Category: Intellectual Property Insurance

Find out the ways you can protect yourself from the theft of your ideas.

Contracts and Your Insurance

Your attorney reviews all of your contracts, customarily asking you to send the insurance portions to us for review. Our habit is to comment on each clause and section, advising our clients what is covered and what is not covered under their current policy. After 20 years of business we also have a good sense of what is reasonably asked of you under any contract and what conditions you may be able to negotiate away.
Your commercial insurance program probably does cover:

  • Waiver of subrogation against your landlord (Your lease is usually covered under “Limited contractual” coverage)
  • General Liability obligations under most contracts requiring standard limits (including Bodily Injury and Property Damage)
  • Workers Compensation coverage for most contractual obligation language
  • Most “Hold Harmless” clauses found in contracts

Your commercial insurance program probably does not cover:

  • Intellectual property infringement indemnification
  • Pollution
  • Employee non-disclosure agreements
  • Indemnification for your landlord’s contractors
  • Most “any and all causes” clauses
  • “Your insurer will honor all the terms of this contract” provisions

Always let your insurer know about those insurance related sections of contracts you sign.

Insuring Intellectual Property – How to Protect Yourself

Only specialty markets and programs offer coverage for many intellectual property perils.

  • copyright infringement
  • defamation
  • disparagement of an individual’s reputation infliction of emotional distress
  • infringement of title, name, or mark
  • invasion or infringement of the right of privacy
  • patent infringement
  • piracy
  • plagiarism
  • product disparagement
  • unfair competition

Even while cyberspace offers us global markets, we are assuming so many more complex international business issues. Tripping up on an infringement problem could bring you two continents away from home to defend yourself.

Many of the perils above, as well as global defense can be secured from your insurer.

Intellectual property, hard copy and in cyberspace, should be carefully examined to determine what insurance can best protect you.

Intellectual Property Matters: Patent Infringement

As a technology based company, knowing you have developed state of the art products, you aggressively pursue selling a service contract to that large corporation you know badly needs your services.

Negotiations begin, hurdles are passed, and the relationship looks good. Then, corporate sends their contract: YourCo hereby indemnifies and holds harmless and agrees to defend BigUsCo for all claims, demands, charges, suits, proceedings, damages, direct or consequential…, for any and all injury or damage,… intellectual property infringement, including but not limited to trade mark, copyright, patents, invasion of privacy, plagiarism, unfair competition,…” Required limits of liability usually follow, with specifics of coverage and “Additional Insured” status requirements.

What do you do?

Indemnification is a term associated with a financial guarantee to provide legal defense for a claim. Indemnification should not be undertaken casually, or without attempts to transfer the risk to your insurer. Some interesting statistics are provided by one of the world’s leading patent infringement insurers.

Litigation Costs

  • $500,000 pre-trial, $500,000 during trial
  • Damages to $1 billion, often $20-$30 million

Limits

  • up to $15,000,000 coverage per patent
  • minimum retention (deductible) = $50,000

Defense Expenses are covered by policies

  • legal fees
  • declaratory actions
  • injunctions
  • appeals

Insurance Coverage Costs

  • premiums start at $25,000 per patent for $1,000,000 coverage
  • an infringement search and opinion letter is required

A technology insurance risk specialist should be contacted to approach insurers willing to look at your contract obligations. Don’t forget that every web site carries a number of intellectual property exposures which many businesses have not encountered. Web sites are publications by any definition, and, as a publisher, you are exposed to claims of infringement.

Intellectual Property in Contracts — and Your Insurance

Most software licensing agreements contain clauses regarding intellectual property infringement, usually indemnifying the client for any IP infringement complaints. Rarely are these clauses supported by insurance, which is important to understand should problems occur. Remember, your contracted indemnification agreements do not obligate your insurer beyond their existing policy terms! Indemnification is a term associated with a financial promise to provide legal defense and damage awards for claims.

