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Intellectual Property Infringement Actions

from the desk of Frank Musica

Professional liability insurance covers many violations of intellectual property rights. The key is whether the negligent professional services of the insured firm resulted in the harm. In a contract, many clients differentiate the duties of the design firm related to alleged violations of intellectual property rights from alleged harm that might have occurred from negligent design services. Clients often understand that a professional liability policy will only defend the policyholder from allegations of negligent professional services, and require by contract indemnification of actual costs, losses, and damages. But in regard to alleged violations of intellectual property rights, clients often demand a defense.
 
Since it is highly likely that a violation of intellectual property rights on a project is not a shared responsibility, few clients are willing to treat such harm or allegations of harm in the same way that many are willing to treat allegations of negligent performance of professional services. Allegations that a third party was harmed because of design negligence usually involve allegations against not only the design team, but also the client and other parties. Since those situations are difficult to sort out and concurrent liability is often found, it makes sense for each party to defend its own interests and apportion the costs based on actual fault.
 
Because design professionals are in control of so much at the design stage, an allegation of the infringement of intellectual property presents a different scenario. Design firms have a greater ability to control the risk of copyright, patent, or other infringement situations. Therefore, many clients also want them to take charge of the defense of any infringement claim. It is difficult to present strong arguments against such a contractual requirement; it is a business decision that the firm has to address.
 
Although professional liability insurance coverage only extends to actual harm (a cost, loss, or damage) caused by the failure of the policyholder to perform professional services to the applicable standard of care (negligence), attempting to limit a firm’s exposure in a copyright or other intellectual property infringement situation would be a difficult contract negotiation. No client would agree that a design firm should be legally untouchable if the firm intentionally infringes on either the client’s copyright, or any other copyright, patent, or intellectual property right. And most clients do not want to burden themselves by having to conduct a defense when the cause of harm was so clearly out of their scope of responsibility and control.
 
There is also the effect on the law that a contractual provision limiting the defense of an intellectual property infringement case might cause. Legally, firms are responsible for the harm they cause whether they cause the harm intentionally or negligently. If a client uses a contractual indemnity provision or a contractual defense and indemnity provision that only mentions negligence as the source of contractual responsibility, a court could well interpret that provision of “private law” between the parties as a statement that the client is waiving its right to recover for harm caused by the firm in any situation other than negligence in the performance of professional services. So the client might be afraid that in the case of intentional infringement it is stuck with paying for both defense and damage.
 
Since design firms have such strong control over the selection of materials and systems and the use of intellectual property, most are willing to take on the business risk of defense and indemnification.
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Posted by Scott Sweeney on June 27, 2011 8:23:00 AM EDT #

Online Contract Review Tool

Schinnerer's interactive online guide

When your client drafts a contract and you need to review it fast, why not use Schinnerer’s vast risk management experience? Our online contract review guide is an interactive tool for policyholders who are reviewing client-drafted contracts. The tool provides guidance on the major issues and problematic clauses you should be examining. It was built to be user-friendly; subjects are presented in clearly labeled sections to enable you to find the information you need easily.  

Successful risk management begins with careful contract review. We believe that our online contract review guide can help you to ensure that the terms and conditions of your contracts are equitable, and that the risks you assume by contract are reasonable and manageable.
 
Policyholders and brokers can access this resource here:  www.schinnerer.com/risk-mgmt/Pages/Online-contract-tool.aspx.
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Posted by Scott Sweeney on June 20, 2011 8:42:00 AM EDT #

Surviving an Earthquake

...with the help of your desk?

While engineers are concerned with designing buildings that are able to survive earthquakes, maybe there are also other ways to combat such an emergency. Bob von Bereghy remembers the horror and helplessness of being in a multi-story building during several earthquakes in the 1990s. The terrible experiences led him to found a company called LifeGuard Structures that specializes in “earthquake-proof” desks. The desks can allegedly withstand more than a million pounds of debris. Von Bereghy expects anyone that has a LifeGuard desk and utilizes it during an earthquake will live, due to the brute strength of the desks. The desks are engineered with steel and armor, come stocked with basic emergency items, and stood up to being tested in a demolished multi-story building. Though the company has yet to ship out any desks, they are hopeful that their product will be attractive due to the peace of mind it could give those who work and live in earthquake country. 

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Posted by Scott Sweeney on June 16, 2011 8:15:00 AM EDT #

Sun-Powered High-Speed Rail

Europe making progress on sustainable transportation

Progress was made in Europe on the transportation front, as a high-speed rail line running between Paris and Amsterdam now runs partially on the sun. The train draws power from 2.1 miles of solar panels that sit atop a train tunnel.

