Having worked with a number of marketing firms to negotiate a Master Services Agreement, indemnification is always a discussion point. Especially when dealing with big companies, the customer will want the marketing firm to indemnify it for all intellectual property claims that may arise out of the work product delivered pursuant to the agreement. Depending upon the work being created, this broad obligation can subject the marketing firm to a potentially large liability. For those who are unfamiliar with what indemnification actually is, it is essentially insurance. When you indemnify another party, you are agreeing to take on the financial cost a lawsuit.
In some instances, indemnification is appropriate, but in others it is not. Before agreeing to indemnify another party, the marketing firm should have some certainty about whether a lawsuit is likely to occur. For trademark and patent infringement, obtaining the level of comfort before agreeing to indemnify requires some due diligence. However, generally, if a marketing firm is engaged to develop potential marks, the marketing firm does not conduct a trademark clearance search. Similarly, marketing firms generally do not conduct freedom to operate searches if the final work product includes some type of invention. But it is this type of due diligence that marketing firms should conduct before agreeing to indemnify for trademark and patent infringement claims.
So where is the middle ground? In other words, how should the risk of a trademark or patent infringement claim be apportioned between the parties. When going into the negotiation, the marketing firm should have a strategy that includes a clear walk away point. If the price of the contract is small, that walk away point may mean that you do not do business with the other company. If it is large enough, the marketing firm may be willing to assume the obligation to indemnify for these claims, but before doing so, the marketing firm should review any insurance policies to see if there is some coverage in the event of a lawsuit. Other strategies should include indemnifying for claims that arise out of certain acts such as patent infringement claims brought by practicing entities, but excluding claims brought by non-practicing entities. A non-practicing entity is a company merely hold a portfolio of patents but not actually create anything based on the patents.
Whatever the compromise is, marketing firms should not be so quick to indemnify their clients for all types of intellectual property infringement claims. Spending the time to negotiate the scope of the indemnification obligation can protect you from an unintended or unknown future liability.