, employees, and agents. Consider whether the indemnification should include Indemnitee s subsidiaries. If the transaction allows for sublicensing, will the indemnitee s sublicensee be indemnified? Will the indemnitee s successors, heirs and assigns be covered? Will indemnitee s customers be covered? 2012 Vinson & Elkins LLP 38

39 Indemnification Provision Scope. The Licensor (the Indemnitor ) hereby indemnifies the Licensee and its directors, officers, employees, and agents and their respective successors, heirs and assigns (the Indemnitee ) against any and all damages arising out of, resulting from or related to any claim of patent infringement brought by a Third Party accusing any product manufactured by Licensee pursuant to this Agreement of infringing a U.S. patent (a Third Party Claim ), subject to the limitations set forth below. Notice. If the Indemnitee seeks indemnification, it shall give written notice to the Indemnitor promptly after the Indemnitee becomes aware of the facts giving rise to such claim for indemnification (an Indemnified Claim ), and in any event within 30 days, specifying in reasonable detail the factual basis of the Indemnified Claim and stating the amount of the damages (or if not known, a good faith estimate of the amount of damages). Control. In the event of receipt of notice of a Third Party Claim, the Indemnitor shall have the right to control and defend such Third Party Claim, in such manner as it may deem appropriate. Should the Indemnitor decline to control and defend the Third Party Claim, the Indemnitee shall have the right to control and defend the Third Party Claim in such manner as it may deem appropriate. The controlling party shall select counsel, contractors, experts and consultants of recognized standing and competence reasonably acceptable to the other party, shall take reasonable steps necessary in the investigation, defense or settlement thereof, and shall diligently and promptly pursue the resolution thereof. All parties shall cooperate fully with the party conducting the defense of any Third Party Claim. Settlement. The party controlling the defense of any Third Party Claim shall be authorized to consent to a settlement of, or the entry of any judgment arising from, any Third Party Claims subject to the following provisions. If the Indemnitor is controlling the litigation, Indemnitee must consent to any such settlement, such consent not to be unreasonably withheld. Indemnitee s consent will be deemed unreasonably withheld unless the settlement would encumber any of its assets or contains any restriction or condition that would apply to the Indemnitee or to the conduct of its business. If the Indemnitee is controlling the litigation, it may not enter into a settlement or consent to an entry of judgment with respect to any Third Party Claim without the express written consent of the Indemnitor, not to be unreasonably withheld. Limitations. The Indemnitor s minimum liability to Indemnitee hereunder shall be $750,000. The Indemnitor s maximum liability to Indemnitee hereunder shall be $10,000,000. In no case shall Indemnitor be liable for any consequential, incidental, indirect, special, punitive or exemplary damages (including, without limitation, lost profits, business or goodwill) suffered or incurred by Indemnitee. In no case shall Indemnitor be liable for any damages arising out of Indemnitee s negligent or reckless conduct. Reimbursement. Indemnitee shall responsible for paying any damages arising out of a Third Party Claim to the Third Party. Indemnitor shall reimburse Indemnitee within thirty (30) days of Indemnitee making such a payment. The amount of the reimbursement shall be reduced by any amount Indemnitee receives or will receive from (a) an insurance carrier or (b) a joint infringer Vinson & Elkins LLP

40 Indemnification Provision Scope. The Licensor (the Indemnitor ) hereby indemnifies the Licensee and its directors, officers, employees, and agents and their respective successors, heirs and assigns (the Indemnitee ) against any and all damages arising out of, resulting from or related to any claim of patent infringement brought by a Third Party accusing any product manufactured by Licensee pursuant to this Agreement of infringing a U.S. patent (a Third Party Claim ), subject to the limitations set forth below. Notice. If the Indemnitee Notice. seeks If indemnification, the Indemnitee shall give seeks written notice indemnification, to the Indemnitor promptly it after the Indemnitee becomes aware of the facts giving rise to such claim for indemnification (an Indemnified Claim ), and in any event within shall 30 days, give specifying written in reasonable notice detail to the the factual Indemnitor basis of the Indemnified promptly Claim and stating the amount of the after damages the (or Indemnitee if not known, a good becomes faith estimate of aware the amount of damages). the facts Control. In the event of receipt of notice of a Third Party Claim, the Indemnitor shall have the right to control and defend such Third giving Party Claim, rise in such to such manner as claim it may deem for indemnification appropriate. Should the Indemnitor (an decline to control and defend Indemnified the Third Party Claim, Claim ), the Indemnitee and shall in have any the event right to control within and defend 30 the Third Party Claim in such manner as it may deem appropriate. The controlling party shall select counsel, contractors, experts and consultants days, of recognized specifying standing and competence in reasonable reasonably detail acceptable the to the factual other party, shall take reasonable steps necessary in investigation, defense or settlement thereof, and shall diligently and promptly pursue the resolution basis thereof. of the All parties Indemnified shall cooperate fully Claim with the and party conducting stating the the defense of any Third Party Claim. amount of the damages (or if not known, a good Settlement. The party controlling the defense of any Third Party Claim shall be authorized to consent to a settlement of, or faith the entry estimate of any judgment of arising the from, amount any Third of Party damages). Claims subject to the following provisions. If the Indemnitor is controlling the litigation, Indemnitee must consent to any such settlement, such consent not to be unreasonably withheld. Indemnitee s consent will be deemed unreasonably withheld unless the settlement would encumber any of its assets or contains any restriction or condition that would apply to the Indemnitee or to the conduct of its business. If the Indemnitee is controlling the litigation, it may not enter into a settlement or consent to an entry of judgment with respect to any Third Party Claim without the express written consent of the Indemnitor, not to be unreasonably withheld. Limitations. The Indemnitor s minimum liability to Indemnitee hereunder shall be $750,000. The Indemnitor s maximum liability to Indemnitee hereunder shall be $10,000,000. In no case shall Indemnitor be liable for any consequential, incidental, indirect, special, punitive or exemplary damages (including, without limitation, lost profits, business or goodwill) suffered or incurred by Indemnitee. In no case shall Indemnitor be liable for any damages arising out of Indemnitee s negligent or reckless conduct. Reimbursement. Indemnitee shall responsible for paying any damages arising out of a Third Party Claim to the Third Party. Indemnitor shall reimburse Indemnitee within thirty (30) days of Indemnitee making such a payment. The amount of the reimbursement shall be reduced by any amount Indemnitee receives or will receive from (a) an insurance carrier or (b) a joint infringer Vinson & Elkins LLP

41 Notice Indemnitor The indemnitee should be required to notify the indemnitor promptly (but in any event within a specified time period). The notice must in writing. The notice should include a statement of damages sought or a good faith estimate. The indemnitor should be informed of possible claims. Failure to comply with the notification provision will render the indemnification provision invalid. Indemnitee There should not be a time limit on informing the indemnitor of claims. Breach of the notification provision should not have any consequences unless indemnitor can show it was harmed by the failure to notify. The indemnitee need not inform the indemnitor of threatened suits, only of filed suits Vinson & Elkins LLP 41

42 Indemnification Provision Scope. Effective as of the Closing, the Licensor (the Indemnitor ) hereby indemnifies the Licensee and its directors, officers, employees, and agents and their respective successors, heirs and assigns (the Indemnitee ) against any and all damages arising out of, resulting from or related to any claim of patent infringement brought by a Third Party accusing any product manufactured by Investor pursuant to this Agreement of infringing a U.S. patent (a Third Party Claim ). Notice. If the Indemnitee seeks indemnification, it shall give written notice to the Indemnitor promptly after the Indemnitee becomes aware of the facts giving rise to such claim for indemnification (an Indemnified Claim ), and in any event within 30 days, specifying in reasonable detail the factual basis of the Indemnified Claim and stating the amount of the Damages (or if not known, a good faith estimate of the amount of Damages). Control. In the event of receipt of notice of a Third Party Claim, the Indemnitor shall have the right to control and defend such Third Party Claim, in such manner as it may deem appropriate. Should the Indemnitor decline to control and defend the Third Party Claim, the Indemnitee shall have the right to control and defend the Third Party Claim in such manner as it may deem appropriate. The controlling party shall select counsel, contractors, experts and consultants of recognized standing and competence reasonably acceptable to the other party, shall take reasonable steps necessary in the investigation, defense or settlement thereof, and shall diligently and promptly pursue the resolution thereof. All parties shall cooperate fully with the party conducting the defense of any Third Party Claim. Settlement. The party controlling the defense of any Third Party Claim shall be authorized to consent to a settlement of, or the entry of any judgment arising from, any Third Party Claims subject to the following provisions. If the Indemnitor is controlling the litigation, Indemnitee must consent to any such settlement, such consent not to be unreasonably withheld. Indemnitee s consent will be deemed unreasonably withheld unless the settlement would encumber any of its assets or contains any restriction or condition that would apply to the Indemnitee or to the conduct of its business. If the Indemnitee is controlling the litigation, it may not enter into a settlement or consent to an entry of judgment with respect to any Third Party Claim without the express written consent of the Indemnitor, not to be unreasonably withheld. Limitations. The Indemnitor s minimum liability to Indemnitee hereunder shall be $750,000. The Indemnitor s maximum liability to Indemnitee hereunder shall be $10,000,000. In no case shall Indemnitor be liable for any consequential, incidental, indirect, special, punitive or exemplary damages (including, without limitation, lost profits, business or goodwill) suffered or incurred by Indemnitee. In no case shall Indemnitor be liable for any damages arising out of Indemnitee s negligent or reckless conduct. Reimbursement. Indemnitee shall responsible for paying any damages arising out of a Third Party Claim to the Third Party. Indemnitor shall reimburse Indemnitee within thirty (30) days of Indemnitee making such a payment. The amount of the reimbursement shall be reduced by any amount Indemnitee receives or will receive from (a) an insurance carrier or (b) a joint infringer Vinson & Elkins LLP

