How to find them, what they cost, and the equitable language to negotiate in their place.
What follows is a guide to negotiating better indemnity language in your agreements, and about where to look for hidden indemnity exposure. Indemnity is an area where many states have effective limitations on the degree to which indemnity can be invoked, and most states have some form of legal protection against overly aggressive indemnification language.
That could be taken to mean that subcontractors and suppliers don’t really need to worry about negotiating better indemnification terms, because the courts will protect them. We think that is a risky approach, for two reasons.
For those reasons, FairBuild’s entire philosophy on contracts is to always seek what’s equitable. That’s what’s fair, and that standard doesn’t rely on the courts to intervene to protect your interests. What follows is guidance that will protect you from predatory indemnification because it’s fair and balanced for both parties.
This is one of six papers, each covering a different place indemnity risk can be hidden in a typical subcontract. Most subs and suppliers read the section titled “Indemnification” and if they get improvements to that, they assume the risk is covered. But overbroad indemnity risk can show up in at least five other places, and this paper covers the one most subs never read at all: the Patent and Intellectual Property section.
This paper covers the Patent and Intellectual Property section, where a short, rarely-read paragraph can expose you to uncapped infringement liability on materials and methods you didn’t even choose.
The other papers in this series cover the Indemnification section itself, the Insurance section, the Flow-Down section, the Warranty section, and the Default and Termination section.
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Almost always in the back third of the contract, under “Patents,” “Intellectual Property,” or sometimes folded into a broader “Miscellaneous” or “General Provisions” section. The section is usually short, often a single paragraph, and almost never read carefully by subs.
“Subcontractor shall indemnify and hold harmless Contractor and Owner from any claims of infringement of patents, copyrights, trademarks, or other intellectual property rights arising from the materials, equipment, or methods used in performance of the Subcontractor’s Work.”
Intellectual Property (“IP”) claims in construction aren’t common. But when they hit, they hit hard, because they involve specialized litigation, complex technical analysis, and uncapped damages exposure. The language above makes you responsible for any IP claim arising from any materials, equipment, or methods used in your work, even when you had no knowledge of the IP issue and even when the materials or methods were specified by the GC or Owner.
Real examples in construction include patent infringement claims tied to specialized methods (patented foundation systems, patented installation processes), copyright claims on architectural drawings, and trademark claims on product trade dress. Many of these claims come from technology companies and patent licensing firms whose business model is aggressive enforcement.
Patent litigation is expensive regardless of the merits of the underlying claim. According to the AIPLA Economic Survey (2023), median defense costs through trial and appeal range from roughly $600,000 for cases with less than $1 million at risk to $2 million or more for larger cases. Settlement values for substantive IP claims regularly exceed the value of the underlying construction contract by significant multiples. A patent troll suing over a manufacturing process used in a product you installed can produce a defense and settlement cost far greater than any commercial benefit you ever derived from the project. Last, keep in mind that IP infringement claims are generally excluded under a subcontractor’s Commercial General Liability policy.
“Subcontractor shall indemnify Contractor and Owner from third-party claims of infringement of United States patents, copyrights, or trademarks, but only to the extent such claims arise from (a) materials, equipment, or methods selected solely by Subcontractor in its discretion, and (b) without reliance on specifications, drawings, or directives provided by Contractor or Owner. Subcontractor shall have no liability under this section for infringement claims arising from (i) materials, equipment, or methods specified or directed by Contractor or Owner, (ii) combinations of Subcontractor’s work with materials supplied by others, or (iii) modifications to Subcontractor’s Work made by others. Subcontractor’s total liability under this section shall not exceed the Subcontract Sum.”
Three things are improved by this language. It limits the indemnity to U.S. IP rights, so you’re not on the hook for worldwide patent enforcement. It limits liability to materials and methods you actually selected, so you’re not carrying the GC’s or Owner’s specification decisions. And it caps total liability at the subcontract value. The cap is the most important provision in this section, because IP claims have no natural ceiling.
The cap is a point worth holding firm on. A reasonable GC counsel will recognize that a sub can’t meaningfully evaluate IP risk on specifications provided by the GC or Owner, and that uncapped IP liability isn’t appropriate for a sub whose entire margin on the contract may be a fraction of the potential exposure. If the GC insists on uncapped IP liability, that’s a signal about how they view risk allocation across the whole contract.
The specification carve-out is the other key change. When the GC or Owner tells you what to install and how to install it, they, not you, are the ones making the choice that could infringe. The indemnity should follow the decision, not just the installation.
NOTE: FairBuild doesn’t provide legal advice. This paper is designed to help you review and understand agreements from general contractors. For specific legal questions about your contracts, talk to a construction attorney in your jurisdiction.
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