Intellectual property insurance – an introductory guide

Intellectual property insurance – an introductory guide | Insurance Business

Intellectual property insurance – an introductory guide

Intellectual property (IP) is a work or an invention triggered by an individual’s creativity. It might be a manuscript, an invention, a product design, a symbol, name or image used in commerce, or a piece of literary or artistic work. Creators – those who have the rights to the IP – can apply for legal protection in the form of patent, copyright and trademarks. This enables people to earn recognition or financial benefit from their creation.

In the corporate world, IP is the seed that can blossom into an entire business empire. As such, companies will do everything they can to protect their IP from the prying eyes of competitors. In recent years, the global importance of IP rights and their related expenditures – lawsuits revolving around infringement of IP – have risen significantly. As a result, the benefits of intellectual property insurance are garnering more attention. 

What is intellectual property insurance?

IP insurance covers companies for the legal costs associated with pursuing infringement or theft of IP. It also covers legal defence costs for policyholders accused of IP infringement or theft. There are two basic types of IP insurance:

  1. Infringement defence – this is the most popular type of IP insurance. It covers policyholders for infringement claims brought against them.
  2. Abatement enforcement coverage – this coverage gives IP owners - the insureds – the financial resources to enforce their IP rights and pursue infringement claims.

Different types of IP-related risks

As already stated, the most obvious risk related with IP is infringement by a third party. But there are some other risks associated with IP, according to IPStrategy.com, including:

  • The IP terms and conditions in some development or commercial agreements with 3rd parties.
  • The publishing activities of the business.
  • Embracing open-source software.
  • Being involved in certain inter-operability standardisation activities.
  • Getting involved in some open innovation initiatives.
  • The use of subcontractors.

These are all things for companies to be aware of when mitigating their IP risk.

The soaring costs of IP litigation

According to the International Risk Management Institute (IRMI): “The cost of IP litigation can be astronomical, and continues to increase each year. In certain cases, the high stakes of IP litigation can pose a very real threat to the company itself.” Simply put, IP litigation costs could have a substantial, material impact on a business, making risk transfer an absolute necessity.

In the US, for example, where the litigation environment is particularly hot right now, IP case costs (including litigation expenses and damages or settlements) are frequently reaching six-figures for small businesses and eight-figures for larger organisations. According to global insurance brokerage and risk management firm, Willis Towers Watson, those costs are typically lower outside of the US, “particularly in Europe where the threat of an injunction serves as leverage. However, IP damages awarded by Chinese courts are beginning to increase due to new IP policy initiatives.”

How to manage the financial impact of IP risk

Preparation is key when managing IP litigation risk. That preparation roots all the way back to the organisation’s understanding of the IP it holds. Once they’ve nailed that down, it’s important for companies to register that IP (if possible) in order to claim ownership of it. It’s much easier to protect IP that’s registered with a patent, copyright, or a trademark than it is for an unregistered creation.

In addition to formal registration, companies can make use of written agreements to further protect their IP assets. These written agreements can include: employment contracts, non-disclosure agreements, non-competitive agreements, and licensing agreements. Essentially, keeping a paper trail and keeping track of people involved in that paper trail is very important.

What are insurance companies doing about IP risk?

In March 2019, global insurance brokerage and risk management firm, Marsh, announced the launch of a new IP product called IP Protect. Jason Sandler, a vice president in Marsh’s US Financial and Professional Practice, commented on the product launch, saying: “As the importance of IP rights and their related expenditures continue to rise, many organisations have sought an effective solution to protect their IP assets, products, and services, only to find inadequate coverage at a high cost. With IP Protect, we now are able to provide clients with the broad coverage and meaningful limits they have been seeking, at a more affordable price.”

The London market also had a bit of an IP refresher in the summer of 2018, when Tokio Marine Kiln established a $100million IP facility in partnership with brokerage giant Aon and a host of other Lloyd’s syndicates. Described as a “first for IP in the London market,” the facility was established to provide greater capacity for large IP risks. Ian Lewis, IP underwriter at TMK, commented at the time: “Growing recognition that IP is not only an important asset but, for many businesses, their most valuable one, is driving demand for IP protection. The market has reached a turning point, with strong demand being further propelled by recent high-profile court settlements, companies being acquired solely for their IP and impending legislative changes to IP enforcement. As the world changes, so our clients’ risks evolve. It is critically important that insurers develop products which mitigate the new risks our clients are facing.”