43 Indemnification Provision Scope. Effective as of the Closing, the Licensor (the Indemnitor ) hereby indemnifies the Licensee and its directors, officers, employees, and agents and their respective successors, heirs and assigns (the Indemnitee ) against any and all damages arising out of, resulting from or related to any claim of patent infringement brought by a Third Party accusing Control. any product In manufactured the event by Investor of receipt pursuant of to this notice Agreement of of a infringing Third a U.S. patent (a Third Claim ). Notice. If the Indemnitee Party Claim, seeks indemnification, the Indemnitor shall give written shall notice have to the Indemnitor the right promptly to after the Indemnitee becomes aware of the facts giving rise to claim for indemnification (an Indemnified Claim ), and in any event within control 30 days, and specifying defend in reasonable such detail Third the factual Party basis of Claim, the Indemnified in such Claim and stating the amount of the manner Damages (or as if not it known, may a deem good faith appropriate. estimate of the amount Should of Damages). the Control. In the event of receipt of notice of a Third Party Claim, the Indemnitor shall have the right to control and defend such Third Indemnitor Party Claim, in such decline manner as to it may control deem appropriate. and defend Should the the Indemnitor Third decline to control and defend Party the Third Claim, Party Claim, the the Indemnitee shall have shall the right have to control the and right defend to the Third Party Claim in such manner as it may deem appropriate. The controlling party shall select counsel, contractors, experts and consultants control of recognized and standing defend and competence the Third reasonably Party acceptable Claim to the in other such party, shall take reasonable steps necessary in the investigation, defense or settlement thereof, and shall diligently and promptly pursue the resolution manner thereof. as All parties it may shall deem cooperate fully appropriate. with the party conducting The the controlling defense of any Third Party Claim. party shall select counsel, contractors, experts and Settlement. The party controlling the defense of any Third Party Claim shall be authorized to consent to a settlement of, or consultants the entry of any judgment of recognized arising from, any Third standing Party Claims and subject competence, to the following provisions. If the Indemnitor is controlling the litigation, Indemnitee must consent to any such settlement, such consent not to be unreasonably shall withheld. take Indemnitee s reasonable consent will be steps deemed necessary unreasonably withheld in the unless the settlement would encumber investigation, any of its assets or contains defense any restriction or settlement or condition that would thereof, apply to and the Indemnitee or to the conduct of its business. If the Indemnitee is controlling the litigation, it may not enter into a settlement or consent to an entry shall of judgment diligently with respect and to any promptly Third Party Claim pursue without the express resolution written consent of the Indemnitor, not to be unreasonably withheld. Limitations. The thereof. Indemnitor s All minimum parties liability to shall Indemnitee cooperate hereunder shall fully be $750,000. with the The Indemnitor s maximum liability party to Indemnitee conducting hereunder shall the be $10,000,000. defense In of no any case shall Third Indemnitor Party be liable for any consequential, incidental, indirect, special, punitive or exemplary damages (including, without limitation, lost profits, business or goodwill) Claim. suffered or incurred by Indemnitee. In no case shall Indemnitor be liable for any damages arising out of Indemnitee s negligent or reckless conduct. Reimbursement. Indemnitee shall responsible for paying any damages arising out of a Third Party Claim to the Third Party. Indemnitor shall reimburse Indemnitee within thirty (30) days of Indemnitee making such a payment. The amount of the reimbursement shall be reduced by any amount Indemnitee receives or will receive from (a) an insurance carrier or (b) a joint infringer Vinson & Elkins LLP

