Unraveling Indemnification

Indemnification clauses have long been a sticking point in award negotiations, in no small part because there are so many options and intricacies that can be addressed.  Last April, we identified two of the more tricky issues involved with indemnification terms, but we thought we’d take a step back and examine the idea of liability in general.

First, it might be helpful to define “indemnify,” since it appears to trip up many research personnel.  In a (very) simplified sense, when Party A indemnifies Party B with respect to a stated activity or certain material, it means that Party B will not be held liable for any harm that arises from Party A’s performance of that activity or use of the material.  Party A is, in essence, acknowledging the risk involved with moving forward, and agreeing to not hold Party B responsible in the event that something goes wrong.  However, this “absolving” is limited to the parameters of the indemnification clause, and, as many of you can attest, the limitations of these liability-free activities can become incredibly specific (e.g. only the willful misconduct or gross negligence of a party).

It is also useful to acknowledge that, more often than not, battles over indemnification occur when the parties are from different areas of the research arena.  In our case, these would be situations where an educational institution is performing research sponsored by a for-profit or otherwise quasi-commercial entity.  The goals of a University will naturally vary greatly from Cypress Creek’s Globex Corporation.  Our aim is to benefit the public through teaching and research, which include regular publication and collaboration with similar entities.  On the other hand, Globex seeks to secure and protect its position within the marketplace while enjoying a significant return on any of its investments.  While each side travels different paths, it is vital that they find some sort of common ground to allow the necessary funded research to continue.

From the University’s standpoint, we want to ensure that Globex recognizes that our research is experimental, and that the resultant data may not be bulletproof outside of the constraints of the funded project.  As such, an educational institution will regularly request that the Sponsor indemnify the school for any use by the Sponsor of the results produced by the institution thereunder.  Additionally, if the Sponsor has provided something to the University to assist in the funded project (such as materials), the institution will request that the Sponsor indemnify the school for any such use of the materials.

On the flip side, Sponsors like to limit their liability with respect to the persons actually performing the research; just because they are paying for it doesn’t mean that they should necessarily take full responsibility for anything that occurs under the agreement.  Consequently, Sponsors will frequently request that the institution indemnify the Sponsor for any harm that befalls an institutional employee during the course of the research.

Further complicating matters is the fact that indemnification clauses can vary greatly depending on the relationship on which it is based.  A liability clause in a Material Transfer Agreement will differ from that incorporated into a multi-site Clinical Trial Agreement, given that the risks involved in the latter far exceed those in the former.  Liability can also be predicated on which party has actually designed the research project.  If the Sponsor is paying for the research AND telling the institution how to do it, the school is likely to request broader indemnification given that their input into the funded activities is relatively minimal.

In short, as with every other material contractual clause, it’s important for ORAs to be fully informed as to the nature of the work being performed and the manner in which it was envisioned.  Otherwise, an institution could unwittingly be on the hook for harmful acts that are outside of its control or expected purview.