It’s time that I tidied up one loose end. In this recent post, I proposed indemnification language to include in a confidentiality agreement in order to say who is responsible for liabilities resulting from disclosure of confidential information by representatives of the recipient.
I thought that the new language would make it clear that when bringing a claim for indemnification under the new language, the claimant would be in the same position as someone bringing a contract claim with respect to those liabilities.
But comments to that post indicated that there remains uncertainty regarding how a claim for indemnification relates to a contract claim. Here’s what Glenn West said:
“Indemnify” carries a connotation of “compensate for”, “pay,” “reimburse,” or “make whole” regardless of any underlying contractual liability for the harm that gave rise to the loss. And that connotation is the basis for the conclusions reached by some courts and commentators (both in the US and UK) that an obligation to indemnify is simply an obligation to pay a sum of money; not a contract to perform an obligation the breach of which can give rise to damages that are subject to Hadley’s rules. “Liability” is more of an acknowledgement of contractual responsibility for the underlying harm and not an agreement to pay a sum of money for such harm; and therefore, at least to me, I derive more comfort from using an acknowledgment of liability rather than an obligation to indemnify in order to further strengthen the position that I am only subjected myself to a contract based determination of damages for the resulting harm caused by the Representatives disclosure of confidential information.
So I decided that for purposes of that part of Koncision’s confidentiality agreement, it would be prudent to come up with less contentious alternative. So the current arrangement is that although users will be able to choose to say (1) that the recipient “shall cause” its representatives not to disclose confidential information (see here why I’m not crazy about that alternative) or (2) that the recipient “shall indemnify” the disclosing party for any such disclosure, Koncision will suggest that the following represents the least problematic of the three alternatives:
Unauthorized Disclosure or Use by Representatives. If any one or more Representatives of the Recipient disclose or use Confidential Information other than as authorized in this agreement, the Recipient will be liable to the Disclosing Party for that disclosure or use to the same extent that it would have been had the Recipient disclosed or used that Confidential Information.
Scenario: recipient gets hacked despite taking reasonable precautions, and the hacker posts discloser’s trade secrets on a blog. I think most disclosers would want this scenario addressed in an indemnification-style provision, but I think this clause’s application to “representatives” is too narrow to address this.
Gus: I address the hacker scenario in a separate provision. Ken
I am facing increased resistance to indemnification clauses in all contracts- other companies do not want to include such language in any agreement that is reached, unless it is solely for themselves.