The need for IP insurance
28 February 2022
While intellectual properties such as copyrights and trademarks can be protected even when unregistered, registering these IPs has its value as well. Now that Covid-19 has changed the way so many things are done in the business world, experts say that there may be a higher risk of IP misuse or infringement occurring, considering the drastic change in working conditions.
According to Tony Conaghan, a partner at Thomson Geer in Brisbane, IP insurance is an important tool for companies, individuals and other entities who regularly deal with intellectual property.
“Just as tangible property is insured, intangible property should also be insured where it is of value, where the end product is easily replicable or is disruptive in an existing industry. In Australia, IP insurance is generally limited to protecting the insured for legal costs incurred either in the course of bringing a claim against another party for IP infringement, or for defending a claim of IP infringement. Events such as loss, accidental destruction of IP or similar type cannot be covered by IP insurance.”
Given that the costs of IP litigation can be astronomical (estimated to cost between US$600,000 and US$2.5 million), businesses may need IP insurance.
“IP insurance in Australia is generally limited to legal costs and damages,” says Conaghan. “The actual cover offered by a policy will be set out in the policy and will differ for each insurer. However, there are some similarities across IP insurance policies. Foremost, the insurance will cover the legal costs of pursuing an IP infringement claim and/or defending a claim of IP infringement. In some cases, the policy may extend to cover claims against the insured's customers or licensees. It is usually a condition that an insured makes the insurer aware of any claims/circumstances that arise. Where an insured provides a late notification, an insurer may reduce a claimable amount/exclude the claim altogether.”
He adds that similar to other insurance policies, IP insurance has a limit of liability for any one claim and in the aggregate.
“Claiming against the policy requires an insured to pay an excess (deductible) and often, there is a co-insurance applicable so that an insured has ‘skin in the game’,” he says. “IP insurance is important for anyone who regularly deals with valuable intellectual property and is interested in maintaining control over that intellectual property. As well as financially protecting the insured against litigation costs, maintaining IP insurance may be utilized as a commercial tool, as it is often viewed favourably by prospective investors.”
He says: “In determining which policy is suitable, there should be consideration of the likelihood of litigation occurring, the value of the IP in question (both locally and internationally), the disruptive nature of the IP against the incumbent market, and whether it is more sensible to self-fund potential disputes.”
Costs and legal disputes
For Maddi Brow, an intellectual property practice leader at CFC Underwriting in London, the global pandemic has served as a wake-up call for many; having to lock up their premises and move to a work from the home environment has forced them to reassess the importance of their intangible assets and afford those assets the same level of protection as their bricks and mortar. She says that those companies who hadn’t, perhaps, realized the value of the IP within their business – whether the IP is their brand, their creativity or their products and services – are now looking at how they can protect it within the new normal in which we find ourselves.
“IP insurance is a must-have insurance product for small businesses in every industry sector,” she says. “Without IP insurance, businesses face huge costs and uncertainty when it comes to an IP legal dispute. An insurer will provide an IP insurance policy to meet costs which would otherwise have been unaffordable, and will bring access to expertise in an IP legal dispute in the form of lawyer recommendations as well as data.
The demand for IP insurance has been increasing as businesses become more aware of the threat not only to their own IP but also the potential that they may face a claim of infringement by another company. She says that there is an abundance of IP globally and it is impossible, despite undertaking searches, to guarantee that your product or brand is not infringing on a third parties IP. This is further complicated in the patent landscape as patents are not published immediately. It is important to highlight that the company itself doesn’t need to have IP it’s the other party’s IP that is the key point of the claim.
She adds: “Companies leaving their offices and working from home more has heightened the importance of the intangible assets within their businesses and the need to protect them. Another key benefit to IP insurance is the protection it can provide against affirmative exposures that arise in obligations under contracts. Most businesses do not produce final products these days; they are, instead, developing solutions and products that form part of a larger end product, and through this chain contractual exposures arise.”
Finally, she notes, there is a further often-unrecognized benefit of IP insurance. In addition to a business registering its IP, insuring it can help to secure funding from would-be investors.
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