October 27, 2020

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The Indemnification Clause: What You Need to Know


By Eric Wagner, Director, Legal Affairs

 

Indemnification.  A big word that doesn’t frequently come up in everyday conversation.  Unless, of course, you are a transactional attorney or a technology transfer professional.

Indemnification is a standard part of every License Agreement that the Office of Licensing & Ventures (OLV) negotiates. In fact, it is a critical term in those Agreements and on which Duke is unlikely to compromise.

Recently, OLV has had some questions about this term, what it means, and why Duke insists that it is included in our License Agreements. The goal of this blog is to provide some answers to those questions.

What does indemnification mean?

The legal definition states “to save harmless; to secure against loss or damage; to give security for the reimbursement of a person (or entity) in case of an anticipated loss falling upon him (or it).” (www.thelawdictionary.org)

What exactly does this mean? Let’s break it down:

  • Duke’s indemnification requirement means that Duke is not responsible for the products made and sold by our Licensees nor is Duke responsible for the services performed by our licensees.
  • This language in our Agreement requires our Licensees (and/or Sublicensees) to be responsible for the products that they make and services they perform and to shield Duke from any liability resulting therefrom.
  • If those products and/or services fail to meet any established standards or cause any harm to a third party, our Licensee is going to protect Duke from any legal action brought by the end-user. This protection includes providing and paying for any legal defense against such legal actions and any damages that may be mandated by a court.

 

Why does Duke insist on this language?

In short, to protect Duke assets from legal action. Duke University is a not-for-profit research and educational institution. Part of OLV’s mission is to ensure that Duke innovations reach the marketplace for the benefit of society. Duke is not, however, a commercial entity in the marketplace.

As a non-profit institution, there are rules that Duke must follow which prevent it from being able to act as a traditional commercial player. Further, Duke does not have manufacturing and marketing capabilities, nor does it have safeguards (e.g., product liability insurance) that commercial entities enjoy.

Instead, Duke gets its innovations into the marketplace by licensing the innovation to a Licensee (or sublicensee) that is a commercial entity and has the capability of making, using, and selling the innovation in the marketplace.

 

How does this look in real life?

In almost all of OLV’s Licenses, Duke provides intellectual property rights (e.g., patent rights and/or copyrights), technical information, and occasionally some materials (e.g., a cell line, tissue samples, etc.) to the Licensee in order for them to make, use, and sell a commercial product or provide a service.

For example, licensed patent rights give the Licensee the legal authority to stop a third party from making, using, selling, or importing a commercial product that infringes on the Patent Rights. Technical information, while not protectable as intellectual property, provides critical information needed for making and using the Licensed Products. It is important to note that Duke’s involvement stops here.

It is the Licensee’s responsibility to take the intellectual property rights and technical information licensed by Duke to make, use, and eventually sell the ultimate commercial product and/or service in the marketplace. This responsibility includes further development or testing that is needed for commercialization and/or regulatory approval.

Because Duke is not a commercial entity, it has no control over any of the steps in the commercial development process of the product. As a result, Duke should not have to, and does not, shoulder the liability of the products made and services performed by our Licensees.

The indemnification language provides for this protection. In addition to requiring the Licensee to indemnify Duke for any liability relating to the licensed products and licensed services they provide, Duke also requires its Licensees to carry insurance, such as commercial product liability insurance, to protect the company and Duke from any legal costs associated with product liability issues. This provides a further layer of protection on top of the indemnification protection.