An indemnity provision protects the customer if a third party claims that the software infringes its intellectual property rights. This usually takes the form of a warranty of non-infringement or "quiet enjoyment" in which the licensor agrees to indemnify the licensee against legal costs and/or damages.

Look in any software license agreement and you are almost sure to find a disclaimer of all such warranties and a provision excluding all damages you can collect from the licensor if the software is found to be infringing. For example, Microsoft's standard EULA says that "there is no warranty or condition of title, quiet enjoyment, quite possession, correspondence to description or non-infringement with regard to the software."

In other words, the commercial software company owes you nothing even if it turns out they stole the software from somebody else, and even if that somebody else sues you. And while refusing to protect you from the risks of their possible infringement, many software license agreements require you to indemnify them against certain risks. A term to be found in some Microsoft EULAs, for example, says you must agree to "indemnify, hold harmless, and defend Microsoft from and against any claims or lawsuits, including attorney's fees, that arise or result from the use or distribution of any Modified Software..."

Of course, similar language is to be found in most sneakwrap agreements, but I'm picking on Microsoft because it has suddenly begun touting minor changes to the indemnification provisions in its Select and Enterprise volume licensing agreements. It's not clear the changes will make all that big a difference in how such contracts are likely be interpreted by a court, but what is clear is why Microsoft is trumpeting the change. Those in Redmond really do view Linux as a serious threat, and in light of the SCO case they've seized upon the indemnification issue as one they can use against it. Like the SCO case itself, this is more of an anti-Linux PR tactic than a real legal move.

That's not to say indemnification isn't important. A warranty of non-infringement and indemnity for any legal costs is one of the first things most IS professionals can and should ask for when negotiating a software contract. But it is something you have to bargain for, and thus a negotiating chip for the vendor. And when the terms aren't negotiable, the default is no indemnification. The legal risk is all on you.

And that risk is growing in the commercial software world, because intellectual property lawsuits are everywhere. Microsoft, for example, faces a patent lawsuit from a company called InterTrust claiming that almost all Microsoft products infringe its digital rights management patents. Now, I happen to believe all software patents (as opposed to copyrights) are bogus, so I'm not rooting against Redmond in this case. But since Microsoft has managed to get so many analysts and journalists to ruminate on the worst case scenarios involving indemnification in the SCO case, let's consider the worst case scenarios here too. What if InterTrust wins? And what if they, like SCO is threatening to do with Linux, then decide to sue all Windows users for infringement? Will Microsoft indemnify us all against that risk? If you have any doubt, see the EULA language above.

The sad fact is that the commercial software world is increasingly focused on building and aggressively defending intellectual property fences. Whatever happens in the SCO case, it's not going to change the fact that the free software approach is the only way for developers and customers alike to completely escape from having to worry about things like warranties of non-infringement. Indemnification is a big problem, but it's one that ultimately belongs completely to the commercial software vendors.

--------------------

To receive this column every week in my free e-mail newsletter, please go to my subscription page and follow the instructions to opt-in for the EdFoster mailing list.