What may be covered to some extent on your General Liability / Property policy:

  • Trademarked or Service Marked titles or slogans
  • Copyrighted advertising materials

IP exposures usually covered by an Internet Liability policy:

  • Copyright Infringement
  • Infringement of Title
  • Infringement of Trade Name
  • Infringement of Trademark
  • Infringement of Slogan

IP exposures not covered:

  • Patent Infringement (You may secure patent infringement offense and/or defense coverage through specialty markets). Applications require an opinion letter, which can also be secured specifically for insurance purposes.
  • Trade Secret Infringement

This outline serves primarily as a benchmark warning to recognize areas, that should be reviewed by professionals who can alert you to risks and exposures. Always let your agent and insurer know about those insurance related sections of the contracts you sign.

Protect Against Infringement with Insurance Coverage

You may have more than a theoretical interest in intellectual property, because you probably have one or more technology contracts addressing your IP obligations to a client, partner or vendor. How you handle these complex issues will separate you from your competitors; it may even determine your long-term solvency.

A scenario:

A technology company developing state-of-the-art products aggressively pursues a contract with a large corporation in need of those products and services. Negotiations begin, hurdles are passed and the relationship looks good.

Then it begins. The corporate department sends the contract with intimidating wording such as, “YourCo hereby indemnifies and holds harmless and agrees to defend BigUsCo for all claims, demands, charges, suits, proceedings, damages, direct or consequential … for any and all injury or damage … intellectual property infringement, including but not limited to trademark, copyright, patents, invasion of privacy, plagiarism, unfair competition.”

Required limits of liability usually follow, with specifics of coverage and “additional insured” status requirements.

Indemnification is a term associated with a financial guarantee to provide legal defense for a claim. You should not under-take indemnification casually and without attempts to transfer the risk to your insurer. The general liability areas and even errors and omissions liability are more easily accommodated.

In addition, your Web site carries a number of intellectual property exposures, which many businesses have not previously encountered. Web sites are publications by any definition, and as a publisher you are exposed to claims of infringement.

Vastly more difficult are the intellectual property indemnification clauses of your contract.

First, some interesting statistics and facts from American International Group, one of the largest insurance providers:

  • Damages of up to $1 billion, often $20 million to $30 million, are common.
  • Insurance limits up to $15 million coverage per patent are available, with a minimum deductible of $50,000.
  • Defense expenses are covered by policies: legal fees, declaratory actions, injunctions and appeals.
  • Insurance coverage premiums start at $25,000 per patent for $1 million in coverage with an infringement search and opinion letter required.
  • From 1982 to 1994 patent litigation doubled. The number of patent infringement cases filed since 1994 increases 25 percent annually.
  • Fewer than 4,000 of the largest corporations holding 100 or more unexpired patents accounted for more than 50 percent of all lawsuits in 1991. That trend continued through the 1990s.
  • In 1998, U.S. revenues from licensing, litigation and settlement of U.S. patents were $100 billion up from $3 billion in 1980.

The median costs through trial of intellectual property lawsuits increased dramatically in just four years. The results of 1995 and 1999 American Intellectual Property Law Association (AIPLA) surveys are in the chart below.

The best way to protect yourself is to contact a risk specialist who can approach insurers willing to look at your contract obligations. As you may know, insurers took an estimated $50 billion hit to a $300 billion industry due to Sept. 11. That, coupled with a 10-year soft market and investment income declines, have resulted in limited additional insurance capacity. Coverage once thrown in is now either not offered at all or offered at high rates.

Taking into consideration all of the above, it is important to review what coverage IP policies offer.

Following is typical coverage to look for in an infringement policy:

  • Defense expenses, including legal fees, declaratory actions, injunctions and appeals
  • Damages covered, including judgments and settlements (90 percent are settled prior to trial); lost past royalties and past profits; interest and costs; attorney fees assessed by the court
  • Who and what is covered: directors and officers, employees, company and all subsidiaries; all products; all patents – utility, process, design
  • Coverage for new acquisitions; past acts; expedition of dispute resolution procedure, or arbitration

These facts and coverage information can help you measure your protection needs and requirements against contract obligations and risk transfer decisions. Don’t get caught in a costly IP dispute.

Costs of IP Lawsuits
1995 1999 % increase
Patent $1,000,000 $1,503,000 33%
Trademark $249,000 $300,000 17%
Copyright $200,000 $248,000 19%
SOURCE: AMERICAN IP LAW ASSOCIATION

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