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Technology companies have long resisted pressure from customers to indemnify them for any litigation that might arise from using their products. Even as intellectual property litigation exploded in the 1990s, companies agreed to cover only their best customers. But with The SCO Group Inc. suing International Business Machines Corp. for allegedly inserting SCO’s proprietary code into the “open source” Linux operating system, indemnification has suddenly become more pressing. “Indemnification is the number one issue [in sales pitches],” says Bryan Sims. He’s a vice president of business affairs and associate counsel at Red Hat Inc., which sells Linux software and support. In September, Hewlett-Packard Co., which has a $2 billion Linux business, announced with fanfare that it would foot the bill for legal costs and any damages for customers that SCO sues. At about the same time, IBM quietly announced that it would not cover such damages for its Linux customers. Red Hat won’t either. But indemnity announcements are not limited to “open source” software: Last March Microsoft Corp. announced a new volume licensing program that broadens coverage of IP damages for its customers. What gives? Historically, tech customers who found products faulty had warranties to fall back on. Before last year, for example, Microsoft would only reimburse customers for the cost of its software, not legal fees or litigation-related damages. Morris Kremen, associate general counsel for the software giant, says the company decided on indemnity as part of a larger campaign to be seen as a kinder, gentler business. “Microsoft is viewed by the market as a company that maybe hasn’t been as good as it should be about hearing what customers are concerned with and responding to those concerns.” In deciding to indemnify its Linux customers, HP acknowledges that it was a response to the SCO litigation against IBM. Scott Peterson, senior counsel (IP) at HP, says the Palo Alto, Calif., company saw an opportunity to put customers at ease and to show them the business’s commitment to Linux. Observers, however, say indemnification is a marketing ploy — albeit an effective one. “It’s a symbol of commitment, a promise to customers that you believe in this technology,” says Ted Schadler, a principal analyst at Cambridge, Mass.-based Forrester Research. If SCO manages to convince Linux users that the newer versions of the operating system contain copyrighted code, then more Linux vendors and distributors might indemnify customers. For now, says David Kelley, IP counsel at Ford Global Technologies Inc., a subsidiary of Ford Motor Co., “I think reasonable minds can differ as to how important it is. I think if anyone is ever in a lawsuit [like IBM] is involved in now, they would take it very seriously.”

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