Sunday, April 25, 2010

SkunK Exclusive - an Inside Look - Indemnification Clause

SkunK found some details of the clause:
"Subsequent to year end, GS Clean Tech Corp. has filed a lawsuit against Big River Resources West Burlington, LLC and Big River Resources Galva, LLC in the U.S. District Court for infringement rights on its patent covering corn oil extraction technology. On July 1, 2009, Big River Resources Galva, LLC entered into a Corn Oil Tricanter Purchase and Installation Agreement with ICM, Inc. This agreement includes an indemnification clause that holds Big River Resources West Burlington, LLC and Big River Resources Galva, LLC harmless from all claims, liabilities, and costs including attorney fees arising out of the infringement of adversely owned patents. Due to this indemnification clause, the company does not expect to incur any costs related to the litigation. As such, no liability has been recorded as of December 31, 2009."
See it Here - p 24
 
SkunK
 
Wow - so now this has the SkunK worried a bit.  Imagine if I had 20 non-patented COES units installed.  I gave each an unlimited indemnification clause in an attempt to sell more units.  Say each was producing at an average .7mmgy rate.  At treble damages and 1.75/gal of corn oil that puts me on the hook for (700,000 x $1.75 x 20 x .6 =) $14.7Million dollars a year - or 73.5M in five years!  If we figure that each unit sells for 3.6M (see here page 33)  and say half went to my bottom line - I would need to sell over eight new units a year just to fill the tip jar and cover my liability.  Each unit, of course, would increase my liability.  Ahhh - am I digging a big hole or what?? 
 
Now this doesn't say my liability will end if the patents are enforced.  I told these customers that they are:

". . . harmless from all claims, liabilities, and costs including attorney fees arising out of the infringement . . ." 

So does that mean I will pay the GreenShift royalties until 3 January 2028 if the GreenShift patents are enforced?  WOW! - thats (700,000 x 1.75 x 20 x .2 x 18yrs) over another 50 million dollars! - Not including all liability I assumed for those other units I sold to pay the previous bills.
 
It seems to the SkunK that this whole Indemnification will work.  FOR A VERY SHORT PERIOD OF TIME AND FOR A VERY LIMITED NUMBER OF CLAIMS.  Otherwise it quickly becomes unsustainable.   It seems to an uninitiated outsider (me) that the legal strategy to consolidate the individual Ethanol Plant cases by the parts supplier into one giant case - (after all that is what the two recent stays were about) - only increases the chance that this is a win it all - or fold strategy. 
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OT - Playing Poker
Now I have played a card game or two over the years.  I will be the first to say I am not real good - and luckily I have played mostly with those who were even worse.  One important lesson I learned from those close to me who taught: The most important thing about a bluff is it must be believable.
 
Here is another poker pointer:
 
"Another thing that beginners should be care[ful] of when bluffing: Avoid bluffing against short-stack players. They tend to be quite a bit more desperate since they are on the verge of going out, so attempts to bluff them more than likely won't work."

Calling a bad bluff is the most common way for a short-stack player to get right back into the game.

PS
Blow Out Sale is On! Over 70 Pages of parts!
ALL PRICES REDUCED!

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