Trains with solar roofs are not completely new; they first appeared in Italy in 2005. However, those earlier panels only served to keep the train’s air conditioning units running. The new solar panels, which are located on a stretch of rail that runs through Belgium, can power the equivalent of 4,000 train trips and cut the railway’s carbon dioxide input by 2,400 tons annually.

Other projects in Europe will incorporate solar energy as well, including London’s new Blackfriar station (set to open next year), which will obtain half of its electricity needs from the sun.
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Posted by Scott Sweeney on June 14, 2011 12:04:00 PM EDT #

Review Indemnification Provisions Carefully

from the desk of Judy Mendoza

Indemnification provisions that are not limited to the extent of a design professional’s negligence may result in claims that are not covered by professional liability insurance. We were recently asked to review the following Indemnification provision:
 
Indemnification: The Consultant shall indemnify, defend and hold harmless the Town, its officers, officials, agents, and employees from any claim, damages, injury, or death and action of any kind, whether at law or in equity, arising from any negligent act, error or omission in the performance of professional services by the Consultant. This undertaking shall not apply to damage, injury, or death suffered in the performance of a construction contract caused by or resulting solely from the negligence of the Town, its agents or employees attributable to the sole negligence of the Town, its agents or employees.
 
This indemnification is broader than the limited contractual liability coverage afforded by a professional liability insurance policy. Firstly, this indemnity includes an obligation to "defend" the town. Professional liability insurance only provides defense for the insured, not for clients of the insured. Once liability is determined, assuming such damages are recoverable in the jurisdiction, the policy would reimburse the client for expenses to the extent they were caused by the insured's negligence.
 
Secondly, this indemnity is not limited to the percentage of the consultant’s negligence. This could result in the consultant having to indemnify the town for a claim that will not be covered by the professional liability policy. In this provision, the only exception to the consultant paying 100% of the damages is for claims “resulting solely from the negligence of the Town….” Thus, unless the town is 100% at fault, the consultant may have to pay 100% of the damages, even when only partially at fault. The professional liability policy only provides coverage for claims to the extent they are caused by the insured’s negligent acts, errors, or omissions.
 
Here is an example of an insurable indemnity:
 
Sample provision: To the fullest extent permitted by law, Consultant shall indemnify Client, its officers, directors, partners, employees, and representatives, from and against losses, damages, and judgments arising from claims by third parties, including reasonable attorneys’ fees and expenses recoverable under applicable law, but only to the extent they are found to be caused by a negligent act, error, or omission of Consultant or Consultant’s officers, directors, members, partners, agents, employees, or subconsultants in the performance of services under this Agreement.
 
The interpretation and enforceability of indemnity provisions depends upon the jurisdiction, statutes, and case law. There are significant differences on how different jurisdictions interpret and enforce indemnity provisions. Accordingly, when reviewing or drafting indemnity provisions, it is essential to consult with knowledgeable legal counsel.
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Posted by Scott Sweeney on June 9, 2011 3:55:00 PM EDT #

Additional Resource on Managing Condominium Projects

AIA releases new guide

Much has been said about the liability risks of condo projects. Claims experience shows that condos represent one of the worst project types when compared to the billings earned for this type of work. Our claims study on habitability claims details some of the claims that are typical on a condo project, and provides tips on managing the risks of such projects.

The AIA has recently published a guide designed to help architects manage the risks of condo projects. The B509-2010, Guide for Supplementary Conditions to AIA Document B109-2010 for use on Condominium Projects provides provisions for modifying the B109-2010, Standard Form of Agreement between Owner and Architect for a Multi-Family Residential or Mixed Use Residential Project. The Guide can be downloaded for free at www.aia.org/contractdocs/index.htm, and provides guidance on how to modify the B-109-2010 to address the specific risks of condominium projects. Firms that work on condominium projects should review this guide for some insightful provisions that can help them set the appropriate client expectations for projects of this nature.

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Posted by Scott Sweeney on June 6, 2011 8:37:00 AM EDT #

Beautifying Electric Towers

searching for a marriage of art and function

The Royal Institute of British Architects (RIBA)—a professional body for architects in the United Kingdom—has decided to do something about the eyesores created by the distribution of electricity in the UK. The steel lattice design of the electrical towers has not really changed since 1927. Some feel the towers, which are spread across many otherwise pleasant fields and valleys, spoil the visual appeal of the landscape.  So RIBA is running a competition seeking creative designs to make the towers more visually appealing. 

The UK will need to add many new power stations in the next ten years, and not all locations will be viable spots for underground electricity distribution. Running cables underground costs much more than using electricity pylons (as the towers are called in the UK). Therefore, more pylons will have to be erected in the future. The National Grid is supporting the effort to develop the most visually acceptable solutions.
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Posted by Scott Sweeney on June 2, 2011 11:18:00 AM EDT #