We’ve yet to see a license agreement without “representations and warranties.” This is one of those legalese sounding areas of the contract that can be a little intimidating to the layperson. Here we’ll explain each party’s set of promises and why they’re expected to be made.
The Artist’s (Licensor’s) Representations and Warranties
A key purpose of any agreement is to distribute risk between the parties. One of the ways this is achieved is for each party to promise that certain statements are true and agree to be responsible financially in the event those statements are found (by a court or other judicial proceeding) to be false. This is generally contained in the “Representation and Warranties” section of the agreement. The “representation” is a statement made by one party and the “warranty” is the promise to be on the hook if it’s found to not be true.
Generally, the party making the representation is the one who will have better knowledge or more control over the subject. For example, a license agreement will typically require you, as the licensor, to warrant that the licensed artwork is really yours, that it’s original and does not infringe anyone else’s copyright, and that you actually own the rights being transferred. The licensee will ask for these promises because you will know much better whether or not they’re true and they can be difficult for the licensee to investigate on its own.
Defend, indemnify and hold harmless
The risk you’re agreeing to take is framed as a duty to “defend” “indemnify” and “hold harmless” the licensee (i.e. the manufacturer) if one of your warranties is judged to be false. Let’s break this down with a hypothetical example. (This might cause a bit of anxiety to imagine, so remember that these circumstances are rare and most matters are successfully and peacefully resolved through direct, non-lawyerly means. Nevertheless, it’s helpful to understand how it all works in the most extreme cases.) Let’s say you license a work and your licensee uses it on a manufactured product that goes to market. Then another artist claims that the art you’ve licensed is an infringement of her artwork. This implicates both your artwork and the licensee’s product. If you’re unable to resolve things with this artist directly and you have to get lawyers involved, your licensee may expect you to “defend” them against the claim. This most commonly takes the form of paying attorney’s fees, either to take the matter to trial or to settle it out of court.
The “indemnify” part of the equation contemplates you paying for damages or losses that might result from the warranty being false. Imagine, for example, that a judge issues an order saying that your work infringed the copyright of another artist and further orders you (and your licensee) to cease using your image in any way. Your licensee, in addition to legal costs discussed above, might also have a lot of manufactured goods that they now can’t sell as a result of the judge’s order. Your promise to indemnify may mean that you’ll have to pay damages (i.e. compensate the licensee for its loss). The “hold harmless” part is just another (arguably redundant lawyerese) way of stating that you promise to assume the potential consequences if a court proceeding finds that you’ve breached your warranty of ownership and originality.
The Manufacturer’s Representations and Warranties
Since the licensee is in the business of manufacturing products and you’re not, it’s reasonable for you to expect the licensee to defend, indemnify, and hold you harmless against claims relating to faulty or unsafe products (for example, a personal injury or product liability claim asserting that a licensed product harmed the claimant, or a government fine arising from selling an unsafe product). A license agreement may also require the licensee to represent and warrant that it has insurance regarding such claims and to name you as an additional insured if asked. Likewise, the licensee may be called on to defend and indemnify you against claims asserting unfair trade practices or deceptive advertising in connection with the sale of licensed products. In general, then, the licensee’s warranties will to relate to the activities that are controlled solely by the manufacturer, that could conceivably result in a claim against you.
Whew! We hope we’ve helped you make sense of these issues and that you’ll feel much more savvy next time you see them in an agreement. In Tuesday’s post, we’ll look at what happens when your licensed product reaches the end of its cycle.
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Please remember: The information provided on this blog and throughout our website is intended for general educational purposes only. While some information on this site relates to the law as a topic, it's not intended as a substitute for legal advice. Only a lawyer, selected by you and fully informed of the facts relating to your particular situation, can render legal advice.