𝗕𝗮𝗰𝗸 𝘁𝗼 𝘁𝗵𝗲 𝗕𝗮𝘀𝗶𝗰𝘀 | 𝗣𝗼𝘀𝘁 #4

FIO Legal Solutions
9 hours ago
2 min read

Author: Luiza Rey

Let’s talk about a clause that looks protective — but often isn’t.

If your IP indemnities are inside the liability cap, you may as well not have them.

When a vendor provides tech, software, or data, their contract often includes an IP indemnity — 𝙖 𝙥𝙧𝙤𝙢𝙞𝙨𝙚 𝙩𝙤 𝙘𝙤𝙫𝙚𝙧 𝙮𝙤𝙪 𝙞𝙛 𝙩𝙝𝙚𝙞𝙧 𝙥𝙧𝙤𝙙𝙪𝙘𝙩 𝙞𝙣𝙛𝙧𝙞𝙣𝙜𝙚𝙨 𝙨𝙤𝙢𝙚𝙤𝙣𝙚 𝙚𝙡𝙨𝙚’𝙨 𝙞𝙣𝙩𝙚𝙡𝙡𝙚𝙘𝙩𝙪𝙖𝙡 𝙥𝙧𝙤𝙥𝙚𝙧𝙩𝙮.

It sounds safe.

But the fine print decides whether it actually protects you.

Why this matters:

An IP infringement claim can:

1. Shut down your product overnight.

2. Trigger injunctions in multiple countries.

3. Force a complete rebuild of your tech stack.

4. Cost more in legal fees and settlements than the entire deal is worth.

Now imagine your IP indemnity says this applies “𝘴𝘶𝘣𝘫𝘦𝘤𝘵 𝘵𝘰 𝘵𝘩𝘦 𝘭𝘪𝘢𝘣𝘪𝘭𝘪𝘵𝘺 𝘤𝘢𝘱.”

That means:

- The vendor’s total liability is limited — often to the contract value.

- Your maximum recovery might be a small fraction of your real loss.

- You’re left paying the rest, even though the problem wasn’t yours.

Real Example:

A European fintech startup licensed an AI-based fraud-detection tool from a U.S. vendor.

When a competitor claimed the vendor’s model infringed its algorithm patent, the startup was hit with an injunction — it had to suspend onboarding for three months.

The vendor accepted responsibility under the IP indemnity, but the clause was inside the general liability cap — equal to one year of service fees (€80,000).

The startup’s real damage (lost clients, reputation, re-engineering) exceeded €700,000.

Legally, they won the indemnity.

Financially, they were on their own.

The Fix:

💡 Keep IP indemnities outside the general liability cap.

Or at least give them their own, much higher cap.

It's the difference between:

🛡️ Surviving an infringement claim — and

💸 Watching your product die because your “protection” was only worth a refund.

📚 Extra Reading:

If you want to dive deeper into why IP indemnities should be treated separately, see:

https://www.digitalguardian.com/blog/intellectual-property-risk-how-manage-it