This will seem basic to some, but I keep running into the issue so it’s not as widely understood as it might be. Also, this might be new information to readers unfamiliar with U.S. law.
In the United States, the typical software license addresses intellectual property infringement issues in two different provisions. In one, the licensor agrees to indemnify the licensee against claims that the licensed software infringes a third party’s intellectual property rights. In a second provision, the licensor will disclaim any implied warranty that the licensor’ software does not infringe any third party intellectual property rights.
To many this seems completely inconsistent. It’s not.
In fact, it’s a problem to give the licensee both a warranty of non-infringement and an indemnification for infringement claims. That’s the issue this post is about.
There are three things you need to know as background to understand the issue.
1. In the United States we have this thing called the Uniform Commercial Code. The Uniform Commercial Code is a model body of laws that apply to various commercial transactions. Article 2 of the Uniform Commercial Code applies to the sale of goods. Forty-nine of our fifty states have adopted some form of Article 2. Louisiana is the hold out. It’s a French thing.
While it might seem odd, Article 2 of the Uniform Commercial Code also applies to software licenses.
2. Article 2 of the Uniform Commercial Code provides there a several implied warranties that will apply in subject contracts. Being implied means those warranties apply to a transaction without being stated in the subject contract. Sellers (and licensors) can exclude those warranties, but only if they do so very clearly. That is why you see this all the time:
ALL WARRANTIES WITH RESPECT TO THE LICENSED SOFTWARE, EXPRESS OR IMPLIED, ARE HEREBY DISCLAIMED AND EXCLUDED BY LICENSOR, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR USE OR FREEDOM FROM INFRINGEMENT OR THIRD PARTY INTELLECTUAL PROPERTY RIGHTS, OR ARISING FROM COURSE OF DEALING, COURSE OF PERFORMANCE OR USAGE OF TRADE.
That language is generally accepted as effectively disclaiming those implied warranties, which are the warranties listed in it.
3. This is the implied warranty of concern here:
FREEDOM FROM INFRINGEMENT OR THIRD PARTY INTELLECTUAL PROPERTY RIGHTS
The remedy for breach of that implied warranty is – indemnification.
As licensee, if you have the indemnification described above, you don’t need that warranty. You’ve already got the remedy you need for infringement issues.
What’s the problem with doing it twice?
It’s is a bad idea to do the same thing twice in a contract. There is a principle in U.S. contract law that every provision in a contract is supposed to be read to have some meaning. The idea is that no one would put something into a contract if it wasn’t necessary. A contract that has the same rights and remedies in two different provisions raises the question whether one of those provisions is supposed to mean something different than the other provision. If so, what is that other meaning? I don’t know, but I don’t want to argue about it if the issue comes up. In a future post we’ll discuss how painful that can be.
In the meantime, please join me in the effort to put this matter to rest, so that we can negotiate about real issues.
Also, let me know if you want to discuss those other implied warranties.