Timely Notice Not Required For Indemnification

Posted on | October 21, 2008 | No Comments

2008-1582 Mass Engineered v. Ergotron
ED/TX 206 cv 272
Judge Leonard Davis

Third-party defendant Global Marketing Partners, Inc. appeals from the order and decision of Judge Leonard Davis holding that it must indemnify defendant CDW from the infringement claims asserted by Mass Engineered.  The appeal is interlocutory, and the underlying case is proceeding with EDTexweblog providing some coverage, including here.

The infringement case involves RE 36,978 and technology for mounting multiple displays to increase a computer’s potential display area.  The indemnity issue was analyzed under California law.

This case is also yet another example of the ED/TX lax rules for sealing documents resulting in many, many motions and filings being non-public.

Mass Engineered sued CDW on 07 June 2006, but did not specifically accuse products distributed by Global until February 2007.  Shortly thereafter CDW demanded that Ingram Micro, a subdistributor of Global, defend and indemnify CDW.  Ingram, in turn, forwarded the demand to Global.

Both Ingram and Global declined, and CDW filed a third-party complaint against both.  Ingram cross-claimed against Global.  Global then acknowledged a duty to defend Ingram and its resellers, but argued that it need not indemnify CDW because CDW had not given it reasonably timely notice of the claims.  CDW moved for summary judgment on the issue.

California law contains (at least) two provisions related to indemnification: one, under § 2607(3)(B) of the California Commercial Code (the U.C.C.’s express warranty of non-infringement); and the second under Title 12 of the California Civil Code covering indemnification agreements.

The California U.C.C. provision, section 2607, states in pertinent part:

If the claim is one for infringement or the like . . . and the buyer is sued as a result of such a breach, the buyer must so notify the seller within a reasonable time after he or she receives notice of the litigation or be barred from any remedy over for liability established by the litigation.

Global argued thus that the issue of the reasonableness of the notice raised a question of fact that precluded summary judgment.

Not so fast, said CDW.  It was not relying on the U.C.C. for indemnifcation, but rather a specific provision of Global’s Sub-Distributor Agreement, which contains the following:

12.3 Intellectual Property Rights Indemnity Global shall defend, indemnify and hold Ingram, its resellers and their customers, harmless from and against all damages and costs incurred by any of them arising from the infringement of any patent, copyright, trademark, trade secret or other proprietary right by reason of the manufacture, sale, marketing or use of Product.

Product Infringement Upon threat of claim of infringement, Global may, at its expense and option (i) procure the right to continue using any part of the Product, (ii) replace the infringing Product with a non-infringing Product of similar performance, or (iii) modify Product to make it non-infringing. If Global’s Vendor does not so act within ninety (90) days after such claim, Ingram may return Product to Global for a full credit against future purchases or for a cash refund, at Ingram’s option.

This section does not expressly require CDW to give notice to Global, and, according to the court, § 2778 of the California Civil Code does not make such notice compulsory, only permissible, "Under Section 2778, it is well settled law that the indemnitee is not required to give notice to the indemnitor unless expressly stated in the agreement."

The court concluded that because the Agreement did not require CDW to give notice of threats of infringement, the reasonableness of the timeliness of any such notice was not material.  Because Global admitted a duty to indemnify Ingram and the resellers (which includes CDW), there were no genuine issues of material fact and summary judgment was granted to CDW.

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