What is Indemnification?
How it works
In an indemnity clause, one party commits to compensate another for prospective loss or damage, and depending on the clause the compensation may be cash, repair or replacement (Cornell LII). Indemnities are usually paired with warranties: you promise something about the data, and the indemnity says what you owe if a third party claims the promise was wrong.
Why it matters when you sell data
AI agreements increasingly include representations that training data was lawfully acquired (DarrowEverett). If you give that kind of promise, the indemnity decides your exposure. Koley Jessen notes that intellectual property indemnities and data breaches are often carved out of liability caps or given higher caps (Koley Jessen). As the seller, ask what your maximum exposure is and whether it is in proportion to what you’re paid.
See the terms to check in an AI data license offer. This is general information, not legal advice; have counsel review any agreement.
Frequently asked questions
What is a liability cap?
A clause that limits the total one party can owe the other. Koley Jessen notes that intellectual property indemnities and data breaches are often carved out of caps or given higher 'super caps', so read the cap and its exceptions together.
What should a data seller check in an indemnity clause?
Which claims you'd cover, whether there is a cap on what you could owe, whether the cap applies to the indemnity, and who controls the defense of a claim. Have counsel review it.
Sources
- Indemnity, Cornell Law School Legal Information Institute
- AI Contracting: Practical Legal Guidance for Growing Businesses, Koley Jessen
- Key IP Licensing Considerations in AI Technology Agreements, DarrowEverett LLP