Patent Infringement Claims Requiring a Combination of the Covered Product and Other Components Excluded From Indemnification

A recent decision from the U.S. Court of Appeals for the Eleventh Circuit, Am. Family Life Assur. Co. v. Intervoice, Inc., No. 12-13210, 2014 U.S. App. LEXIS 5585 (11th Cir., March 27, 2014), illustrates the need for careful consideration of intellectual property infringement indemnification clauses, and exclusions thereto, especially for products that do not work or operate independently.

American Family Life Assurance Company (“Aflac”) sought indemnity from Intervoice, Inc. (“Intervoice”) for a third party’s patent infringement claims associated with, in part, an interactive voice response system purchased from Intervoice.  The U.S. District Court for the Middle District of Georgia granted summary judgment in favor of Intervoice, finding that Aflac had no right to indemnity for the third party’s claims from Intervoice under the purchase agreement for the system.  On appeal, the 11th Circuit affirmed the District Court’s decision in favor of Intervoice, finding that the indemnity provision of the purchase agreement unambiguously excluded third party’s claims from coverage.

Aflac had sought indemnity from Intervoice for patent infringement claims by Ronald A. Katz Technology Licensing LP (“RAKTLP”).  As noted by the 11th Circuit, the parties acknowledged that RAKTLP’s claims against Aflac only covered Intervoice’s system in combination with one or more components not furnished by Intervoice, such as Aflac’s private branch exchange, its automatic call distributor, the computers that ran the system’s software, and Aflac’s corporate mainframe.  The Court further cited acknowledgments from RAKTLP, that a single piece of equipment does not infringe the relevant claims, and from Aflac’s expert, that the system purchased from Intervoice does not alone respond to the relevant claims.

The relevant indemnity and exclusion provisions of the purchase agreement were as follows:

InterVoice[] will indemnify, hold harmless and defend Customer at its own expense against any claim that any System or Software as provided by InterVoice[] … infringes any United States copyright, patent or trade secret.

InterVoice[] shall have no obligation with respect to any such claim of infringement based upon Customer’s modification of any System or Software or their combination, operation or use with apparatus, data or computer programs not furnished by InterVoice[].

The parties agreed that the purchase agreement was subject to Texas law.  The 11th Circuit found that the agreement unambiguously excluded indemnity, as RAKTLP’s claims required Aflac’s combination of the InterVoice system with other, non-Intervoice components.

Referring to other language in the contract, the Court rejected Aflac’s arguments that the contract was ambiguous due to no specific definition of the terms “System” or “Software,” as well as with respect to the types of “combinations, operations, or uses” that are exempted from indemnification.  The Court further rejected Aflac’s argument that the interpretation of the exclusion rendered the indemnity meaningless, as Intervoice was still obligated to indemnify any claims of patent infringement by the system itself, or in combination with any other Intervoice products.  The Court also rejected Aflac’s argument that, in negotiating the contract, the parties intended to cover RAKTLP’s claims, as the Court deemed the contract to be unambiguous and, therefore, such extrinsic evidence to be “beside the point.”  Rather, in supporting the finding of unambiguity, the Court noted “that Intervoice never promised to Aflac during contract negotiation that claims by RAKTL would be covered” and that Intervoice offered to have the parties’ attorneys further negotiate the indemnification language, if necessary.

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