We’ve all read about the patent disputes between Apple and Samsung over technology used in their phones, and disputes over medical technology patents. But it’s not just technology companies facing these issues. Digital agencies face the risk of violating another company’s IP when developing mobile and digital applications for clients. These risks, and the ensuing litigation, have become so pronounced, that many agencies are turning down business.
Most agencies’ fears are based on client contract terms; the main term being the Indemnification Clause. This clause usually requires the agency pay all damages, attorney fees, and similar expenses the client incurs if it is sued because the agency violated someone else’s IP rights. Without some balancing of this risk, it may be impossible for an agency to ever feel comfortable that it is not putting its existence at stake if it unintentionally violates another’s IP.
7 Strategies To Reduce Your Risk
So, what is a digital agency to do? Here are some strategies the agency can employ to the risk between the agency and the client. Require the client to have intellectual property insurance coverage. This may already be part of the client’s overall insurance portfolio, but make sure it covers the specific work you’re providing. If the agency doesn’t have coverage, it should at least obtain insurance to cover the project risks (which can usually be done at a minimal cost).
- Require the client to have intellectual property insurance coverage. This may already be part of the client’s overall insurance portfolio, but make sure it covers the specific work you’re providing. If the agency doesn’t have coverage, it should at least obtain insurance to cover the project risks (which can usually be done at a minimal cost).
- Put a cap on damages the client can recover from you and limit the type of damages that can be recovered. The maximum might be the amount the client pays the agency and you might exclude punitive or consequential damages.
- Limit the time period in which the client can recover against you. Yes, this might be dependent on when they are sued by the IP owner, but there should always be an expiration period.
- Only be required to comply with reasonable patent, trademark and copyright searches (maybe only at the state and federal levels) as part of your own due diligence. Once this is met, your damages should be limited or even eliminated. There are just too many types of IP (many unregistered) for you to be absolutely 100% sure your search uncovers all possible IP you could be violating.
- Exclude any claims for damages resulting by lawsuits from a “patent troll”.
- Make sure you have the right to defend any claim filed against your client. This way, you can manage the litigation process (and scope of potential damages).
- Exclude claims resulting from a client using the IP differently from the purpose for which the IP was developed, or from the contract terms.
With the ever increasing pace of technological development, patent lawsuits are here to stay. Proposed legislation would limit the rights of patent trolls, but true operating companies could still make claims against digital agencies. Like many industry risks, digital agencies will have to use business and legal strategies to manage IP violations risks.