No one wants to be caught in the middle of a legal mess—especially when it comes to intellectual property. But it happens. A customer uses your software, gets sued for patent infringement, and suddenly, they’re looking at you to cover the damage.
That’s where indemnity clauses come in.
Done well, they keep everyone protected. Done poorly, they leave your business exposed.
This article walks you through how IP indemnity clauses really work, what to include to keep risk low, and how to write them in a way that protects both sides—clearly, simply, and with no room for confusion.
What IP Indemnity Really Means in a Business Contract
Understanding the Core Idea
An indemnity clause is a promise. It’s your way of saying, “If something goes wrong, and someone sues you because of what I gave you, I’ll take the hit—not you.”
That’s what it means in simple terms.
When it comes to IP, this promise usually applies to things like software, designs, data, or creative content. If someone claims your product infringes their intellectual property, and your customer gets pulled into the fight, your indemnity clause is what decides who’s responsible.
Without it, things get messy fast.
You might have to fight over whether you owe them anything at all. With a good clause, expectations are clear from the start.
Why It’s So Important for IP
Intellectual property is invisible but valuable. It can live in code, words, logos, and processes. And often, people don’t even know they’ve used something they weren’t allowed to use.
That’s what makes IP risk so dangerous.
It’s not always about theft. Sometimes it’s about oversight. A single open-source component that wasn’t cleared properly. A logo that looks too much like another. A plugin that uses third-party code under the wrong license.
If a claim shows up, your customer won’t care how it happened. They’ll want protection. And if your contract doesn’t offer it, they’ll either walk away—or take you to court.
This is why well-drafted IP indemnity clauses are a key part of your reputation, especially in software, media, and tech.
The Common Scenario
Picture this.
You sell a software product to a mid-sized company. They plug it into their workflow. Six months later, a third-party sends them a legal notice, claiming that your product uses patented technology without permission.
Now your customer is being dragged into a dispute they didn’t cause.
If your agreement doesn’t have an IP indemnity clause, they might try to recover their losses from you anyway. But it won’t be automatic.
They may claim breach of contract. You may argue it wasn’t your fault. That debate could take months, maybe years.
But if you had a strong IP indemnity clause, things would be different.
You’d already know who handles the claim. Who pays for defense. Who decides whether to settle or fight. Everything would be set in writing.
And instead of scrambling, you’d be acting from a place of clarity.
Key Elements That Make an IP Indemnity Clause Work
Clear Scope of Coverage
The first thing your clause should do is define what’s covered.
Are you indemnifying only against patent claims? Or also copyrights and trademarks? Does it include trade secret misappropriation?
Don’t leave this vague.
Many disputes arise because one side assumes the clause covers all types of IP, while the other thinks it’s limited.
A good clause will say exactly what types of claims it applies to—and just as importantly, what it excludes.
This clarity helps both parties understand the real scope of the risk being accepted. It also helps avoid surprises when an issue surfaces.
It’s always better to be clear upfront than to interpret language in the middle of a crisis.
Who Gets Protected, and How
Next, your clause should explain who’s being protected.
Most of the time, that includes your direct customer. But in some cases, it might also include their affiliates, resellers, or end users.
If they’re using your product or relying on your service, and they get sued because of something you provided, they’ll expect coverage.
You can limit this group if needed—but it must be done explicitly.
Then, you need to define what you’ll do if a claim arises.
Will you take over the defense? Will you pay for outside counsel? What about court fees, settlements, or judgments?
The stronger your language here, the less uncertainty there is later.
Your clause should make it easy to see where responsibility starts and stops.
What Happens When an IP Claim Actually Hits
When the Clause Becomes Real
Most indemnity clauses sit quietly in contracts, unread after signature. But when a lawsuit or threat shows up, everything changes.
That’s when someone pulls out the agreement and starts asking, “What does the indemnity clause say?”
At that point, the language in that single paragraph takes on enormous meaning. It’s no longer theoretical. It decides who calls the shots, who pays, and who takes the hit if things go badly.
If your clause is vague or silent on key steps, you may end up in a second dispute—one over who’s supposed to respond to the first one.
But if your clause is solid, the roadmap is already there.
Defense Obligations: Who Handles the Fight?
A strong IP indemnity clause does more than say who will “cover” claims. It spells out who controls the legal defense.
Why does this matter?
Because defending an IP claim isn’t just about paying bills. It’s about strategy. Settling early or fighting it out. Choosing the legal team. Managing discovery and deadlines.
If you’re the provider of the product or service, you’ll probably want to handle the defense. That way, you protect your own reputation and control the narrative.
But if the clause doesn’t give you that right explicitly, the customer might take charge—and they may hire a firm, pursue a tactic, or cut a deal you wouldn’t have chosen.
This is why well-drafted indemnity language doesn’t just assign financial responsibility. It gives you the right to defend and resolve the matter, with notice and reasonable cooperation.
