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Computer software agreements invariably include indemnification clauses that protect customer/licensees from legal liability and attorneys’ fees incurred in connection with third-party lawsuits involving the intellectual property of the software developed or licensed, or arising from a breach of the vendor’s warranties. The clause is typically crafted as follows:
“Computer Software Vendor shall defend, indemnify and hold harmless Customer from and against any and all claims, losses, damages and liabilities, including reasonable attorneys’ fees, arising out of the contract, including without limitation, claims alleging that the Software violates the intellectual property rights of third parties or claims arising out of a breach of warranties.”

Attorneys should consider to what extent this language includes attorneys’ fees incurred by Customer in a suit against Vendor. For example, what if, as is often the case, Vendor refuses to indemnify Customer and Customer is forced to file a lawsuit against Vendor? Or what if Customer sues Vendor for a garden-variety breach of warranty? Can Customer collect its attorneys’ fees incurred in connection with these suits? In New York, for example, the answer is a definitive “no.” Courts in the state of New York strictly construe indemnification clauses and presume that they are intended to apply to third party claims only. See, e.g., Hooper Assocs. Ltd. v. AGS Computers Inc.,548 N.E.2d 903 (1989) (“[T]he court should not infer a party’s intention to waive the benefit of the rule [that parties are responsible for their own attorneys' fees] unless the intention to do so is unmistakably clear from the language of the promise”). Even in the face of such broad language as “any and all claims � arising out of the contract,” as found in the clause above, courts in the state of New York have interpreted these clauses as relating to third-party actions only. Thus, to protect the customer, attorneys may want to include specific and unequivocal language in computer software contracts, preferably in a separate clause or section, indicating that the vendor agrees to pay the customer’s attorneys’ fees incurred in actions by the customer against the vendor under the contract. Such a clause may read as follows:

“Vendor agrees to pay Customer’s reasonable attorneys’ fees incurred in connection with any and all lawsuits brought against it by Customer under the contract, including without limitation, lawsuits arising from Vendor’s failure to indemnify Customer in connection with a thirty-party intellectual property infringement suit or for a breach of its warranties.”

Clark P. Russell is an associate with Brown Raysman Millstein Felder & Steiner LLPin New York. This sample agreement is intended to serve solely as an exemplar and may need to be modified to conform to the legal requirements of your jurisdiction. It in no way constitutes legal advice.

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