<PAGE>
 
                                                                   EXHIBIT 10.39
                                        
                           INDEMNIFICATION AGREEMENT
                           -------------------------

    This Indemnification Agreement (this "Agreement") is made as of the 13th day
of March 1998, between Inference Corporation, a Delaware corporation (the
"Company"), Philip Padfield ("Indemnitee").


  BACKGROUND FACTS
  ----------------

    The Indemnitee currently is serving as a director and/or officer of the
Company and the Company wishes the Indemnitee to continue in such capacity.
Article VI of the Company's Restated Articles of Incorporation authorize the
Company to indemnify Indemnitee to the full extent permitted by the laws of the
State of Delaware and to enter into binding agreements with Indemnitee to
provide such indemnification.  In order to induce the Indemnitee to continue to
serve as a director and/or officer of the Company and in consideration of
Indemnitee's continued service, the Company and the Indemnitee hereby agree as
follows:

Section 1:  Definitions
-----------------------

    As used in this Agreement:

    1.1    Proceeding.  The term "Proceeding" includes any threatened, pending
           ----------                                                         
or completed action, suit or proceeding, any appeal therefrom and any inquiry or
investigation, whether conducted by the Company or otherwise, that the
Indemnitee in good faith believes might lead to the institution of any such
action, suit or proceeding, whether brought by or in the right of the Company to
procure a judgment in its favor or brought by any third party or otherwise and
whether of a civil, criminal, administrative or investigative nature, in which
the Indemnitee is or may be or may have been involved as a party or otherwise by
reason of any action taken by Indemnitee or of any inaction on Indemnitee's part
while acting as a director or officer of the Company, or while acting at the
request of the Company as a director, officer, employee, partner, trustee or
agent of any other corporation, partnership, joint venture, trust or other
enterprise (as defined in Section 1.3, below), regardless of whether Indemnitee
is acting or serving in any such capacity at the time any Expenses (as defined
in Section 1.2, below) are incurred for which indemnification may be provided
under this Agreement.

    1.2    Expenses.  The term "Expenses" includes all costs, charges and
           --------                                                      
expenses actually and reasonably incurred by or on behalf of the Indemnitee in
connection with any Proceeding, including, without limitation, attorneys' fees,
disbursements and retainers, accounting and witness fees, travel and deposition
costs, expenses of investigations, judicial or administrative proceedings or
appeals, amounts paid in settlement by or on behalf of the Indemnitee, and any
expenses of establishing a right to indemnification pursuant to this Agreement
or otherwise, including reasonable compensation for time spent by the Indemnitee
in connection with the investigation, defense or appeal of a Proceeding or
action for indemnification for which Indemnitee is not otherwise compensated by
the Company or any third party; provided, however, that the term "Expenses"
shall not include (i) any judgments and fines and similar penalties against the
Indemnitee or (ii) any expenses, amounts paid in settlement, attorneys' fees or
disbursements, or any other costs whatsoever incurred in connection with any
Proceeding insofar as such Proceeding is based on a violation by the Indemnitee
of Section 16 of the Securities Exchange Act of 1934, as amended.

                                       1
<PAGE>
 
    1.3    Other Terms.  The term "other enterprise" includes employee benefit
           -----------                                                        
plans; the term "fines" includes any excise tax assessed with respect to any
employee benefit plan; the term "serving at the request of the Company" includes
any service as a director, officer, employee or agent of the Company or any of
its subsidiaries that imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner such person reasonably believed to be in the interests of the
participants and beneficiaries of any employee benefit plan shall be deemed to
have acted in a manner "reasonably believed to be in the best interests" of the
Company or any of its subsidiaries as such term is used in this Agreement.

Section 2:  General Right to Indemnification
--------------------------------------------

    The Company shall indemnify the Indemnitee against Expenses, judgments and
fines and other amounts actually and reasonably incurred in connection with any
Proceedings to the full extent permitted by federal law and any applicable law
as from time to time in effect.  Without limiting the generality of the
foregoing, the Company shall also indemnify the Indemnitee in accordance with
the provisions set forth below.