You want to be at the center of the response, not watching from the sidelines while someone else makes decisions that affect your IP and your brand.
Settlements and Admissions of Liability
Here’s a tricky but important part of indemnity most businesses overlook: settlements.
Let’s say a customer is sued and wants to settle quickly. If the clause doesn’t say otherwise, they could agree to pay the claimant—then send you the bill.
Even worse, they might admit fault on your behalf.
A good indemnity clause protects against this by stating that no settlement can be made without your prior written approval.
That gives you a seat at the table. It also prevents reputational damage or inflated costs caused by hasty decisions.
In turn, your clause should also say that if you defend the claim, the customer must cooperate—and avoid actions that might worsen the situation.
That balance keeps both sides aligned and prevents misunderstandings when tensions are high.
Defining Limits Without Weakening Protection
Why Caps and Carveouts Matter
Indemnity isn’t meant to be unlimited liability. It’s protection within boundaries.
That’s where caps and carveouts come in.
A cap is a limit on how much one party will pay under the indemnity. It’s often tied to the contract value—say, the total fees paid in the last year.
This helps the indemnifying party avoid open-ended exposure, especially in long-term or high-risk engagements.
At the same time, carveouts are exceptions. They say that for certain kinds of claims—like IP infringement—the cap doesn’t apply, or a higher limit will apply.
This reflects the reality that some risks, like IP lawsuits, can be significantly more costly than others.
Your clause should balance these needs: protecting the customer from real harm, while protecting your business from unlimited financial risk.
The best way to do that is with tailored caps for different risks, and clear language about when those caps do or don’t apply.
Insurance Isn’t a Substitute—But It Helps
Sometimes people think insurance will handle it all.
But insurance policies often exclude IP infringement unless you’ve bought very specific coverage.
Even if covered, insurers may only pay under narrow conditions—and usually require fast notification and strict cooperation.
That’s why a contract can’t rely on insurance alone.
It’s fine to say that a party must carry insurance for IP claims, and even require proof of coverage.
But your indemnity clause should stand on its own, with or without insurance.
That’s how you make sure protection is enforceable—even if a claim doesn’t fit neatly into a policy.
What to Exclude from IP Indemnity (And Why)
When It’s Not Your Fault—Don’t Pay for It
Not every IP claim that touches your customer should be your responsibility. That’s why exclusions are a critical part of any solid indemnity clause.
Exclusions help make clear that if the customer causes the problem, you’re not stuck cleaning it up.
For example, if your client changes your product in a way that causes infringement—like modifying code, inserting third-party libraries, or combining it with something else—they’ve created a new version that you didn’t authorize.
If someone sues over that change, the risk shouldn’t be yours.
A well-written clause will say that you’re not responsible for claims based on combinations, alterations, or unauthorized uses of your product.
This protects your company from having to defend work you didn’t actually do—and it sets clear boundaries for how your product should be used safely.
Claims Based on Customer-Provided Material
Sometimes customers provide input—logos, data, instructions, or third-party content—and want you to use that in the product or solution.
If that material ends up infringing someone else’s rights, that’s not your liability to absorb.
Your indemnity clause should say clearly that any claim caused by customer-provided content is excluded from your responsibility.
This is a basic principle in most service agreements. Still, it needs to be stated in your indemnity clause so there’s no confusion later.
Without this exclusion, you could be asked to defend a claim that began with the client’s own decision.
Setting that line in writing now prevents frustration and finger-pointing if a dispute ever surfaces.
Known Risks and Preexisting Claims
Some clients may already be aware of risks around a particular feature, region, or third-party integration.
If they ask you to proceed anyway, that’s a business decision—but it shouldn’t create new liability for you.
Your indemnity clause can exclude claims based on uses the customer was warned about or risks that were already disclosed.
Likewise, if a customer is already involved in a legal dispute, your indemnity should exclude anything that started before your relationship did.
You’re not stepping into a fight that began without you.
Exclusions like these help draw a boundary between your obligations and the customer’s past or independent actions.
What to Do When Both Parties Share Risk
Mutual Indemnity: When Each Side Has Exposure
In many contracts, both parties are supplying something of value.
You may be offering software, but they may be giving data, branding, or access to customers.
If either party’s input causes a legal issue—especially around IP—the other side needs protection.
That’s where mutual indemnity comes in.
Instead of one party bearing all the risk, each agrees to take responsibility for problems caused by their own materials, services, or behavior.
This approach works best when the relationship is balanced and both sides contribute key IP.
Your clause should say that each party will indemnify the other for claims caused by their own IP or use of third-party content.
It’s a fair arrangement—and one that reinforces shared accountability.
But it still needs to be written clearly, so that each side knows when they’re protected and when they’re exposed.
Managing Control in a Mutual Setup
When both parties have indemnity obligations, it’s especially important to clarify who controls the defense when a claim arises.
