Many agreements include an indemnification clause typically using language like this: “Party A will defend, indemnify and hold harmless all claims, losses and damages against Party B related to its use of the Technology.”
It is tempting to gloss over this language; however, do so at your peril. While in some states, the words “defend,” “indemnify” and “hold harmless” are interpreted as being synonymous, in other states all three terms actually have different meanings.
“Defend” generally means that if Party B gets sued by a third party arising from its activities according to the contract, Party A may (or must) step in and manage the defense of the lawsuit (including hiring attorneys and possibly controlling litigation decisions). Party A should be explicit about the scope of its obligation to defend, including its level of discretion and control independent of Party B.
“Indemnify” generally means that a party will compensate another party for the specific claims, losses or damages. In our example, if Party B gets sued by a third party arising from its activities in fulfillment of the contract, Party A will pay Party B for Party B’s losses. Party A should be explicit about what amounts fall within this obligation, including attorney fees, government fines or court costs.
“Hold harmless” generally means that a party will be deemed not liable for certain damages. In effect, such language would bar Party A from bringing suit against Party B if Party B’s actions cause Party A harm. Party A should carefully consider its willingness to give up such a right.
Thus, while certain courts have found that “hold harmless” is not distinct from “indemnify,” others have found them to be different, with different results to the parties. It is important to check the laws of your state and duly consider these terms.
|Braginsky, Philip Partner and Co-Chair of Intellectual Property Group and Pharmaceutical and Biologics Practice and China Practice||Partner and Co-Chair of Intellectual Property Group and Pharmaceutical and Biologics Practice and China Practice||212.216.8065|
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