As one of the major topics at last week’s Focus on Europe conference, The Recycler found that many people were unaware of the fact that a letter of indemnity could be worthless.
Patent attorney Katja Dauster explained that often retailers ask the supplier for a Hold-Harmless Agreement or letter of indemnity.
She said: “A Hold Harmless Agreement is an agreement or contract in which one party, e.g. the supplier or manufacturer, agrees to hold the other party, e.g. the retailer, free from the responsibility for any liability or damage that might arise out of the distribution of the product.”
However, she added that such an agreement always only involves the two parties signing the contract and not any third party, for example an OEM holding an IP right.
Consequently, despite the contract, the OEM may still sue the retailer instead of the supplier or manufacturer.
“Party to the lawsuit is the retailer, who initially has to cover for all costs to the court and to the lawyers. The Hold Harmless Agreement says that the retailer is reimbursed by the supplier at the end or during the lawsuit,” said Dauster.
She added: “Therefore, it is correct to say that such an agreement can be worth nothing if the company providing it is not worth much itself, for example a business registered for only £1.”
So what can the distributor do to protect himself? Well, according to Dauster, it is the retailer’s responsibility to make sure that he does not infringe any IP rights. And this is where a freedom to operate (FTO) opinion letter comes in.
Dauster said: “To this end, the retailer can have freedom-to-operate analyses or non-infringement analyses carried out for obtaining an opinion of a patent professional on whether or not patents or other IP rights are infringed when selling a certain product. Such opinions are also called freedom to operate opinion letters.”
The FTO opinion letter shows the opinion of the patent professional engaged on whether or not IP rights identified in the letter are infringed.
Therefore, such an FTO opinion letter can give a level of certainty that the product in question is patent free, but this does not mean that the retailer is completely free of the risk of facing any lawsuits.
Dauster added: “Some manufacturers provide FTO opinion letters for their products. These FTO opinion letters show that the manufacturer has taken precautions in view of potentially relevant OEM IP rights and the opinion letters may give the retailer some certainty that the product at issue does not infringe third party IP rights.
“However, it should be well understood that the FTO opinion letter only reflects the opinion of the patent professional that drafted the letter.
“The code of conduct will always oblige the patent professional to draft such a letter to the best of his knowledge and belief. Nevertheless, even when such an FTO opinion letter is provided, the retailer may still be sued.
“In a lawsuit against the retailer, it is up to the court to decide whether or not a patent infringement is given.
“The opinion of the patent professional who drafted the letter and which is expressed in the FTO opinion letter is not binding for the court.”
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