44 Who Will Control the Defense? Indemnitor Since the indemnitor will ultimately have to pay the damages, the indemnitor has a strong interest in controlling the litigation. The indemnitor should also ensure that the indemnitee is required to cooperate with the defense efforts. Indemnitee While the indemnitee may like to control the litigation, its interest probably isn t as strong as the indemnitor. The indemnitee will likely have control of the relevant documents and witness, and should be prepared to cooperate with the indemnitor Vinson & Elkins LLP 44

45 Indemnification Provision Scope. The Licensor (the Indemnitor ) hereby indemnifies the Licensee and its directors, officers, employees, and agents and their respective successors, heirs and assigns (the Indemnitee ) against any and all damages arising out of, resulting from or related to any claim of patent infringement brought by a Third Party accusing any product manufactured by Licensee pursuant to this Agreement of infringing a U.S. patent (a Third Party Claim ), subject to the limitations set forth below. Notice. If the Indemnitee seeks indemnification, it shall give written notice to the Indemnitor promptly after the Indemnitee becomes aware of the facts giving rise to such claim for indemnification (an Indemnified Claim ), and in any event within 30 days, specifying in reasonable detail the factual basis of the Indemnified Claim and stating the amount of the damages (or if not known, a good faith estimate of the amount of damages). Control. In the event of receipt of notice of a Third Party Claim, the Indemnitor shall have the right to control and defend such Third Party Claim, in such manner as it may deem appropriate. Should the Indemnitor decline to control and defend the Third Party Claim, the Indemnitee shall have the right to control and defend the Third Party Claim in such manner as it may deem appropriate. The controlling party shall select counsel, contractors, experts and consultants of recognized standing and competence reasonably acceptable to the other party, shall take reasonable steps necessary in the investigation, defense or settlement thereof, and shall diligently and promptly pursue the resolution thereof. All parties shall cooperate fully with the party conducting the defense of any Third Party Claim. Settlement. The party controlling the defense of any Third Party Claim shall be authorized to consent to a settlement of, or the entry of any judgment arising from, any Third Party Claims subject to the following provisions. If the Indemnitor is controlling the litigation, Indemnitee must consent to any such settlement, such consent not to be unreasonably withheld. Indemnitee s consent will be deemed unreasonably withheld unless the settlement would encumber any of its assets or contains any restriction or condition that would apply to the Indemnitee or to the conduct of its business. If the Indemnitee is controlling the litigation, it may not enter into a settlement or consent to an entry of judgment with respect to any Third Party Claim without the express written consent of the Indemnitor, not to be unreasonably withheld. Limitations. The Indemnitor s minimum liability to Indemnitee hereunder shall be $750,000. The Indemnitor s maximum liability to Indemnitee hereunder shall be $10,000,000. In no case shall Indemnitor be liable for any consequential, incidental, indirect, special, punitive or exemplary damages (including, without limitation, lost profits, business or goodwill) suffered or incurred by Indemnitee. In no case shall Indemnitor be liable for any damages arising out of Indemnitee s negligent or reckless conduct. Reimbursement. Indemnitee shall responsible for paying any damages arising out of a Third Party Claim to the Third Party. Indemnitor shall reimburse Indemnitee within thirty (30) days of Indemnitee making such a payment. The amount of the reimbursement shall be reduced by any amount Indemnitee receives or will receive from (a) an insurance carrier or (b) a joint infringer Vinson & Elkins LLP

