You guys may recall a few posts I made regarding the importance of including a Patent Indemnification Clause in contracts. The subject originally came when someone(s) kept suggesting that TPL go after the US Gov`t for infringement. I pointed out that the US Gov`t (typically) will not accept a contract that does not contain such a clause (I say ``typically``, because there is a way around any Gov`t procurement contract requirement, and that is to get the approval for a waiver from the head of the procuring agency, e.g., Donny Rumsfeld for the DoD - rarely done).

The Patent Indemnification Clause is included in most companies` Standard Terms and Conditions (that is, companies that have their act together; i.e., have been bitten once or observed a competitor being bitten - and having to pay a big price, possibly ultimately putting them out of business).

You may recall my voicing dismay that some of the companies that have already settled and the J-3, et al, didn`t assure such a clause was included in all contracts (well, subcontracts) with their suppliers. This clauses places all liability on the supplier which, if it uses base components from others, may also include such a clause, and so on, until the basic infringer is found (with no one else to flow the liability down to). In this case, the basic infringer appears to be ARM.

What this looks like to me, is that after a whole lot of wasted time (orchestrated with ARM, no doubt), the J-3 has pulled the cat out of the bag and disclosed their Company Private/Proprietary information, that being their contracts with ARM for the procurement of chips, and pointed to the Patent Indemnification Clause. IMO, the J-3 is off the hook, and ARM is on it big time.

But only on the one mentioned patent, you say? Not so, by its very nature, a Patent Indemnification Clause inherently doesn`t get specific. It`s about the product being procured. Anything in that product, even design, function, method of production, everything (otherwise, what would be the point?). Also, since the clause is ``anticipatory``, no known patents would be specified. It is presumed that there is no infringement, but this is the customer`s way of saying ``we`re not going to go looking to see if there is any possible infringement in the product your selling me, we don`t expect you to knowingly sell me something that infringes, BUT JUST IN CASE, if there ever is a problem, it`s solely your problem Mr. Supplier.``. Thus, this is not ``patent specific`` - it`s ANY INFRINGEMENT via any component.

So where does this put us? Well, again, IMO, the J-3 is probably off the hook, and all other companies that have been given notice are looking to see/verify if they included the clause in their contracts with ARM (or whoever).

Not all companies use this clause in their procurement contracts for one simple reason - the clause comes at a premium. As with many/all contract clauses, they are included for consideration/a price. It`s the standard cost versus risk thing, like an insurance policy.

So all is not lost - only the J-3 (assuming all 3 were witty enough to include the clause in their contracts and can demonstrate same). Again, ARM is on the hook big time.

One last thing though: don`t get all happy about ARM`s statements that this will have a serious impact on their business. That`s posturing. I recall reading how if a major company is literally threatened with bankruptcy, and thousands of people are destined to loose their jobs (causing a multitude of financial and social impacts), that the award may be limited to prevent unnecessary harm to the ``innocent``. But I`m certain ARM has the ability to pay serious money before this level of harm could be contemplated.

I would bet that TPL will hammer ARM big time, enough to cover the J-3 and all of ARM`s other customers - all ARM`s product sold. ARM may get a break in the cost of it`s licensing fee. How? By actually being forced into a position where it pays a ``lighter`` up front fee, but has to pay in installments and/or in addition to - you guessed it - royalties on future infringement (passing the cost to their customers).

So is this situation a bad thing? IMO, it SHOULD be basically a ``wash``, or even positive. TPL may have no choice, in order to fully capitalize, but to accept royalties in addition to a big fat fee (for past infringement). Bummer - recurring revenues. (LOL)

I would think that ARM is under some degree of pressure to act swiftly. Much like the pressure applied on INTEL by TPL when they served notice to all their customers.

But I KNOW nuttin`! (Actually, I`m pretty confident about the above - lawyers please chime in).

SGE