VARs Head Off Liabilities

A reporter wanted to know how Brown, president of Database Solutions Inc. (DSI), a Cherry Hill, N.J.-based solution provider, felt about his company being named in a copyright-infringement suit lodged by one ISV, Padcom, against another, NetMotion Wireless.

"The funny thing is, we signed a reseller agreement with NetMotion but never actually sold their product. We were waiting for them to move it from NT 4 to Windows 2000," Brown said.

No matter. Long before this call, DSI had posted an announcement to its Web site about the NetMotion pact, and Padcom lawyers had clearly come across it. Brown and intellectual property (IP) experts say solution providers should know that they, by virtue of their association with vendors, may open themselves up to all sorts of liabilities.

"If you sell or offer to sell or import or export someone else's software, people can come after you. They can go after your customers," he said.

Luckily for DSI, Brown had insisted on an indemnification clause in the reseller agreement. His company didn't have to cough up the $90,000 to extricate itself from the suit. "NetMotion took care of it. I didn't see a bill," he said. The case against DSI was dropped in June 2004; the case against Seattle-based NetMotion is proceeding, according to Padcom, Bethlehem, Pa.

The lesson here is that solution providers should examine their contracts, and if indemnification is not offered, insist upon it.

"You need to ensure you're indemnified not only for liability but for court costs and attorneys' fees," said Lee Gesmer, founding partner of Gesmer Updegrove LLP, a Boston law firm. "If you're bankrupted in the process, 'not guilty' doesn't do you much good."

The issue is growing in importance as IP litigation booms. The SCO Group famously sued IBM, alleging contract violations surrounding the licensing of SCO's Unix code, for example. IBM, thus far, has not agreed to indemnify customers or resellers in case of fallout from that legal action. IBM did not return calls for this story.

Mick Gallagher, CEO of LS Technologies, a San Diego solution provider, said all his contracts include indemnification clauses that cover both him and his customers.

Some vendors do cover their partners. "[Microsoft] generally offers broad IP indemnification for both partners and customers," said David Kaefer, director of business development for the IP and licensing group at the Redmond, Wash., company.

Kaefer agreed that channel partners need to ensure these things up front. "The hard lesson is whether it's in the copyright or patent realm, even if you've got something you think is legal, if it doesn't have the [associated] patent or copyrights, and you're using that code or selling it, someone can ask for damages," he said.