Section 3:  Proceedings Other than by or in the Right of the Company
--------------------------------------------------------------------

    If the Indemnitee was or is a party or is threatened to be made a party to,
or is otherwise involved in, any Proceeding (other than an action by or in the
right of the Company to procure a judgment in its favor), the Company shall
indemnify Indemnitee against all Expenses, judgments, fines, settlements and
other amounts actually and reasonably incurred in connection with such
Proceeding if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in the best interests of the Company and, in the case
of a criminal proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful.  The termination of any Proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that the Indemnitee did not act in good
faith and in a manner the Indemnitee reasonably believed to be in the best
interests of the Company or that the Indemnitee had reasonable cause to believe
that Indemnitee's conduct was unlawful.

Section 4:  Proceedings by or in the Right of the Company
---------------------------------------------------------

    If the Indemnitee was or is a party or is threatened to be made a party to,
or is otherwise involved in, any Proceeding by or in the right of the Company to
procure a judgment in its favor, the Company shall indemnify Indemnitee against
all Expenses relating to the Proceeding if Indemnitee acted in good faith in a
manner Indemnitee reasonably believed to be in the best interests of the Company
and its shareholders; however, no indemnification shall be made with respect to
any claim, issue or matter as to which Indemnitee shall have been adjudged to be
liable to the Company in the performance of Indemnitee's duty to the Company and
its shareholders unless the court in which such Proceeding is or was pending
shall determine upon application that in view of all the circumstances of the
case, Indemnitee is fairly and reasonably entitled to indemnity for Expenses,
and then only to the extent that the court shall determine.  In addition, no
indemnification shall be made (i) with respect to amounts paid in settling or
otherwise disposing of a pending action without court approval and (ii) with
respect to Expenses incurred in defending a pending action which is settled or
otherwise disposed of without court approval.

                                       2
<PAGE>
 
Section 5:  Indemnification for Expenses of Successful Party
------------------------------------------------------------

    Notwithstanding the other provisions of this Agreement, to the extent that
Indemnitee has been successful on the merits in defense of any Proceeding or of
any claim, issue or matter forming part of any Proceeding, Indemnitee shall be
indemnified against Expenses actually and reasonably incurred by Indemnitee in
connection therewith to the fullest extent permitted by applicable law.

Section 6:  Adverse Determination
---------------------------------

    Any indemnification under Sections 3 and 4 hereof shall be paid by the
Company in accordance with Section 8 unless (i) a determination is made that
indemnification is not proper because the Indemnitee has not met the applicable
standard of conduct set forth in Sections 3 and 4, such a determination being
made no later than the end of the thirty-day period set forth in Section 8.2 by
any of the following:  (a) a majority vote of a quorum consisting of directors
who are not parties to such Proceeding, (b) if such a quorum of directors is not
obtainable, a written opinion by independent legal counsel, (c) approval of the
Company's shareholders with the shares owned by the Indemnitee not being
entitled to vote thereon or (d) the court in which such Proceeding is or was
pending, if such is the case, upon application made by the Company or the
Indemnitee or the attorney or other person rendering services in connection with
the defense, whether or not such application by the Indemnitee, attorney or
other person is opposed by the Company; or (ii) with respect to indemnification
under Section 4, the Indemnitee shall have been adjudged to be liable to the
Company, and the court in which such Proceeding is or was pending has determined
upon application that, in view of all the circumstances of the case, the
Indemnitee is not entitled to indemnity.

Section 7:  Reliance on Books, Records and Other Information
------------------------------------------------------------

    The Indemnitee shall be presumed to have acted in good faith and in a manner
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company, or, with respect to any criminal action or proceeding, to have had
no reasonable cause to believe Indemnitee's conduct was unlawful, if
Indemnitee's action is or was based on the records or books of account of the
Company (other than such records or such books of account which the Indemnitee
prepared or was responsible for preparing) with respect to which the Indemnitee
may be affected by a Proceeding, including financial statements, or on
information supplied to Indemnitee by executive officers of the Company in the
course of their duties, or on the written advice of legal counsel for the
Company or on information or records given or reports made to the Company by an
independent certified public accountant or by other expert selected with
reasonable care by the Company.  The provisions of this Section shall not be
deemed exclusive or to limit in any way the other circumstances in which the
Indemnitee may be deemed to have met any applicable standard of conduct.  For
purposes of this Section 7, the term "Company" includes any other enterprise.