46 Indemnification Provision Scope. The Licensor (the Indemnitor ) hereby indemnifies the Licensee and its directors, officers, employees, and agents and their respective successors, heirs and assigns (the Indemnitee ) against any and all damages arising out of, resulting from or related to any claim of patent infringement brought by a Third Party accusing any product manufactured by Licensee pursuant to this Agreement of infringing a U.S. patent (a Third Party Claim ), subject to the limitations Settlement. set forth below. The party controlling the defense of any Notice. If the Indemnitee Third Party seeks indemnification, Claim shall it be give written authorized notice to the to Indemnitor consent promptly to after a the Indemnitee becomes aware of the facts giving rise to such claim for indemnification (an Indemnified Claim ), and in any event within settlement 30 days, specifying of, in or reasonable the entry detail the of factual any basis judgment of the Indemnified arising Claim and stating the amount of the damages (or if not known, a good faith estimate of the amount of damages). from, any Third Party Claims subject to the following Control. In the event of receipt of notice of a Third Party Claim, the Indemnitor shall have right to control and defend such Third provisions. Party Claim, in such If manner the Indemnitor as may deem appropriate. is controlling Should the the Indemnitor litigation, decline to control and defend the Third Party Claim, the Indemnitee shall have the right to control and defend the Third Party Claim in such manner Indemnitee as may deem must appropriate. consent The controlling to any party such shall select settlement, counsel, contractors, such experts and consultants of recognized standing and competence acceptable to the other party, shall take reasonable steps consent necessary in not the investigation, to be unreasonably defense or settlement withheld. thereof, and shall diligently and promptly pursue the resolution Indemnitee s thereof. All parties consent shall cooperate will fully be with deemed the party conducting unreasonably the defense of any Third Party Claim. Settlement. The withheld party controlling unless the defense the of any settlement Third Party Claim would shall be encumber authorized to consent any to a of settlement of, or its the assets entry of any or judgment contains arising from, any Third restriction Party Claims or subject condition to the following that provisions. If the Indemnitor is controlling the litigation, Indemnitee must consent to any such settlement, such consent not to be unreasonably would withheld. apply Indemnitee s to consent the Indemnitee will be deemed unreasonably or to the withheld conduct unless the of settlement its would encumber any of its assets or contains any restriction or condition that would apply to the Indemnitee or to the conduct of its business. If the If Indemnitee the Indemnitee is controlling the litigation, is controlling it may not enter the into a litigation, settlement or consent to an entry of judgment with respect any Third Party Claim without the express written consent of the Indemnitor, not it to be may unreasonably not enter withheld. into a settlement or consent to an Limitations. The entry Indemnitor s of judgment minimum liability with to Indemnitee respect hereunder to any shall be Third $750,000. Party The Indemnitor s Claim maximum liability to Indemnitee hereunder shall be $10,000,000. In no case shall Indemnitor be liable for any consequential, incidental, without indirect, the special, express punitive written or exemplary consent damages (including, of the without Indemnitor, limitation, lost profits, business or goodwill) not suffered to be or unreasonably incurred by Indemnitee. withheld. In no case shall Indemnitor be liable for any damages arising out of Indemnitee s negligent or reckless conduct. Reimbursement. Indemnitee shall responsible for paying any damages arising out of a Third Party Claim to the Third Party. Indemnitor shall reimburse Indemnitee within thirty (30) days of Indemnitee making such a payment. The amount of the reimbursement shall be reduced by any amount Indemnitee receives or will receive from (a) an insurance carrier or (b) a joint infringer Vinson & Elkins LLP

47 Settlement Generally, the controlling party will have settlement authority, subject to the other s party consent. The indemnitee should only be able to withhold consent if it will affect any of indemnitee s rights. The indemnitor should have broader discretion to reject a settlement because it will ultimately have to reimburse indemnitee for any damages. By way of example, indemnitee should have the right to consent to settlement if such settlement would prevent indemnitee from practicing a patent licensed under the agreement Vinson & Elkins LLP 47

