Limitation of Liability (Clause 7 in Research Collaboration Agreements 1 - 4, Clause 6 in Research Collaboration Agreement 5)

Warranty

The alternative wordings for clause 7.1 (6.1 in Research Collaboration Agreement 5) take very different approaches. In the first version of the clause there is a limited warranty against the infringement of third party rights. The second set of wording makes it clear that no warranty is given in this respect. This is something that the parties will have to negotiate. Even where a warranty is given, the warranty is qualified and appropriate searches should be made by the party wishing to exploit any patentable invention.

The words in square brackets in clause 7.2 (6.2 in Research Collaboration Agreement 5) should be omitted of the second version of clause 7.1 is used.

Indemnity from sponsor

In clause 7.3 (clause 6.3 in Research Collaboration Agreement 5), the Sponsor agrees to cover the University and its employees, and possibly its students, against any claim that is brought against them as a result of the Sponsor's use of the Results or the University's Background. The rationale for this is that the Sponsor takes the commercial risks associated with its use of the IP.

The indemnity is conditional on the person claiming the benefit of the indemnity letting the Sponsor know about the claim quickly, not making any admission, allowing the Sponsor to deal with the claim, and helping the Sponsor in dealing with it (at the Sponsor's expense). These conditions are imposed to make sure that the University and its employees and students do not make matters worse and potentially increase the amount of the claim.

The Sponsor will not, however, indemnify anyone if their negligence or deliberate breach of the Agreement, or a breach of confidence has given rise to the claim.

The parties should consider whether the Sponsor should be required to have insurance to back up the indemnity. Larger organisations may self-insure, but where a party has limited financial resources, the indemnity may be worthless unless the party giving the indemnity has appropriate insurance.

Exclusion of Liability for Indirect Loss

The object of clause 7.4 (6.4 in Research Collaboration Agreement 5) is to exclude liability for indirect loss, that is loss that the parties would not necessarily foresee as being the natural and direct result of a breach of contract or negligence; a loss that is suffered only because some special circumstance. Liability for loss of profits and revenue, and other some other types of loss (whether they are direct or indirect) is excluded altogether.

Cap on Liability for Direct Loss

Clause 7.5 (clause 6.5 in Research Collaboration Agreement 5) caps each party's liability by reference to the Sponsor's payments to the University. This cap does not apply to the indemnity in clause 7.3 (6.3).

In any case, before agreeing a limitation of liability clause, the parties should consider their insurance arrangements.

Some sorts of loss cannot be excluded by law, and the Agreements take the line that it would be unfair to cap or exclude liability for loss that has been caused deliberately or as a result of a breach of confidence. This principle overrides the limitations and exclusions in other clauses.

Exclusion of Implied Terms and Conditions (clause 7.7)

The law, such as the Supply of Good and Services Act, and sometimes the course of dealing between the parties, can mean that terms are implied into an agreement, even though they are not actually set out in the agreement. This clause excludes that sort of term. A typical example of an implied term is that the supplier will use reasonable skill and care or that goods will be fit for purpose. Only the express terms of the Agreement apply to the Project.

Full Title Guarantee

Please see the explanation of full title guarantee (under the heading Use and Exploitation of IP) for comments on clause 7.8 of Research Collaboration Agreement 4 and clause 6.8 of Research Collaboration Agreement 5.