Section 8:  Procedure for Indemnification
-----------------------------------------

    8.1    Advances.  Expenses to which an Indemnitee is entitled to
           --------                                                 
indemnification under Sections 2, 3 and 4 shall be paid promptly by the Company
in advance of any final disposition of the Proceeding upon receipt by the
Company of written documentation of the Indemnitee's obligation to pay such
Expenses; provided, however, that Indemnitee hereby undertakes to repay all
amounts so advanced if it shall be determined ultimately that the Indemnitee is
not entitled to be indemnified pursuant to this Agreement.

                                       3
<PAGE>
 
    8.2    Payment Within 30 Days.  After the final disposition of any
           ----------------------                                     
Proceeding, the Indemnitee may send to the Company a written request for
indemnification, accompanied by written documentation of the Indemnitee's
obligation to pay the Expenses, judgments and fines and similar penalties for
which indemnification is requested.  No later than 30 days following receipt by
the Company of such request, the Company shall pay the Expenses, judgments and
fines and similar penalties or reimburse the Indemnitee therefor (as the case
may be) unless, during such 30-day period (i) the Company determines that the
indemnification request is not permitted by the laws of the State of Delaware
then in effect, or (ii) with respect to indemnification under Sections 3 and 4,
the adverse determination described in Section 6 is made.

    8.3    Actions to Enforce this Agreement.  In any action by the Indemnitee
           ---------------------------------                                  
to enforce this Agreement, the Company shall bear the burden of proving that any
applicable standard of conduct has not been met by the Indemnitee.  Neither the
failure of the Company to have made the determination required pursuant to
Section 6, nor any determination made pursuant to Section 6 shall create a
presumption that the Indemnitee has or has not met any applicable standard of
conduct.

Section 9:  Other Rights
------------------------

    The rights of the Indemnitee under this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may be entitled under any law
(common or statutory), provision of the Company's Articles of Incorporation or
Bylaws, vote of shareholders or Board of Directors of the Company or otherwise,
both as to action in Indemnitee's official capacity and as to action in another
capacity while holding such office or while employed by or acting as agent for
the Company in any capacity.

Section 10:  Notice to the Company; Defense of Proceeding
---------------------------------------------------------

  10.1    Notice.  The Indemnitee shall, as a condition precedent to
          ------                                                    
Indemnitee's right to indemnification hereunder, provide prompt written notice
to the Company of any Proceeding in connection with which Indemnitee may assert
a right to be indemnified under this Agreement.  Such notice shall be deemed to
have been provided if mailed by domestic certified mail, postage prepaid, to
Inference Corporation, at 100 Rowland Way, Novato, California 94945 (or to such
other address as the Company may specify in writing to the Indemnitee).
Indemnitee shall give the Company such information and cooperation as it may
reasonably require.  The omission to so notify the Company will not relieve the
Company from any liability which it may have to Indemnitee under this Agreement
or otherwise.

                                       4
<PAGE>
 
  10.2    Defense of Proceeding.  With respect to any Proceeding:
          ---------------------                                  

    (i)    The Company shall be entitled to participate in the Proceeding at its
     own expense.

    (ii)  Except as otherwise provided below, the Company shall be entitled to
     assume the defense of such Proceeding, with counsel reasonably satisfactory
     to the Indemnitee, to the extent that it may wish.  After notice from the
     Company to the Indemnitee of such assumption, during the Company's good
     faith active defense the Company shall not be liable to the Indemnitee
     under this Agreement for any Expenses subsequently incurred by Indemnitee
     in connection with such defense.  The Indemnitee shall have the right to
     employ separate counsel in the Proceeding, but the fees and expenses of
     such counsel incurred after such assumption shall be at the expense of the
     Indemnitee, unless (a) such employment has been authorized in writing by
     the Company, or (b) the Indemnitee shall have reasonably concluded that
     there may be a conflict of interest between the Company and the Indemnitee
     in the conduct of the defense of the Proceeding.

    (iii)   The Company shall not be required to indemnify the Indemnitee under
     this Agreement for any amounts paid in settlement of any Proceeding
     effected without its prior written consent.  If the Indemnitee does not
     promptly offer to settle a Proceeding on a basis that the Board of
     Directors has approved, the Company shall not be liable to pay any Expenses
     incurred thereafter in connection with that Proceeding.