48 Indemnification Provision Scope. The Licensor (the Indemnitor ) hereby indemnifies the Licensee and its directors, officers, employees, and agents and their respective successors, heirs and assigns (the Indemnitee ) against any and all damages arising out of, resulting from or related to any claim of patent infringement brought by a Third Party accusing any product manufactured by Licensee pursuant to this Agreement of infringing a U.S. patent (a Third Party Claim ), subject to the limitations set forth below. Notice. If the Indemnitee seeks indemnification, it shall give written notice to the Indemnitor promptly after the Indemnitee becomes aware of the facts giving rise to such claim for indemnification (an Indemnified Claim ), and in any event within 30 days, specifying in reasonable detail the factual basis of the Indemnified Claim and stating the amount of the damages (or if not known, a good faith estimate of the amount of damages). Control. In the event of receipt of notice of a Third Party Claim, the Indemnitor shall have the right to control and defend such Third Party Claim, in such manner as it may deem appropriate. Should the Indemnitor decline to control and defend the Third Party Claim, the Indemnitee shall have the right to control and defend the Third Party Claim in such manner as it may deem appropriate. The controlling party shall select counsel, contractors, experts and consultants of recognized standing and competence reasonably acceptable to the other party, shall take reasonable steps necessary in the investigation, defense or settlement thereof, and shall diligently and promptly pursue the resolution thereof. All parties shall cooperate fully with the party conducting the defense of any Third Party Claim. Settlement. The party controlling the defense of any Third Party Claim shall be authorized to consent to a settlement of, or the entry of any judgment arising from, any Third Party Claims subject to the following provisions. If the Indemnitor is controlling the litigation, Indemnitee must consent to any such settlement, such consent not to be unreasonably withheld. Indemnitee s consent will be deemed unreasonably withheld unless the settlement would encumber any of its assets or contains any restriction or condition that would apply to the Indemnitee or to the conduct of its business. If the Indemnitee is controlling the litigation, it may not enter into a settlement or consent to an entry of judgment with respect to any Third Party Claim without the express written consent of the Indemnitor, not to be unreasonably withheld. Limitations. The Indemnitor s minimum liability to Indemnitee hereunder shall be $750,000. The Indemnitor s maximum liability to Indemnitee hereunder shall be $10,000,000. In no case shall Indemnitor be liable for any consequential, incidental, indirect, special, punitive or exemplary damages (including, without limitation, lost profits, business or goodwill) suffered or incurred by Indemnitee. In no case shall Indemnitor be liable for any damages arising out of Indemnitee s negligent or reckless conduct. Reimbursement. Indemnitee shall responsible for paying any damages arising out of a Third Party Claim to the Third Party. Indemnitor shall reimburse Indemnitee within thirty (30) days of Indemnitee making such a payment. The amount of the reimbursement shall be reduced by any amount Indemnitee receives or will receive from (a) an insurance carrier or (b) a joint infringer Vinson & Elkins LLP

49 Indemnification Provision Scope. The Licensor (the Indemnitor ) hereby indemnifies the Licensee and its directors, officers, employees, and agents and their respective successors, heirs and assigns (the Indemnitee ) against any and all damages arising out of, resulting from or related to any claim of patent infringement brought by a Third Party accusing any product manufactured Limitations. by Licensee pursuant The to Indemnitor s this Agreement of infringing minimum a U.S. patent liability (a Third Party to Claim ), subject to the limitations set forth below. Notice. If the Indemnitee seeks indemnification, hereunder it shall shall give written be notice $750,000. to the Indemnitor The promptly after the Indemnitee becomes aware of the facts giving rise to such claim for indemnification (an Indemnified Claim ), and in any event within Indemnitor s 30 days, specifying maximum in reasonable detail liability the factual to basis Indemnitee of the Indemnified Claim and stating the amount of the damages (or if not known, a good faith estimate of the amount of damages). Control. In the hereunder event of receipt of shall notice of be a Third $10,000,000. Party Claim, the Indemnitor In no shall case have the shall right to control and defend such Third Party Claim, in such manner as it may deem appropriate. Should the Indemnitor decline to control and defend Indemnitor the Third Party Claim, be liable the Indemnitee for any shall have consequential, the right to control and defend the Third Party Claim in such manner as it may deem appropriate. The controlling party shall select counsel, contractors, experts and consultants incidental, of recognized standing indirect, and competence special, reasonably punitive acceptable or to exemplary the other party, shall take reasonable steps necessary in the investigation, defense or settlement thereof, and shall diligently and promptly pursue the resolution thereof. All parties shall cooperate fully with the party conducting the defense any Third Party Claim. damages (including, without limitation, lost profits, Settlement. The business party controlling or the goodwill) defense of any suffered Third Party Claim or shall incurred be authorized by to consent to a settlement of, or the entry of any judgment arising from, any Third Party Claims subject to the following provisions. If the Indemnitor is controlling the litigation, Indemnitee must consent any such settlement, such consent not to be unreasonably Indemnitee. withheld. Indemnitee s In consent no case will be deemed shall unreasonably Indemnitor withheld be unless liable the settlement would encumber any of its assets or contains any restriction or condition that would apply to the Indemnitee or to the conduct of its for business. any If damages the Indemnitee arising controlling out the litigation, of Indemnitee s may not enter into a settlement or consent to an entry of judgment with respect to any Third Party Claim without the express written consent of the Indemnitor, not negligent to be unreasonably or withheld. reckless conduct. Limitations. The Indemnitor s minimum liability to Indemnitee hereunder shall be $750,000. The Indemnitor s maximum liability to Indemnitee hereunder shall be $10,000,000. In no case shall Indemnitor be liable for any consequential, incidental, indirect, special, punitive or exemplary damages (including, without limitation, lost profits, business or goodwill) suffered or incurred by Indemnitee. In no case shall Indemnitor be liable for any damages arising out of Indemnitee s negligent or reckless conduct. Reimbursement. Indemnitee shall responsible for paying any damages arising out of a Third Party Claim to the Third Party. Indemnitor shall reimburse Indemnitee within thirty (30) days of Indemnitee making such a payment. The amount of the reimbursement shall be reduced by any amount Indemnitee receives or will receive from (a) an insurance carrier or (b) a joint infringer Vinson & Elkins LLP

