This clause allocates responsibility between you and a vendor when a third party (someone outside your direct relationship) sues one or both of you. For example, if a vendor's software infringes a patent held by another company, or if the vendor's service causes harm to your customers, this clause determines who pays for the legal defense and any resulting damages. Third-party claims are particularly dangerous because they can arise unexpectedly and involve parties with no contractual relationship to the vendor, making them harder to predict or control. This clause is essential because it clarifies whether the vendor stands behind their product/service against external legal threats or whether you're left to defend yourself. The allocation of this risk fundamentally affects your financial exposure and your ability to use the vendor's offering without fear of being sued by outsiders.
Prioritize getting the vendor to agree to indemnify you for third-party claims arising from their product, service, or conduct—this is standard practice and shifts appropriate risk to the party best positioned to prevent the problem. Verify that the indemnification covers both intellectual property claims (patent, copyright, trademark infringement) and bodily injury/property damage claims. Ensure the vendor must defend you at their expense and that you have the right to control the defense or at least approve settlements. Conversely, confirm that you indemnify the vendor only for claims arising from your use of their service in violation of law or the contract terms, not for their inherent defects. Watch for overly broad carve-outs that exempt the vendor from indemnifying you for claims based on your modifications to their product or your combination of their product with third-party tools.
Frequently Asked Questions
What does this clause mean in simple terms?
This clause allocates responsibility between you and a vendor when a third party (someone outside your direct relationship) sues one or both of you.
Why should I care about this clause?
For example, if a vendor's software infringes a patent held by another company, or if the vendor's service causes harm to your customers, this clause determines who pays for the legal defense and any resulting damages.
What are my options?
Third-party claims are particularly dangerous because they can arise unexpectedly and involve parties with no contractual relationship to the vendor, making them harder to predict or control.
How does this affect small businesses?
This clause is essential because it clarifies whether the vendor stands behind their product/service against external legal threats or whether you're left to defend yourself.