Intellectual Property Insurance Demystified

What is Intellectual Property?

Intellectual Property (IP) includes creations of the human mind or intellect.  IP stimulates technological innovation and promotes the progress of science and the useful arts.  IP is essential to a company’s economic growth and success.  Businesses leverage IP as invaluable business assets to improve product/service profitability, achieve/maintain a competitive advantage, and improve market share/value in a global market.

 

What types of IP are there?

Patents: Inventive products, processes, machines, articles of manufacture, and compositions of matter.

Trademarks: Names, words, phrases, logos, marks, symbols, designs, images identifying a source of goods or services.

Copyrights: Original creative works of authorship, such as literary (books, poems, software code), artistic (drawings, paintings, sculptures, photographs, movies, plays), and musical (musical compositions, sound recordings) works.

Trade Secrets: Information that: is not generally known to the public; confers economic value or a competitive advantage to the owner; and the owner has taken reasonable measures to keep the information secret.

 

What is IP Insurance?

IP Insurance policies are IP litigation risk management solutions that help mitigate the exorbitant financial costs/burdens associated with enforcing, or defending against, a claim of IP infringement.

 

What types of IP Insurance policies are available and what do they cover?

IP Defense Insurance covers litigation expenses (e.g., court costs, attorney fees, potential damages, and settlements) associated with defending against claims of alleged infringement on the IP rights of others.

IP Enforcement Insurance covers litigation expenses associated with pursuing those who infringe on your IP rights.

 

Why does my client need IP Insurance and what is in it for me?

There are gaps, and oftentimes explicit exclusions, in IP coverage that exist in typical Commercial General Liability (CGL), Professional Liability (PL), Professional Indemnity (PI), Errors and Omissions (E&O), Directors and Officers (D&O), and Cyber Insurance policies.  A lack of IP Insurance may also create unnecessary D&O exposures whereby executives may be held liable for financial damages.  IP Insurance can help your commercial clients proactively protect themselves by closing the gap for exposures to IP litigation risk while you create an additional stream of revenue.

 

Is it worth my time to discuss IP Insurance with my clients since they inquire about IP coverage only a few times per year?

Absolutely!  IP litigation risk is high and prevalent, whether your clients realize it or not.  If the need for IP Insurance is coming up only a few times a year during your client conversations, then you are not only leaving money on the table, but also likely not satisfying your ethical duty and professional responsibility to at least disclose the existence of IP Insurance to your clients to help manage their IP litigation exposure.  When a client raises the need for IP Defense and/or Enforcement Insurance on their end, it may be too late to obtain coverage without an exclusion to the policy!  Like the scenario where you cannot get home insurance when your house is on fire, you typically cannot get IP Defense Insurance when your client has already been sued for IP infringement, or IP Enforcement Insurance when pre-existing acts of alleged infringing or commercial activity have already occurred.

 

IP Insurance seems too complicated and not worth my time to learn.

You do not have to become an IP expert by learning the nuances of patents, trademarks, copyrights, and trade secrets to add IP Insurance as an additional revenue stream.  Simply allow IPISC to do the heavy lifting for you!  Intellectual Property Insurance Services Corporation (IPISC) is the pioneer and industry leader in IP Defense and Enforcement Insurance for over 30 years.  IPISC has a professional and knowledgeable team of IP Insurance Solutions Consultants and Underwriters, which include licensed patent attorneys/agents.

 

Why is IP Defense Insurance critical to the success of start-ups, small-, and mid-size high-technology companies?

Larger entities with greater financial resources will oftentimes assert what may be construed as frivolous claims of IP infringement against smaller competitors with limited financial resources to regain lost market share.  Larger entities outspend/outlast smaller entities due to the exorbitant litigation costs associated with defending against claims of IP infringement.  Smaller entities unable to go the distance and withstand the financial burden/storm will fold by either going bankrupt or being forced to enter into one-sided licensing agreements having exceptionally high royalty rates.  An IP Defense Insurance policy will help not only deter frivolous claims of IP infringement, but also avoid bankruptcy or being forced to pay exceptionally high royalty rates, by providing the financial means necessary to defend against unexpected lawsuits alleging IP infringement.

 

What are some of the benefits of having IP Enforcement and/or Defense Insurance?

IP Enforcement/Defense Insurance policies help: (1) make companies more attractive to potential investors; (2) increase company value and strengthen their IP portfolio; (3) protect/increase market share; (4) provide the financial means necessary to pursue those who infringe on your IP rights and defend against unexpected lawsuits alleging infringement on the IP rights of others; (5) facilitate more equitable/favorable licensing/settlement agreements; and (6) avoid the negative financial impacts/ramifications associated with an adverse judgment of IP infringement including damages (reasonable royalties, lost profits, court costs, and/or attorney’s fees), business interruptions (temporary/permanent injunctions, lost product/service revenue streams, and design around time/cost), and bankruptcy.

 

Should my clients consider IP Insurance even when they do not have enforceable IP assets/rights?

Absolutely!  If your client has a website and/or is making, using, or selling a product or service, they could be accused of infringing on another’s patent, trademark, and/or copyright without even realizing it until it is too late!  The mere presence of an IP Defense Insurance policy will help deter meritless or frivolous claims of alleged IP infringement, and help cover litigation expenses associated with defending against claims of infringement on the IP rights of others.

 

IP Insurance seems way too expensive!

If you think that IP Insurance is too expensive, wait until your client sees the exorbitant litigation costs (not including damage awards) associated with enforcing, and defending against, claims of IP infringement! The relative cost of IP Insurance is very inexpensive when compared to the mean/average costs (Excluding Damages) of IP Infringement (Defense/Enforcement) Litigation based on a single IP asset, as published by the AIPLA 2021 Report of the Economic Survey: