How does indemnification protect against patent infringement?
It's normal to expect that when you buy something, like a car, that if somebody is going to accuse your car of infringing a patent and they sue you, that you would be able to ask the person who sold that car to you -- or who manufactured the car -- to defend you against the claim of infringement. The law, for years, has implied a warranty of freedom from infringement. In effect, there is an expected indemnification of infringement of any kind. Are customers protected in their purchase of software?
Software usually comes not as something that's sold, but something for which we buy a license. In the license agreements from vendors there are all kinds of protections for the creator and the vendor of the software. The people who write software are quick to point out that they're not God, that mistakes can happen and bugs can crop up. There is all sort of language in software licenses that tries to protect against the prospect that the software doesn't work. So, the manufacturer is protected rather than the customer?
Historically, we're dealing with relatively small groups of people in companies who are making the software. That certainly has changed dramatically these days, but in the beginning there were just very little companies making software. Why shouldn't the little software maker say to the world, "We can't make sure that this software is free from infringement of all these patents. And we can't really guarantee, just because we're human, that the software will always work the way you want it to work." So we had license agreements. That actually is the shift that took indemnification away from the customer.
What's happened more recently is that software is a much more mature industry than it was 5, 10, 15 years ago. The result is that many companies are saying, "We're robust enough now, we'll treat software like other goods and warrant you freedom from infringement." What we're really talking about is software getting to be like other products that are sold in the normal course. What types of claims does indemnification protect against?
The implied warranties under the uniform commercial code with the sale of goods are against all kinds of problems. One is that you don't own the software when you sold it to the customer and another is freedom from infringement on intellectual property. The intellectual property warranties are disclaimed in software license agreements. Who should worry about getting sued?
We have seen some fights, such as SCO accusing IBM of purloining Linux from Unix. But if you bought, say, some IBM computers and you end up with a hundred thousand copies of Linux on some computers, because you're a user of Linux on that scale, SCO might think that you're worth suing. Even though you didn't make the software, you're a big user and you're a conspicuous target.
For example, Daimler Chrysler is not distributing software. On a good day, they're distributing lots of cars. There's an example of a software user being sued. Because they're dealing with open source software, it doesn't include a lot of warranties of freedom from infringement. Do other mainstream businesses have cause for concern about this type of thing?
Where indemnification really makes a difference is where we've got big corporate customers. But that could depend [on several factors.]
Consider another situation where I buy some software that is highly or entirely customized for my production. Maybe it is software that allows me to make dishwashers. It makes my assembly line run better; it improves the efficiency by which I can order parts. Maybe my sales have improved a lot as a result of buying 20 thousand dollars worth of customized software from Company X. Then it turns out that when we come to business optimization methods, there's a patent out there that Company X hasn't told me about, and I get sued for patent infringement. Well, I'm definitely contacting the people who sold me my software. But because the creator of that software got only 20 thousand dollars, while this software is gaining the consumer 5 hundred million dollars worth of dishwashers, the patent owner might well go after the consumer of the software as opposed to the creator. So there are situations where the software in the hands of the user might be more valuable to the patent owner than the software in the hands of the creator. The users of software could be on the hook for big bucks.
Click here to read Part II of this interview, in which Sunstein suggests ways enterprises can protect their software and achieve the best possible legal standing.
Sunstein is the co-founder of Bromberg and Sunstein, LLP, and his practice focuses on technology patents. He was named one of the five best intellectual property lawyers in Boston by Boston Magazine in 2002.