Patent Troll Liability in Client/Agency Contracts

ANA (Association of National Advertisers) recommends that clients generally not indemnify agencies for patent claims. Rather, agencies should assume the liability for their work product, including liability for patent infringement. Accordingly, client/agency contracts should include “indemnity clauses” which require that the agency step in and defend the client in the event of a patent infringement claim. It is recognized, however, that shared approaches to liability are gaining traction in the marketplace. ANA members are encouraged to consider whether a shared approach to liability makes sense in any of their agency relationships.

Patent assertion entities (PAEs), commonly referred to as patent trolls, are firms whose sole business is to buy patents and then file patent infringement claims against targeted companies.

The costs to avoid litigation can sometimes rise to millions of dollars. The patent troll controversy has caused considerable debate between agencies and marketers on responsibility of patent troll indemnification and liability.  To clearly understand how marketers manage the risks associated with patent infringement in their agency contracts, ANA members were surveyed online in September 2014.  The findings from the 78 respondents combined with dialogue between ANA and its members, provided the foun­dation for ANA’s recommendation.

Key findings:

Patent trolls are an issue—either major or moderate—for 45 percent of respondents.

Sixty percent of respondents reported that their agencies assume either all (30 percent) or the majority (30 percent) of the risks associated with patent infringement.

Of the 44 percent of respondents who noted that contracts have a shared approach to liability

    Seventeen percent said ALL contracts have a shared approach and 27 percent said SOME contracts have a shared approach.
    Only 4 percent of respondents said the marketer assumes the risk.

(Numbers add up to over 100 percent due to multiple client/agency relationships)

A shared approach to liability is gaining traction.

    Those marketers with contracts that have a shared approach to liability noted that such sharing usually related to either limits to risk or caps to liability.
    A quarter of respondents changed the terms of their agency contracts in the past year to address patent troll liability. The most-cited reason for doing so was to share/cap liability (and also to address patent infringement risk in agency contracts).
    About 20 percent of respondents expect to change the terms of some agency contracts in the next year to address patent troll liability.  The reasons cited: to share liability and update existing contractual terms.

According to Bob Liodice, CEO and President of ANA, “Agencies must be thoughtful about the risks in the work they pitch to clients and be accountable for the work they create. It is recognized that campaign risk management is evolving consistent with creative deployment of new and emerging technologies. In most cases, agencies should continue to assume full responsibility. However, it is recognized that there are limited circumstances where a shared approach to liability makes sense.”