There are two provisions in nearly every commerical contract that I tend to be asked about more than others. These provisions are: (1) indemnification clauses; and (2) “forum selection” clauses. Most manufacturers and distributors are familiar with the first. Not as many are familiar with the second.
Fundamentally, an indemnification clause is typically designed to provide protection to a party in the event a lawsuit or claim is filed against it by a third party. For instance, a distribution agreement will typically have an indemnification clause that states that if the distributor is sued by an end user of a product, the distributor can seek indemnification from the manufacturer. Similarly, a manufacturer may have a supply agreement that states that it can seek indemnification from its suppliers to the extent that the raw materials do not meet certain agreed upon standards. For that reason, it is important to review these clauses periodically with your legal counsel particularly because these clauses can take on many forms. For instance, some clauses allow the party that is sued to pick their own legal counsel and also control the litigation while other clauses may not.
The other type of clause that is less known is the “forum selection” clause. This clause generally is contained at the end of the commerical agreement and may not stand out. This clause typically addresses a situation wherein two commerical parties have a dispute about a contractual agreement. A forum selection clause typically answers two questions. First, will the dispute be resolved in court or through arbitration? Second, if a lawsuit is filed, where must it be brought (i.e., what state or country in some situations)? In Connecticut, for instance, the law on forum selection clauses can be confusing, but what is clear is that certain language (a.k.a. “magic words”) often needs to be used for these clauses to acheive their purpose. For that reason, it is also important to review these clauses with your counsel as well on a periodic basis.