50 Floors and Caps Floors are also known as nickel dime provisions. Floors and caps can be useful to the indemnitor. Floors can be used to ensure that the indemnitee cannot seek indemnification for or small claims. Caps allow the indemnitor to know its maximum exposure (in a license transaction, caps are often tied to royalties). The indemnitee does not benefit from floors and caps Vinson & Elkins LLP 50

51 Limitations Indemnitor Specifically exclude all claims arising out of indemnitee s acts or omissions, including willful patent infringement. The reimbursement should be reduced by: Insurance proceeds paid to indemnitee Third party payments to indemnitee (such as from a joint infringer) Tax benefits enjoyed by indemnitee due to the damage award 2012 Vinson & Elkins LLP Indemnitee All claims should be covered, regardless of how they accrue (if there is a carve-out for indemnitee s acts or omissions, then limit to negligence and recklessness). Specifically include claims related to willful patent infringement. If there is a reimbursement, it should only be reduced by: Insurance proceeds paid to indemnitee Third party payments to indemnitee (such as from a joint infringer) 51

52 Indemnification Provision Scope. The Licensor (the Indemnitor ) hereby indemnifies the Licensee and its directors, officers, employees, and agents and their respective successors, heirs and assigns (the Indemnitee ) against any and all damages arising out of, resulting from or related to any claim of patent infringement brought by a Third Party accusing any product manufactured by Licensee pursuant to this Agreement of infringing a U.S. patent (a Third Party Claim ), subject to the limitations set forth below. Notice. If the Indemnitee seeks indemnification, it shall give written notice to the Indemnitor promptly after the Indemnitee becomes aware of the facts giving rise to such claim for indemnification (an Indemnified Claim ), and in any event within 30 days, specifying in reasonable detail the factual basis of the Indemnified Claim and stating the amount of the damages (or if not known, a good faith estimate of the amount of damages). Control. In the event of receipt of notice of a Third Party Claim, the Indemnitor shall have the right to control and defend such Third Party Claim, in such manner as it may deem appropriate. Should the Indemnitor decline to control and defend the Third Party Claim, the Indemnitee shall have the right to control and defend the Third Party Claim in such manner as it may deem appropriate. The controlling party shall select counsel, contractors, experts and consultants of recognized standing and competence reasonably acceptable to the other party, shall take reasonable steps necessary in the investigation, defense or settlement thereof, and shall diligently and promptly pursue the resolution thereof. All parties shall cooperate fully with the party conducting the defense of any Third Party Claim. Settlement. The party controlling the defense of any Third Party Claim shall be authorized to consent to a settlement of, or the entry of any judgment arising from, any Third Party Claims subject to the following provisions. If the Indemnitor is controlling the litigation, Indemnitee must consent to any such settlement, such consent not to be unreasonably withheld. Indemnitee s consent will be deemed unreasonably withheld unless the settlement would encumber any of its assets or contains any restriction or condition that would apply to the Indemnitee or to the conduct of its business. If the Indemnitee is controlling the litigation, it may not enter into a settlement or consent to an entry of judgment with respect to any Third Party Claim without the express written consent of the Indemnitor, not to be unreasonably withheld. Limitations. The Indemnitor s minimum liability to Indemnitee hereunder shall be $750,000. The Indemnitor s maximum liability to Indemnitee hereunder shall be $10,000,000. In no case shall Indemnitor be liable for any consequential, incidental, indirect, special, punitive or exemplary damages (including, without limitation, lost profits, business or goodwill) suffered or incurred by Indemnitee. In no case shall Indemnitor be liable for any damages arising out of Indemnitee s negligent or reckless conduct. Reimbursement. Indemnitee shall responsible for paying any damages arising out of a Third Party Claim to the Third Party. Indemnitor shall reimburse Indemnitee within thirty (30) days of Indemnitee making such a payment. The amount of the reimbursement shall be reduced by any amount Indemnitee receives or will receive from (a) an insurance carrier or (b) a joint infringer Vinson & Elkins LLP

