When it comes to trade agreements, a key element, which is often included, is a compensation provision. It is essentially an obligation for the licensee to be held liable for losses that may occur in the event of a problem (sometimes the licensee may also receive compensation from the client, but this is less common). For example, if you license technology and there has been an inherent error that has led to a data breach, the indemnity clause would specify that you are responsible for things such as legal fees or damage to third parties. Although a compensation clause is a fairly standard element of tech licensing agreements, there are some potential parts of a clause that can cause major problems. Here are some examples. There are things that the law does not allow people to compensate. For example, « negligence alone » and « intentional misconduct » in California cannot be compensated under section 2782 (a) of the Civil Code, and most states have similar provisions. But for the rest, you can negotiate compensation for everything in your contract. The following allowances are the most frequent allowances that should be included in a SaaS agreement. Most compensation agreements may be limited or procedures can be put in place to allow for greater transparency and predictability. This is most often in the case of an ip infringement.
As a general rule, the obligation for the SaaS operator, with respect to infringement rights to the IP, is to resolve the right by 1) the licensing of the required rights, 2) to replace the IP violating the law with non-injurant IP rights or 3) to terminate the contract. These limitations on the extent of compensation correspond to the realities that the agreement cannot remain in force without the investigation period and that the SaaS supplier has only certain options to provide a service that is not likely to have an effect. In general, in licensing agreements, most of the potential pitfalls you will find with respect to compensation clauses are based on IP problems. For example, some clauses contain the provision that a tech licensee does not compensate you if the IP rights on which a infringing right is based are issued/registered after the original date of the contract. This may seem right on paper, but you must realize that even if the rights are registered after your contract is concluded, you can still be sued, and without that protection, you will be taken to defend the requirement out of your pocket. Christopher is an experienced business lawyer, a legal agent and a contractor. He assists clients in strategic analysis, contracts, business training, IP and technology law, marketing and advertising issues, as well as general business processes. He specializes in technology licenses and agreements and commercial contracts, among others, with partners, developers, suppliers and suppliers. He is a former major legal partner and has worked as a general counsel for both the venture capital firm and state-owned enterprises.
For example, a SaaS service provider that processes financial data exposes its clients to both intellectual property infringements and data protection violations. The SaaS supplier could therefore only provide compensation for intellectual property infringements and data loss from its systems. If you are licensed, you first want to ensure that compensation is not just a temporary provision until the end of the original agreement.