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Whether the lawsuit is by an opportunistic patent holder merely seeking a quick buck (such as patent trolls) or the lawsuit is based on legitimate infringement of a patent, such lawsuits represent a significant threat to any defendant. Patent suits are, by nature, extremely expensive and time consuming.
When the focus of the patent infringement is within a product or service provided to or on behalf of a credit union by a vendor, protecting the credit union from these and other types of lawsuits often depends on a properly drafted indemnification clause.
A credit union should obtain a copy of the proposed contract at the beginning of the due diligence/negotiation process as opposed to waiting until the business terms are agreed upon. Attorneys stress that contract terms are as equally important as the business terms and should be negotiated in unison.
A credit union should also inform vendors from the onset of the negotiation process that it expects the vendor to "stand behind" its product and/or service. This means the credit union should demand indemnification from the vendor (or its agents, employees, subcontractors) not only for patent infringement, but also copyright and trademark infringement.
Furthermore, the credit union should demand indemnification against claims made by any third party which arises due to the vendor's (or its agents, employees, subcontractors) breach of the contract, negligence, and/or willful misconduct.
Elements of a Good Clause
The key to a good, properly drafted indemnification clause is to:
Limitation of Liability
Care must be taken if the contract has a limitation of liability section. Without a "carve out" for indemnification obligations, a vendor's maximum indemnification obligation would be up to the limitation negotiated.
This could leave the credit union liable to the third-party claimants for all amounts in excess of the limitation, even though the credit union had nothing to do with the issue under which the claim was made.
Therefore, limitation of liability sections are equally important to review and negotiate, as are indemnification clauses.
Recent lawsuits serve as a reminder to credit unions of the importance of having contracts reviewed by an attorney, not only for proper indemnification clauses, but to help limit credit union liability.
NEW SPANISH TILA-RESPA TOOLKIT
updated 07/28/15 09:18 AM
Plus, Unclaimed Property Seminar
The Consumer Financial Protection Bureau (CFPB) has released a Spanish edition of “Your Home Loan Toolkit,” the consumer guide that is designed to replace the current Settlement Cost booklet when the TILA-RESPA Integrated Disclosures rule goes into effect on Oct. 3.
POLICYWORKS LEAGUE COMPLIANCE SITE
updated 07/21/15 08:59 AM
League Member-Exclusive Content
The PolicyWorks League members’ only website provides member credit unions with ongoing compliance support as benefit of League membership. The website houses a library of compliance information and communications to assist credit unions with their compliance needs.