Some businesses count intellectual property (IP) – which includes patents, copyrights, trademarks and trade secrets – among their most valuable assets. As the value of IP and the cost of IP litigation continues to escalate, more companies are turning to IP insurance, a relatively new and specialized insurance category. You can take out a policy either to guard against theft of your own IP or, more commonly, to provide coverage if you are sued for infringing on someone else’s IP.
Intellectual property theft is a pervasive and costly problem that directly infringes on a company’s right to derive income from its own creations, which can range from inventions and novel processes to literary works and musical compositions to brand names. IP-intensive industries include software and technology, manufacturing, pharmaceutical, fashion, the arts and entertainment. IP disputes take many forms and may involve brand erosion, counterfeiting, impersonation and distribution abuses by other companies who seek to either copy a company’s IP or draw revenue by using the other company’s reputation to enhance its own. IP infringement can be intentional, such as when a company markets counterfeit designer goods or pirated computer software. It can also be unintentional, such as when a marketer sells products under a brand name that it did not realize was protected.
In 2018, there were 13,124 intellectual property infringement lawsuits filed, with 6,209 concerning copyrights, 3,694 involving patents and 3,221 involving trademarks, according to the Judiciary Data and Analysis Office of the Administrative Office of the U.S. Courts. The average cost to litigate a patent infringement case through trial is $2.8 million, when the intellectual property at stake is between $1 million and $25 million, according to the American Intellectual Property Law Association. For copyright infringement cases seeking a recovery between $1 million and $10 million, it will cost an average of $710,000 to defend through trial.
Because commercial general liability (CGL) policies typically exclude coverage for many IP risks, IP insurance is recommended for businesses with high exposure in this arena. The most popular type of IP insurance is infringement defense coverage, which covers defense costs, settlements and judgments resulting from a lawsuit against the policyholder. This product can also cover defense costs and damages resulting from contractual obligations to indemnify vendors, partners, upstream manufacturers or downstream customers in the event of third-party infringement claims. Many general liability policies do cover claims like unfair competition, however, and certain trademark and other IP related claims. An experienced, commercial broker can help you wade through the available coverage and various policy options.
A less common category of IP insurance is alternately known as pursuit, abatement or enforcement insurance. This covers the costs of asserting your IP rights and suing others for infringing on your IP. With the insurer’s approval, the policy will fund litigation against the offending party and allow you to recover income lost as a result of the infringement.
Not all IP insurance policies include coverage for patents, so patent insurance may have to be purchased separately.
Evaluate your risks
Businesses in all sectors should evaluate their exposure to risks related to IP. Besides your industry and the value of your IP, many factors can impact your exposure. For instance, entering into development and/or licensing agreements with third parties, engaging in publishing activities, using open-source software or other public intellectual property, or participating with subcontractors in projects can create additional risks.
IP insurance coverage is unique and highly complex and thus, as stated earlier, it is best to consult with a sophisticated commercial insurance broker before choosing a policy, and to consult legal counsel before submitting a claim to your insurance company.
If you have any questions regarding IP insurance or are involved in a dispute with your IP insurance provider, give us a call. Our mission is to make sure insurance companies keep their promises to you and your business.
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Evan S. Schwartz
Founder of Schwartz, Conroy & Hack