Using Supplier Agreements as Patent Litigation Insurance

Jackson Walker

Jackson Walker

In a recent article written for Today’s General Counsel, patent attorney Wasif Qureshi discusses how customers can lessen risks when sued for patent infringement as a result of using technology obtained from a third party supplier. While most non-tech companies do not anticipate being vulnerable to patent litigation, Wasif explains that patent infringement is not limited to developers and sellers of technology, but that users of allegedly patented technology can be sued as well. As a result, he advises that all types of businesses should have clear patent infringement indemnification terms in their supply agreements as a form of built-in patent litigation insurance.

“To avoid having to defend against expensive litigation, insist on patent suit indemnification coverage before moving forward. Better still, in RFPs, include indemnification requirements up front, on your own terms,” Wasif writes.

Further, Wasif explains that customers should ensure that indemnification terms provide comprehensive coverage, particularly in situations where the customer modifies or uses the product or service in a manner to comport with their own business requirements but which the supplier might claim as being outside the scope of indemnification.

As Wasif warns, “a customer might be surprised to learn that it waived indemnification when it provided the supplier specifications necessary to ensure a working interface between the supplier’s product and the customer’s existing business.” Wasif further notes that “supplier provided language may include fine print limiting the scope of coverage in situations where the customer, for example, orders a product or service to specification, modifies the produced product or service, uses the product in a manner not intended by the supplier or buys a product for use in compliance with an industry standard (e.g., USB, Bluetooth).”

Wasif additionally advises that because patent plaintiffs can seek damages from “at least six years before the date of the lawsuit,” customers should keep easily accessible copies of their supply agreements for an extended period of time, preferably for and after the life of the supply relationship. While such safekeeping may seem obvious, Wasif notes that he has encountered many situations where records cannot be found or relevant individuals have left the company, leaving the customer with a knowledge gap in trying to best pursue indemnification. Wasif observes that customers should not assume a supplier’s assistance with patent litigation even if the business relationship is strong and valuable: “many [suppliers] want nothing to do with patent litigation, even at the expense of losing a customer.”

“These suggestions are particularly important for small to medium-sized non-tech companies that do not anticipate patent suits because of the nature of their business, who may have little or no experience with patent lawsuits, or where a patent suit could severely impact the company’s operations.”

For the full article, read “Supplier Agreements Should Include Patent Litigation Protection” in Today’s General Counsel.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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