UK: Court Construes Indemnity Clause In License In Favour Of A Computer Games Publisher

Last Updated: 28 January 2010
Article by Paul Harris, Alex Carter-Silk and James Castro-Edwards

The High Court in the recent case of The Codemasters Software Co. Ltd v Automobile Club De L'Ouest [2009] EWHC 2361 construed an indemnity clause against third party claims in a license agreement in favour of the licensee, a computer games company.

  • The organiser of the 24 hour Le Mans endurance race licensed rights to use certain materials relating to the race to a computer games publisher which included, "cars, car's liveries, team names...including any logos and trademarks...".
  • The computer games publisher incorporated the material in its computer game.
  • Car manufacturers claimed that the race organiser did not have the rights to grant a license in respect of use, in particular, of the design of their cars.
  • The computer games publisher relied on the third party indemnity clause in its license agreement with the race organiser.
  • The Court held that that the indemnity operated to protect the computer games publisher from claims of infringement by third parties, including the car manufacturers.

In The Codemasters Software Co. Ltd v Automobile Club De L'Ouest [2009] EWHC 2361, Codemasters Software Company Limited (Codemasters) wanted to incorporate a reproduction of the Le Mans series of motor races into a computer game including, in particular, the cars.  The organisers of the Le Mans 24 hour endurance race, Automobile Club de L'Ouest (ACO), granted Codemasters a non-exclusive license to use and reproduce "Endorsements" relating to the Le Mans series of races in its computer game.  This included car manufacturers' names, trade marks and car designs.  Significantly, ACO warranted that the use by Codemasters of the "Endorsements" would not infringe any IP rights anywhere in the world.  The license agreement included an indemnity against claims by third parties for:

"any breach or alleged breach of any agreement or warranty made by the indemnifying party pursuant to [the license]". 

Codemasters included likenesses of certain cars in its computer game.  When Codemasters subsequently began to publicise the launch of the computer game, several car manufacturers claimed that ACO did not have the right to grant Codemasters a license to use the designs of their cars in the game.  Codemasters was required to enter into side licenses with the car manufacturers in order to continue to use the designs of the cars which were integral to the game.  As a result, Codemasters sought to rely on the indemnity clause contained in the license agreement with ACO. 

The Court relied on a series of cases which held that the crucial question was whether the indemnified party's settlement of the third party claim was reasonable. The Court held that in the context of intellectual property licenses, indemnities against third party infringement claims are not only commonplace, but that there are good reasons why parties to such licenses agree to them. 

Generally, the licensor of intellectual property rights is in a better position than the licensee to ascertain whether the exploitation of those rights could infringe any third party rights.  It is also more acceptable commercially for the licensor to bear the risk of an infringement claim by a third party rather than the licensee. 

The Court did, however, feel that in this particular case the indemnity clause was ambiguously drafted: the point being whether the breach was "pursuant to" the license.  The Court had to imply a meaning to the words, which was not explicit.  Parties to IP licenses should word their indemnity clauses carefully to ensure it accurately reflects the parties' intentions, especially in relation to fundamental issues such as the rights that are central to commercial arrangements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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