As per section 124 of the Indian Contract Act 1872- A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a "contract of indemnity".
In common parlance indemnity is often used as a synonym for compensation or reparation.
As a legal concept, it has a more specific meaning. A contractual agreement made between different parties to compensate for any damages or losses.
An indemnity is a sum paid by A to B by way of compensation for a particular loss suffered by B. The indemnitor (A) may or may not be responsible for the loss suffered by the indemnitee (B).
It is a promise to compensate for or security against damage, loss or injury.
It includes all contracts of insurance, guarantee.
It is a tool for allocating risks contingent liability.
Indemnity clauses, amongst other things, must be clear, specific, where possible stipulate the circumstances under which the indemnity will arise, be considered in light of any exclusion of liability clauses found elsewhere in the agreement and state what damages will be payable in the event of the clause being successfully invoked.
A contract of indemnity can be enforced according to its terms.
Claim of Indemnity holder can include: damages, legal costs of adjudication, amount paid under the terms of compromise.
The measure of damages is the extent to which the promisee has been indemnified.
Indemnifier should ideally be informed of the legal proceedings or should be joined as third party.
DAMAGES ON BREACH OF CONTRACT OF INDEMNITY UNDER SECTION 125 OF INDIAN CONTRACT ACT 1872
The promisee in a contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor-
(1) all damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies;
(2) all costs which he may be compelled to pay in any such suit if, in bringing or defending it, he did not contravene the orders of the promisor, and acted as it would have been prudent for him to act in the absence of any contract of indemnity, or if the promisor authorised him to bring or defend the suit;
(3) all sums which he may have paid under the terms of any compromise of any such suit, if the compromise was not contrary to the orders of the promisor, and was one which it would have been prudent for the promisee to make in the absence of any contract of indemnity, or if the promisor authorized him to compromise the suit .
CIVIL COURT ACTIONS
Most laws concerning civil court actions also use indemnity as a measuring stick for damages. If a plaintiff is entitled to compensation for the actions of the defendant, the amount awarded should only bring him or her back to a state of wholeness.
Many rental agreements contain an indemnity clause which prevents the customer from suing the rental agency for damages caused by use of the equipment. Leases for apartments may also contain indemnity clauses which limit claims against the owners in case of accidents.
A landlord would be indemnified from damages if a tenant tripped and fell down the stairs. However, if the stairs were in disrepair, and this matter had been brought to the attention of the landlord, an indemnity agreement would not prevent the renter from suing for damages if the disrepair caused the accident.
Tenants usually further agree to be held responsible for costs if the property is damaged. Agreeing to clean the apartment upon vacating the property is an indemnity agreement that protects the property owner. Deposits may not be returned when a tenant fails to meet obligations stated in an indemnity agreement.
IPR indemnity would indemnify the customer against any damages, losses or expenses that the customer may incur arising out of any claim based on an allegation that the supplier’s product or service infringes the intellectual property right of a third party.
In the event of such a claim the indemnity would normally provide the supplier undertake to do one of the following three things:
-try to modify the product or service so as to make it non-infringing.
-try and acquire an appropriate licence to enable the customer to continue to use the infringing product or service.
-refund the price the customer paid for the infringing product or service less an amount for depreciation.
They would not apply to
-products or services not made or supplied by the supplier.
-any enhancements or modifications made to the product or service by anyone other than the supplier.
-where the product or service was used in a manner inconsistent with the user documentation.
Suppliers are refusing to give IPR indemnities.
Increasingly they are restricting them to their core product and specifically excluding any components that have been developed by third parties.
Any software that they have been specifically commissioned by the customer to develop.
REASONS FOR SUPPLIERS BECOMING MORE RELUCTANT TO GIVE IPR INDEMNITIES
There are probably three main reasons:
-The first is the impact that open source software has had on the software industry.
-Second is the reality that the amount of IPR infringement litigation taking place is increasing dramatically and that correspondingly the risk of liability arising under the IPR indemnity is also increasing.
-Third, is the increasing number of software related patents that are being issued with the result that much of the current IPR litigation is based on allegations of infringements of patent as opposed to copyright.
INDEMNITY PROVISION FOR PATENTS
Patent infringement cases can be expensive to litigate, and very expensive to lose. They can also cast a wide net. For example, the 2010 infringement suit brought by Canon against Ninestar for allegedly marketing a too-similar inkjet toner cartridge named all the distributors of the product, as well. A contractual indemnity clause can protect companies in such a situation by obtaining the indemnitor's guarantee that it will compensate the indemnitee (distributor) for any losses caused by a third-party patent infringement suit.