Website Development Contract, Part 4: Compensation | Technical Law

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Peter S. Vogel & Chelsea Hilliard As used in website development contracts, compensation is usually given to you in court if the vendor is later sued for use of technology such as intellectual property (IP) or services provided by the website development vendor. It has to do with whether or […]

Peter S. Vogel & Chelsea Hilliard

As used in website development contracts, compensation is usually given to you in court if the vendor is later sued for use of technology such as intellectual property (IP) or services provided by the website development vendor. It has to do with whether or not to defend.

In some cases, well-crafted indemnification clauses can lead to third-party claims against users and vendors in proceedings resulting from breach of a website development agreement. Whether the proceedings are from a vendor or a third party, you want to know where the proverbial “dollar” stops when bills begin to be filed, and who pays those bills.


This is Part 4 of a series that advises the e-commerce business on key terms and considerations for website development contracts. See also below.

Part 1: How to avoid a catastrophe
Part 2: Who owns the IP of your site?
Part 3: Important Cloud and SLA Considerations


One way to deal with the risks of potential proceedings against unknown risks is to agree on a website development contract before anyone signs who is responsible for paying those legal costs. Broadly speaking, this is what is commonly referred to as a “compensation” clause.

Compensation refers to contractual negotiations in which one party promises to defend the other party in the event of a proceeding. This may be related to certain unknown or perhaps known risks.

Prepare in advance

However, not all indemnification clauses are created in the same way. These are very narrow and can be problem-specific or widespread. The practical meaning of coverage should be informed about the obligations and risks laid down in a particular website development contract.

At a minimum, you should review the terms and conditions of your website development contract to understand if the website development vendor may be liable in the event of a proceeding. Knowing where to go when an unexpected proceeding occurs is certainly comforting.

This is an example of a compensation / non-infringement clause from a sample. Website development contract Courtesy of Columbia University:

In performing services under this Agreement, DEVELOPER may infringe on one or more patents, copyrights, trademarks, or other intellectual property rights (including corporate secrets), privacy, or other personal rights. I agree not to design, develop, or provide to the company. Or an entity. DEVELOPER shall immediately notify the Company in writing if it becomes aware of the possibility of such infringement while performing work under this Agreement. DEVELOPER may result from such alleged or actual infringement and liability, liability, or other obligations of COMPANY, its officers, directors, members, employees, representatives, agents, etc., or (a). ) Contract, (b) performance of the contract, or (c) result or association of the deliverable. This indemnification shall include attorneys’ fees and costs unless DEVELOPER defends the allegation using an attorney reasonably accepted by COMPANY. DEVELOPER’s total liability under this Agreement shall not exceed twice the amount of revenue DEVELOPER earned under this Agreement.

It is safe to assume that all website development contracts have indemnification clauses.

What to do if you are sued for improper use of IP

What if these indemnification clauses exist in your website development contract and you are sued by a third party for improper use of their IP?

The first thing to do is to immediately provide the website development vendor with a written copy of the proceedings and a letter specifically requesting that the vendor defend you in the proceedings. The letter must include a specific reference to the applicable compensation language of the contract. Then one of two things can happen:

First, the website development vendor as a compensator agrees to defend you as the indemnified person in the proceedings, but will assist if the development vendor requests specific information regarding the use of the disputed IP. is needed. In addition, you may need to assist in the proceedings process by providing documents or witnesses to take testimony. Ultimately, if the proceedings do not resolve, you may need to provide witnesses in court. However, unless there is a dispute with the development vendor, the development vendor bears all legal costs and costs.

Or …

Second, the website development vendor refuses to indemnify you and you need to protect your company in IP proceedings. Of course, this can be costly to prepare for the proceedings, and the right to extend the proceedings and bring the website development vendor into the proceedings as what is called a “third-party defendant”, whether or not it is brought to the proceedings. There is. Therefore, if you lose the proceedings, you can file a claim in the proceedings against the website development vendor.

Alternatively, you can protect yourself in a proceeding through a trial without the involvement of a website development vendor. In that case, if you settle the proceedings or make a decision before the trial, you can file another proceeding against the website development vendor to recover the attorney’s fees.

What if a website development vendor is sued for an IP violation?

Third-party vendors may sue website development vendors for IP breaches. In that scenario, the website development vendor is not responsible and can ask you to defend their interests in the proceedings. That is, you will indemnify the website development vendor in a proceeding.

Whether this is a possible scenario depends on the language and breadth of the indemnification clause of the website development contract. Of course, whether or not you agree to such compensation depends on your own set of facts and details of the situation.

Let’s assume your website development contract has a broad compensation clause. What if I refuse to indemnify a website development vendor because I didn’t do anything wrong and didn’t compromise a third-party IP?

Well, website development vendors can protect themselves in proceedings, and then, once the proceedings are resolved or finalized, they can file another proceeding for a contractual indemnification breach. Alternatively, the website development vendor can involve you in the first proceeding by bringing you as a “necessary third party defendant”.

Conclusion

All website development contracts address compensation issues, so have a better idea of ​​what compensation means and how it will affect your legal rights and obligations in the future. I hope you are. If you have any questions about the scope or interpretation of the indemnification clause of the contract, we recommend that you consult a lawyer who has experience in drafting and negotiating the website development contract and the statement of work including the indemnification clause.

This website development series should help you learn more about legal issues to consider and what to negotiate with. Therefore, stay tuned for future articles in the series that include topics such as proceedings and arbitration, as well as related topics.

Read Part 5: Conflict Mediation


Peter Vogel He has been a columnist for the ECT News Network since 2010. His focus is on technology and law.Vogel is a lawyer at
Foley & Lardner LLPFocuses on cyber security, privacy and information management. He filed a lawsuit and negotiated a cloud contract dealing with e-commerce, ERP and the Internet. Prior to practicing law, he had a master’s degree in computer science and was a mainframe programmer.his
blog Covers IT and Internet topics.
Please email Peter.

Chelsea HilliardChelsea Hilliard He has been a columnist for the ECT News Network since 2019. As an Associate of Foley & Lardner LLP, she focuses her business litigation practices on non-competition of corporate secrets and securities enforcement. She has also assisted clients in complex eDiscovery disputes and is recognized as a Texas Rising Star lawyer. Texas Monthly, And top lawyers under the age of 40 D magazine.. Mail Chelsea..

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