If someone sues both of you at once—perhaps over something jointly created—your clause should say how defense responsibilities will be split.
You may agree to jointly defend the case. Or you may decide that whoever is “more responsible” takes the lead, while the other contributes financially.
Either way, you want to define that flow before a lawsuit arrives—not after.
Good contracts don’t just explain what each party must do. They explain how things will actually play out when challenges arise.
This is what turns an abstract promise into a real-world safeguard.
How to Negotiate an IP Indemnity Clause Without Losing Leverage
Know Your Value Before You Make Concessions
When a client asks for strong IP indemnity, it’s usually because they’ve been burned before—or because their own legal team is being extra cautious.
You may be asked to take on full responsibility for any claim related to your product, with no limits, no exceptions, and immediate reimbursement.
That kind of language is risky for any business, especially startups or service providers with limited legal resources.
Instead of rejecting it outright, use it as a conversation starter.
Ask what their real concern is. Are they worried about patents? Open source? Data exposure?
Often, you can address the fear with a more tailored clause—one that protects them from actual threats without exposing you to limitless liability.
When you understand your value—and their real risk—you can negotiate from a place of clarity, not fear.
Tailor the Language to Match the Relationship
Not every client needs the same indemnity terms.
For example, if you’re selling a low-risk tool used internally, a lightweight indemnity may be enough. If you’re delivering software that’s embedded in their commercial offering, the stakes are higher.
Use the nature of the deal to shape your position.
Offer a cap based on the contract value. Exclude claims caused by improper use. Add a requirement that they notify you of any issues within a certain timeframe.
These are fair terms, and most clients will accept them—especially if you explain that unlimited risk isn’t sustainable or aligned with the service being provided.
Your goal isn’t to avoid responsibility. It’s to share it fairly and proportionally.
That’s the kind of protection that both parties can accept.
Never Sign Without a Full Read—Even Under Pressure
It’s common to treat indemnity clauses as boilerplate. But this one paragraph can affect millions of dollars in legal exposure.
Don’t let pressure to close a deal force you into accepting a clause you don’t understand or one that hasn’t been reviewed.
Always give yourself time to read it, redline it if needed, and ask legal counsel to confirm what the language actually means.
Even small differences in wording—like “will defend” versus “may assist in defense”—can completely change your obligations.
Contracts move fast, but indemnity clauses last.
Take the time now to get it right. You’ll be glad you did if anything ever goes wrong.
Future-Proofing Your IP Indemnity as Your Business Grows
Keep Clause Language Updated With Your Offerings
As your business changes, your IP risks may change too.
You may start with a simple product and expand into more complex offerings. You may begin using new third-party tools or distributing content through different platforms.
Every time you launch something new, revisit your indemnity language.
Does it still make sense? Does it cover the types of IP you’re now handling? Does it reflect the real-world risks you’re taking on?
This isn’t about rewriting contracts every month. It’s about making sure your protection scales as your business does.
If you don’t update your clauses, you could end up exposed in ways you didn’t plan for—especially if you’re entering new industries or working with larger enterprise clients.
Consider Jurisdiction and Governing Law
IP laws vary by country. What’s safe in one region may be risky in another.
If your contracts cross borders, your indemnity clause should say which country’s laws apply—and where disputes will be handled.
This is called the governing law and jurisdiction clause. It helps you avoid being dragged into an unfamiliar legal system, or dealing with laws that give more power to IP holders than you expected.
Choosing your home country or a neutral venue for resolution is common. Just make sure it’s stated clearly in your contract.
Otherwise, a foreign client could try to enforce terms in a court where your protections don’t hold up.
Strong indemnity needs a strong legal foundation underneath it.
Don’t Overpromise What You Can’t Deliver
The biggest mistake you can make in an indemnity clause is trying to look generous—while actually setting yourself up for failure.
It might feel good to say you’ll “indemnify against all IP claims without exception,” but that language can turn on you quickly.
If you don’t have the legal, technical, or financial capacity to defend a claim at that level, then you’ve created a contract you can’t realistically fulfill.
And in court, that kind of overpromise may do more harm than good.
Instead, draft clauses that reflect what you actually can and will do.
Protect your clients, but also protect your own ability to deliver.
Good contracts aren’t just attractive—they’re sustainable.
Final Thoughts: Indemnity Is Your Risk Strategy in Action
A well-written IP indemnity clause isn’t a wall—it’s a guide.
It tells your client what to expect. It gives you a plan if things go wrong. And it protects both sides from making assumptions that lead to conflict.
More importantly, it reflects how seriously you take the integrity of your product.
If you stand behind what you build, then offering fair, clearly defined indemnity is a sign of trustworthiness.
Just make sure that promise is made with care, not pressure.
Indemnity shouldn’t be an afterthought buried in the last few pages of your contract. It should be a thoughtful safeguard, built on what you know about your offering, your risks, and your values.
Because in the world of IP, certainty isn’t always possible—but preparation is.