    (iv)  The Company shall not settle any Proceeding which would impose any
     penalty or limitation on the Indemnitee without the Indemnitee's written
     consent.

Section 11:  Claims Initiated by Indemnitee
-------------------------------------------

    Any other provision herein to the contrary notwithstanding the Company shall
not be obligated to indemnify or advance Expenses to Indemnitee with respect to
Proceedings initiated or brought voluntarily by Indemnitee and not by way of
defense, except with respect to Proceedings brought to establish or enforce a
right to indemnification under this Agreement or any other statute or law or
otherwise as required under Section 317 of the Delaware Corporation Law, but
such indemnification or advancement of Expenses may be provided by the Company
in specific cases if the Board of Directors has approved the initiation or
bringing of such Proceeding.

Section 12:  Miscellaneous
--------------------------

  12.1    Amendments.  This Agreement may be amended only by means of a writing
          ----------                                                           
signed by both the Company and the Indemnitee.

  12.2    Retroactive Effect.  This Agreement covers all Proceedings that either
          ------------------                                                    
now have been or later may be commenced, including any Proceeding relating to
any past act or omission of the Indemnitee that has not yet resulted in
commencement or threat of a Proceeding.

                                       5
<PAGE>
 
  12.3    Savings Clause.  Each provision of this Agreement is a separate and
          --------------                                                     
distinct agreement, independent of all other provisions.  If this Agreement or
any such provision shall be deemed invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
shall not be affected or impaired in any way, and the Company shall nevertheless
indemnify the Indemnitee as to Expenses, judgments and fines and similar
penalties with respect to any Proceeding to the full extent permitted by any
applicable portion of this Agreement that shall not have been invalidated and to
the full extent permitted by applicable law.  In the event of any whole or
partial invalidation, illegality or unenforceability of this Agreement, there
shall be added automatically to this Agreement a provision or provisions as
similar to such invalid, illegal or unenforceable provision, both in terms and
effect, as may be possible and be valid, legal and enforceable.

  12.4    Mutual Acknowledgment.  Both the Company and Indemnitee acknowledge
          ---------------------                                              
that in certain instances, federal law or applicable public policy may prohibit
the Company from indemnifying Indemnitee under this Agreement or otherwise.
Indemnitee understands and acknowledges that the Company has undertaken or may
be required in the future to undertake to the Securities and Exchange Commission
to submit the question of indemnification to a court in certain circumstances
for a determination of the Company's right under public policy to indemnify
Indemnitee.

  12.5    Successors and Assigns.  This Agreement shall be binding on, and inure
          ----------------------                                                
to the benefit of, the successors and assigns of the Company, whether by
operation of law or otherwise, and the estate, heirs and personal
representatives of the Indemnitee.

  12.6    Governing Law.  This Agreement shall be governed in all respects,
          -------------                                                    
including validity, interpretation and effect, by the laws of this State of
Delaware.

  12.7    Merger Clause.  Except for the Company's Restated Articles of
          -------------                                                
Incorporation and Restated Bylaws, this Agreement constitutes the entire
understanding of the parties and supersedes all prior understandings and
agreements, written or oral, between the parties with respect to the subject
matter of this Agreement.

  12.8    No Duplication of Payments.  The Company shall not be liable under
          --------------------------                                        
this Agreement to make any payment in connection with any claim made against the
Indemnitee to the extent that the Indemnitee has otherwise received payment
(under any insurance policy, Bylaw, or otherwise) of the amounts otherwise
indemnifiable hereunder.

  12.9    Subrogation.  In the event of payment under this Agreement, the
          -----------                                                    
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who shall execute all papers required and shall
do everything that may be necessary or appropriate to enable the Company
effectively to bring suit to enforce such rights.

  12.10   Counterparts.  This Agreement may be executed in counterparts, each of
          ------------                                                          
which shall be deemed an original, but all of which taken together shall
constitute but one and the same instrument.

                                       6
<PAGE>
 
    IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.

               INFERENCE CORPORATION
              (a Delaware corporation)



  By:  /s/ William D. Griffin
       ----------------------
       William D. Griffin
       Chief Financial Officer and Corporate Secretary



                    INDEMNITEE




     /s/ Philip Padfield
     -------------------
     Philip Padfield
 
 

                                        

                                       7