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I've developed a low volume high priced product, which I currently sell in the EU market. A UK based company would like to sell my product in countries including the US. I don't want to start wading through US patents to see if my product infringes one.

In the distributions agreement would it be reasonable to ask for a clause such as:

"The Distributor indemnifies and holds STARTUP harmless against any claim of infringement of patent rights arising from sale of STARTUPS's product"

Would this be highly unusual as the clause normally work the other way? Do you know of any agreements that have this type of clause protecting the developer in this way?

My company will not have any physical presence in the US and neither will the distributor.

EDIT I suppose asking the US customer to indemnify the STARTUP against US patent infringement would be unreasonable/unlawful?

I know this all sounds paranoid, but US software patents seem to be granted for the most obvious ideas, so I think it is quite possible we infringe one.

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4 Answers

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It is unusual to ask the distributor to indemnify you, the developer, for IPR infringement. After all, you are the one who knows how you developed your product (i.e. did you copy it? did you hire someone to develop it and under what conditions?). In almost all distribution agreements I have drafted and negotiated against, it is the startup/developer of the product who indemnifies the distributor for IPR infringement.

Your question also mentions that neither you nor your distributor will have a physical presence in the US. If you or the distributor are selling your product in the US, you can still get sued in the US. Whether or not the plaintiff can bring a lawsuit against you or the distributor in a US court does not depend solely on physical presence. However, practically speaking it is very difficult and expensive to drag you into court in the US is you aren't in the US because if the plaintiff wins the lawsuit, he has to enforce the judgement abroad and that is expensive and time consuming.

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many thanks for your detailed answer. I'm interested on why it is difficult for the US plaintiff to sue someone in the UK. What would happen if they did bring a case? Would I receive a letter demanding I appear in court in, say, Dallas? What do you mean by enforce the judgement abroad? What would it entail? Sorry about all the follow on questions, but I find it very interesting as well as relevant. Thank you. – StevenF Mar 13 '11 at 21:42
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Definitely unusual, but that does not make such a provision impossible. However, proposing such a provision might make you look as if you do not know what you are doing or you are unreasonable.

A more mainstream approach might be for you to disclaim all warranties for IP infringement outside the EU, and for each party to waive any right of indemnification it may have against the other party for any claim based on such infringement.

Disclaimer: This information does not constitute legal advice and does not establish an attorney-client relationship.

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That seems a sensible compromise to consider. Thank you very much Dana. – StevenF Mar 14 '11 at 6:44
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It sounds fairly unusual, and may not make sense at all. But I can see a few cases where it may.

Two points to consider (tell us more):

  1. If the distributor is very eager to get a deal done, then you can negotiate to your advantage and they may accept that clause

  2. Would you have any presence in the US due to supporting customers there? If not, and if you are fairly sure that you never need to do business directly, then not much can happen to you.

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Thank you very much! No I don't and won't have a presence in the US, but I still thought I could get sued? The distributor is very keen. Thanks again. – StevenF Mar 13 '11 at 16:38
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If the distributor really is the one pushing for this arrangement, and you are not equally incented, it does not seem unreasonable to ask them to assume the additional risks that selling in the US might entail. They might in turn reasonably ask for your assurance that you are not currently aware of any US patents your product infringes.

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