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Commercial interpretation of IP indemnity clause but drafters beware!

12 February 2010

In the recent case of  The Codemasters Software Co. Limited v Automobile Club De L’Ouest (“ACO”), the High Court adopted a commercial approach to interpretation of an IP indemnity in favour of Codemasters. 

ACO had warranted under a licence agreement with Codemasters that the use by Codemasters of car manufacturers’ names, trade marks and car designs would not infringe any IP rights anywhere in the world. However, when Codemasters incorporated certain materials into its computer game, car manufacturers claimed that ACO did not have the rights to grant such licences. Codemasters sought to rely on an indemnity in the licence agreement with ACO under which ACO agreed to indemnify Codemasters against claims by third parties. ACO argued that the claims made by the car manufacturers were not claims of ‘breaches of warranty’ and were not therefore covered by the indemnity. 

The Court held that there are good reasons why parties agree to indemnities against third party infringement claims: generally the licensor of intellectual property rights is in a better position to ascertain whether the exploitation will infringe third party IP rights.  Accordingly, the Court ruled in favour of Codemasters.

This has got to be the right interpretation and will be reassuring to licensees. However, licensees must ensure that licensor warranties and indemnities are clear and unambiguous and not open to interpretation. 

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