Liability and indemnity are words on the minds of every OEM and contract manufacturing executive when the parties are considering a possible business engagement.

Should the business relationship sour or, be challenged in any manner, each side wants to be sure his interests are protected.

Liability and indemnity is being viewed as a fair treatment clause in many contracts. In other words, if I treat you in this manner, I expect the same treatment in return. Meanwhile, margins in the electronics contract manufacturing industry are slim and contract manufacturers should do what is necessary to protect their profits while treating customers fairly.

Below is an example of the degree to which many contract manufacturers are taking this position as they incorporate more thorough contractual language into the liability and indemnity portions of their contracts presented to OEMs. While there is a slight degree of being less than equal in this particular example, the liability and indemnification language in this example communicates, to a fair degree, the types of conditions most OEM executives can find themselves facing when discussing liability and indemnification with potential contract manufacturing partners.

For this example, the words CONTRACT MANUFACTURER are placed in capital letters in areas where the name of the contract manufacturer would be present.

Liability and indemnity regarding contract manufacturer
CONTRACT MANUFACTURER agrees to defend, indemnify and hold harmless, Customer and all directors, officers, employees, and agents (each, a “Customer Indemnitee”) from and against all claims, actions, losses, expenses, damages or other liabilities, including reasonable attorneys’ fees (collectively, “Damages”) incurred by or assessed against any of the foregoing, but solely to the extent the same arise out of third-party claims relating to:

• any actual or threatened injury or damage to any person or property caused, or alleged to be caused, by a Product sold by CONTRACT MANUFACTURER to Customer hereunder, but solely to the extent such injury or damage has been caused by the breach by CONTRACT MANUFACTURER of its express limited warranties related to CONTRACT MANUFACTURER’s workmanship and manufacture in accordance with the Specifications only as further set forth in Section X (relates to other portions of contract) or,
• any infringement of the intellectual property rights of any third party but solely to the extent that such infringement is caused by a process that CONTRACT MANUFACTURER uses to manufacture, assemble and/or test the Products; provided that, CONTRACT MANUFACTURER shall not have any obligation to indemnify Customer if such claim would not have arisen but for CONTRACT MANUFACTURER’s, assembly or test of the Product in accordance with the Specifications.

Liability and indemnity regarding customer
Customer agrees to defend, indemnify and hold harmless, CONTRACT MANUFACTURER and its affiliates, and all directors, officers, employees and agents (each, a “CONTRACT MANUFACTURER Indemnitee”) from and against all Damages incurred by or assessed against any of the foregoing to the extent the same arise out of, are in connection with, are caused by or are related to third-party claims relating to:

• any failure of any Product sold by CONTRACT MANUFACTURER hereunder to comply with any safety standard to the extent that such failure has not been caused by CONTRACT MANUFACTURER’s breach of its express limited warranties set forth in Section X (relates to other portions of contract)
• any actual or threatened injury or damage to any person or property caused, or alleged to be caused, by a Product, but only to the extent such injury or damage has not been caused by CONTRACT MANUFACTURER’s breach of its express limited warranties
• related to CONTRACT MANUFACTURER’s workmanship and manufacture in accordance with the Specifications only as further set forth in Section X (relates to other portions of contract), or
• any infringement of the intellectual property rights of any third party by any Product except to the extent such infringement is the responsibility of CONTRACT MANUFACTURER pursuant to Section X, above.

Liability and indemnity procedure
With respect to any third-party claims, either party shall give the other party prompt notice of any third-party claim and cooperate with the indemnifying party at its expense. The indemnifying party shall have the right to assume the defense (at its own expense) of any such claim through counsel of its own choosing by so notifying the party seeking indemnification within thirty (30) calendar days of the first receipt of such notice.

The party seeking indemnification shall have the right to participate in the defense thereof and to employ counsel, at its own expense, separate from the counsel employed by the indemnifying party. The indemnifying party shall not, without the prior written consent of the indemnified party, agree to the settlement, compromise or discharge of such third-party claim.

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