n our increasingly computer-dependent society, many businesses are powered by their ingenuity and development of new and useful concepts and ideas. It is often intellectual property – not physical assets – that are the lifeblood of companies. Many of these companies spend a substantial amount of their revenue on research and development of intellectual property and, as a result, often have insufficient resources left to defend or enforce the very intellectual property that has become the core of their business. Proper insurance coverage can ameliorate this risk.
Traditionally, businesses seek to manage risk and liability by securing general liability and casualty insurance policies for tangible assets. These policies, among other things, protect businesses from financial ruin should there be a fire, theft, or other catastrophic accident. However, few, if any, of these standard policies protect businesses from loss or damage to their intellectual property. In fact, most intellectual property causes of action are specifically excluded from general business insurance policies.
Intellectual Property Insurance
Intellectual Property Insurance (“IPI”) is an available, but often overlooked, option for businesses with significant intellectual property assets. IPI provides the insured with the security of knowing that the costs associated with any legal claim or proceeding brought by or against the insured in relation to the covered intellectual property will be covered up to the policy limits. IPI can, depending on the policy, (a) protect a company from costs associated with copyright, trademark, trade secret, or patent infringement claims arising out of its operation, and, (b) assist a company with enforcing its intellectual property by pursuing infringing third parties. However, standard IPI policies do not cover disputes which are commenced before the IPI policy was purchased. There are “after the event” policies available, but these policies are extremely expensive and typically cover only a portion of the costs involved in the action. Thus, businesses need to secure IPI policies early in the development of intellectual property and continuously keep IPI coverage in place.
IPI premiums, deductibles, limits of liability, exclusions, and coverage requirements vary depending upon the insurance carrier, the intellectual property to be insured, and the type and scope of coverage desired. Each of these aspects of coverage must be discussed with a licensed insurance professional.
Businesses That Need IPI
IPI should be considered by all businesses with intellectual property assets. Determining the type and scope of IPI needed can be a daunting and costly task. However, the existence of an IPI policy may provide current and potential investors with additional assurance during the early stages of a business. Additionally, and perhaps most importantly, IPI policies can serve as the basis for including intellectual property on the balance sheet as an asset that can be valued at the insured amount.
Available IPI Coverages and Policies
The protection afforded by IPI depends on the type and amount of coverage purchased. A business may tailor an IPI policy to suit its needs. At a minimum, an IPI policy always should cover the reasonably anticipated costs of legal claims and proceedings, as well as any damages the insured might suffer or for which it might be held responsible.
IPI policies which provide coverage for claims related to the insured’s patent, trademark, copyright, and trade secrets are available. The following coverages are available:
● Defense: Defense policies reimburse the insured for the costs incurred in defending an infringement suit brought against the insured, but it does not cover any damages awarded against the insured.
● Defense and Indemnity: Defense and indemnity policies not only reimburse the insured for the costs involved in defending an infringement suit, but also cover any damages awarded against the insured.
● Offense/Pursuit: Offense/pursuit policies reimburse the insured for legal expenses the insured incurs in pursuing a party infringing on the insured’s intellectual property rights.
IPI policies limited to claims relating only to the insured’s patent(s) also are available, but IPI policies specific to trademarks, copyrights, and trade secrets are not. Patent-specific IPI policies may be purchased with the same coverages as are available for the broad IPI policies.
In addition, there are a variety of riders that may be added to an IPI policy such as coverage for loss of business income, royalties and license fees, research and development benefits, intellectual property portfolio value, and trade secrets; foreign coverage; licensee coverage; and, patent re-issues and re-examination proceedings. Coverage for advertising injury, which indemnifies the insured against damages imposed on the insured for statements made in the insured’s advertising activities that cause loss to another individual or entity, also is available.
A business can be ruined financially if it does not have the resources to pay the costs involved in defending an infringement claim or in enforcing its intellectual property against a third-party infringer. This makes it extremely important for businesses of all sizes to look into IPI, particularly start-ups and non-profit organizations, both of which are especially disadvantaged in defending claims against larger and financially stronger adversaries. An IPI policy can help to pay or defray the necessary costs involved in litigating intellectual property suits and, for payment of additional premiums, can cover the payment of any damages awarded against the insured. All companies with intellectual property important to their business should consider procuring IPI in order to protect the value of those assets.