David and Goliath; we all know that story. It is a classic tale of
the little guy triumphing over the big guy using wit and strategy. Of course, this is just a fable. In the business
world, more often than not the story is about the big guy who is simply too big
and the little guy who isn’t prepared or financially able to fight back. Such is the case when large
companies infringe upon the intellectual property rights of smaller
competitors.
According to a cost study conducted by the American
Intellectual Property Law Association, the average inclusive litigation costs
for a patent infringement suit range between $767,000 and $2,645,000. This range is based on how much money is at
risk, with the lower estimate based on less than $1MM and the higher based on
$1MM to $25MM. At these costs, it is
easy to see why many smaller companies either concede their IP rights, or are
forced to accept less than favorable licensing agreements with larger
competitors. So what is a small company
to do if they have IP but can’t afford to enforce it?
Intellectual property insurance has been around for about 20
years, but its existence is relatively unknown even within the insurance
industry. But with the increasing pace
of innovation in technology and life sciences over the last several years, and
increasing IP litigation, it is now gaining some interest from those looking to
protect their IP assets. There is a
short list of carriers that offer the coverage, and as it is a non standard
insurance policy, the coverage varies between insurers.
Intellectual property insurance was originally developed to
fill in the gaps left by general liability insurance, which typically excludes
IP infringement. Evolving over the
years, many insurers that provided errors & omission insurance (E & O) introduced
limited coverage for IP infringement, mainly for trademark and copyright
only. However, they typically do not provide coverage for patent infringement and theft of trade
secrets. As E & O is also a non
standard insurance coverage, these forms also vary between insurance companies,
and the scope of IP coverage is varying.
One thing is certain; there aren’t any E & O policy forms known to
the author that provide IP abatement, which is coverage for enforcing your IP
rights.
IP insurance is generally available for three peril groups; Defense, Abatement, and Multi Peril. IP defense coverage is pretty much what one would assume it
to be; if your company is accused of infringing upon the IP rights of a third
party, it pays to defend you and also can provide coverage for damages. IP Abatement coverage basically funds legal expenses to
enforce your patent, copyright, or trademark.
This coverage tends to act as a deterrent, like a “Beware of Dog” sign
at a property, letting any potential infringers know that you have the
wherewithal to go the distance in defending your IP rights. Multi Perils coverage offers an intriguing option to
mitigate the contingencies associated with IP litigation. At the onset of IP legal matters, a judge may
issue a preliminary injunction, essentially shutting down the sale or licensing
of any IP at issue. Obviously, losing
incoming revenue could be devastating to any company. Under the Multi Perils coverage, business
interruption is available that would cover such a loss. There are several other perils under the
Multi Perils coverage, such as the loss of any ongoing royalties caused by such
actions as a preliminary injunction, loss of IP value due to invalidation of
your IP, or the cost of redesign, remediation, and reparation caused by the
same. This coverage can be quite comprehensive,
and the scope is greater than I have relayed in this section.
When it comes to risk management, developers of innovative
products have needs for traditional insurance products, such as general
liability, property insurance, workers compensation, and executive
liability. But when the value of
intellectual property is the cornerstone of the financial viability of a business,
protecting it is paramount. You take the
steps to retain the best IP legal counsel that you can afford, and do all the
right things in getting your IP documents filed. But sometimes, that may not be enough. If your company is targeted by a larger
company looking to back you into a corner, you may not have the resources to
fight back. Intellectual property
insurance might just be your slingshot to slay the attacking giant.
IMPORTANT NOTICE: The
information presented here is for informational purposes only and should not be
relied on as legal advice. No one should act or refrain from acting on
the basis of the information provided but should instead seek the appropriate
legal advice on the particular facts and circumstances at issue from a properly
licensed attorney. Insurance policies
are contracts that can and will vary depending on the unique circumstances
associated with a particular business matter.