53 Indemnification Provision Scope. The Licensor (the Indemnitor ) hereby indemnifies the Licensee and its directors, officers, employees, and agents and their respective successors, heirs and assigns (the Indemnitee ) against any and all damages arising out of, resulting from or related to any claim of patent infringement brought by a Third Party accusing any product manufactured by Licensee pursuant to this Agreement of infringing a U.S. patent (a Third Party Claim ), subject to the limitations set forth below. Notice. If the Indemnitee seeks indemnification, it shall give written notice to the Indemnitor promptly after the Indemnitee becomes aware of the facts giving rise to such claim for indemnification (an Indemnified Claim ), and in any event within Reimbursement. 30 days, specifying in reasonable Indemnitee detail the factual shall basis of responsible the Indemnified Claim for and stating the amount of the paying damages any (or if not damages known, a good faith arising estimate out of the of amount a Third of damages). Party Control. In the event of receipt of notice of a Third Claim, the have the right to control and defend such Third Claim Party Claim, to the in such Third manner Party. as it may deem Indemnitor appropriate. Should shall the reimburse Indemnitor decline to control and defend the Third Party Claim, the Indemnitee shall have the right to control and defend the Third Party Claim in such manner Indemnitee as may deem within appropriate. thirty The controlling (30) days party shall of Indemnitee select counsel, contractors, experts and consultants making of recognized such standing a and payment. competence reasonably The amount acceptable to of the other party, shall take reasonable steps necessary in the investigation, defense or settlement thereof, and shall diligently and promptly pursue the resolution reimbursement thereof. All parties shall cooperate be reduced fully with the party by conducting any amount the defense of any Third Party Claim. Settlement. The Indemnitee party controlling the receives defense of any or Third will Party receive Claim shall from be authorized (a) an to consent to a settlement of, or insurance the entry of any judgment carrier arising or (b) from, any a joint Third Party infringer. Claims subject to the following provisions. If the Indemnitor is controlling the litigation, Indemnitee must consent to any such settlement, such consent not to be unreasonably withheld. Indemnitee s consent will be deemed unreasonably withheld unless the settlement would encumber any of its assets or contains any restriction or condition that would apply to the Indemnitee or to the conduct of its business. If the Indemnitee is controlling the litigation, it may not enter into a settlement or consent to an entry of judgment with respect to any Third Party Claim without the express written consent of the Indemnitor, not to be unreasonably withheld. Limitations. The Indemnitor s minimum liability to Indemnitee hereunder shall be $750,000. The Indemnitor s maximum liability to Indemnitee hereunder shall be $10,000,000. In no case shall Indemnitor be liable for any consequential, incidental, indirect, special, punitive or exemplary damages (including, without limitation, lost profits, business or goodwill) suffered or incurred by Indemnitee. In no case shall Indemnitor be liable for any damages arising out of Indemnitee s negligent or reckless conduct. Reimbursement. Indemnitee shall responsible for paying any damages arising out of a Third Party Claim to the Third Party. Indemnitor shall reimburse Indemnitee within thirty (30) days of Indemnitee making such a payment. The amount of the reimbursement shall be reduced by any amount Indemnitee receives or will receive from (a) an insurance carrier or (b) a joint infringer Vinson & Elkins LLP

54 Reimbursement Indemnitor The indemnitor should reimburse the indemnitee within a reasonable amount of time after indemnitee has paid damages to the third party. The reimbursement should exclude the limitations discussed previously, including monies paid to indemnitee by insurance or by joint defendants. Should be limited to monies paid to the third party and expressly exclude consequential or incidental damages. Indemnitee The indemnitor should pay the third party directly. In the case of reimbursement, indemnitor should be required to reimburse indemnitee within a specified maximum period after indemnitee pays the third party. Indemnitor should also be required to reimburse indemnitee for any consequential or incidental damages it suffers as a result of the suit Vinson & Elkins LLP 54

55 Considerations Unique to Patent Law 55

56 Indemnifying Willful Patent Infringement Enhanced damages for willful patent infringement are considered to be punitive damages. Some states have codified or common law public policy against indemnifying a party against punitive damages. The UCC, however, does allow for indemnification of punitive damages (see UCC 2-715) Vinson & Elkins LLP 56

57 Joint Liability Under patent law, a party cannot ask for contribution from jointly and severally liable parties, so indemnification clauses need not take that into account. In a joint infringement situation, the court will apportion damages between the joint infringers. In such a case, the amount of damages should be limited to the damages actually incurred by the indemnitee Vinson & Elkins LLP 57