Indemnities Done Well

Let's face it. Business people can't stand dealing with contract indemnity provisions. Most lawyers aren't particularly fond of them either. Normal people find them extraordinarly confusing. This confusion frequently results in the creation of indemnity provisions that are at best meaningless and at worst can distort the intention of the parties.

In certain transactions, business people may agree that a risk imposed on one party should more appropriately be borne by the other party. When this happens, an indemnity provision is the solution. All indemnities shift risk from one party to another. That is their purpose.

A good indemnity shifts a risk to a party who would not ordinarily be liable for that risk. A poor indemnity purports to shift risk to a party who, in fact, would ordinarily be liable for that risk by law or by contract.

Take, for example, indemnity against breach of contract. Such provisions read something like this: " A indemnifies B against A's breach of this contract." If a contract is breached, the law provides each party with a remedy, namely, the right to sue for breach, recover damages and be made economically whole. In this case, the indemnity generally adds nothing of value to the contract. If B breaches the contract, A can sue B for breach of contract without the indemnity. Thus, no risk has actually been shifted.

But if it doesn't add anything, what's the harm in keeping it in the contract?

An indemnity against breach of contract may be uninsurable. See Indemnification: How to Identify Unacceptable Risks and Get Them Out of Your Agreements by F. David Shipley and David W. Lakamp. Including an indemnity against breach of contract may give an errors and omissions insurer reason to deny coverage that might otherwise have been available. This would not be good for either party.

Moreover, contracts are written, so that judges (who might later be asked to read them) will be able to gleen the intent of the parties. A breach of contract indemnity runs the risk of being construed to mean something unintended. Since the law provides a remedy for breach of contract, there is no need for the parties to agree to indemnify each other for breach of contract. Accordingly, judges are put in the position of either construing the provision to be meaningless (something judges would likely be disinclined to do) or construing that the intent of the parties must have been to provide for some other or additional remedy. The last thing anybody should want (including judges), is putting a judge in a position to guess at what the parties meant.

Madrid System Podcast

This podcast contains a brief summary of the Madrid System. The Madrid System allows a trademark owners to extend their trademark registrations from one country into numerous other countries through a centralized system. The system gets its name from two international treaties (the Madrid Agreement and the Madrid Protocol). Having the option to extend trademark protection through the Madrid System is clearly a huge benefit to trademark owners. However, whether you file through the Madrid System or file a separate application domestically in a foreign country or file an application through a regional system (e.g., EU Community Trademark system) is frequently a strategic decision.

Click on the title above to listen to the podcast.

Craig's List's "Erotic Services" Similar to Tiffany on eBay

The New York Times reported on November 6, 2008 that Craig's List had agreed with 40 attorneys general to take action to reduce the listing of prostitution and similar services on the site. So, Craig's List is now implementing business processes to discourage illegitimate service providers. This includes asking for phone numbers and charging a fee for which a credit card will have to be provided.

Back in July, CNET reported a New York court ruled that eBay was not responsible for trademark counterfeiting occurring on its website even if after Tiffany had provided eBay with knowledge of it. Like Craig's List, eBay implemented measures to prevent the unwanted activity. eBay used search engine technology to find keywords that would identify instances of blatant infringement. In addition, eBay provided a mechanism to allow trademark owners to report suspected infringement. As a result, eBay won its court case.

The real issue in both of these cases, is: "To what extent should an online conduit (like eBay and Craig's List) be obligated to police postings on its site or else be liable for the consequences? "

Before you jump to any conclusions, consider the fact that eBay's expert acknowledged that 30% or more of "Tiffany" items sold on eBay were probably counterfeit. Clearly companies like Craig's List and eBay are making money by allowing their sites to be used for such illegal activity. Why shouldn't they bear the cost?

On the other hand, sites like Craig's List and eBay serve a useful purpose and since they are merely conduits, why should they be held liable? In both cases, it seems like the legal results are coming down in favor of requiring these companies to use some reasonable processes to police their sites in exchange for immunity from liability. Is this a good thing?