Intellectual Property Insurance: Protecting Intangible Assets

We live in a world driven by innovation and creativity where an idea is given the opportunity to blossom into practical use for the masses. Look at the evolution of mobile communication. Yes, I’m old enough to admit I used a “bag phone”, yet young enough to understand the sophistication of today’s smart phones. What will mobile communication look like thirty years from now while I’m playing shuffleboard over at Shady Acres Retirement Village? No idea. But technological advancement won’t stop.

And neither will the need to protect the intangible assets of technology, healthcare and life science companies along with countless other industries who hold intellectual property.

Intellectual Property (IP) coverage is a specialty area of insurance that is starting to get more recognition in the marketplace. So what exactly does it do? Recall the foundation we built in the article Simplifying Liability: “One Size Fits All” Isn’t for Insurance, Just Socks:

1.?????? Liability Insurance = legal protection….for something….

2.?????? Convert the “something” into what could potentially subject your company to legal action stemming from your product or service.

Intellectual Property Liability provides legal protection for the cost of allegedly infringing on the intellectual property of another entity. This is the reactive side of coverage, meaning, it responds following the allegation. But that’s not all.

Intellectual Property coverage also includes a proactive side called enforcement coverage, or pursuit of another entity you believe is infringing upon your IP. Yes, you can use your policy and associated legal counsel to bring legal action against another company.

Lastly, IP insurance can also provide coverage for harm done toward your brand and reputation. In other words, coverage can include damage control.

Carrier availability has grown over the last few years bringing much needed competition to the marketplace. But make no mistake about it – IP coverage is still overlooked and underutilized.

Don’t let an IP infringement lawsuit stunt your growth.

Venture Capitalists, are you addressing the need for Intellectual Property insurance in your contracts like that of General Liability and Directors & Officers Liability? IP coverage can save you and your startup from a catastrophic loss.

Finally, don’t assume intellectual property infringement coverage is available through the Advertising Injury component of Commercial General Liability. Accidentally using another’s slogan is one thing, but infringing upon a filed trademark, copyright or trade secret opens the door to hundreds of thousands of dollars in legal fees where specialty IP insurance coverage is needed.

Let’s look at a couple of claim examples before we conclude:

The Cease and Desist

A healthcare software developer with existing Intellectual Property brought a new product to market that tracks ongoing treatment of patients following discharge from a hospital. Believing they had completed their due diligence, they started selling and licensing the product. A few months after sales ramped up and they gained notoriety in the market they received a Cease and Desist letter from legal counsel stating they are in direct violation of the intellectual property of an existing product. Fortunately they purchased Intellectual Property coverage and the policy kicked in to provide the cost of legal defense. During the first month alone the legal costs of researching and responding to the Cease and Desist letter amounted to $37,000. Several months later their legal counsel was able to prove there was no violation and the $479,000 cost of defense was covered by the Intellectual Property policy, less their deductible.

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Copycat

A successful pet toy manufacturer with filed intellectual property was made aware of another company who appeared to be manufacturing and selling items extremely similar to theirs. Following a short investigation, they decided to pursue legal action and contacted their Intellectual Property insurance carrier to pursue enforcement coverage. The pursuit was successful and they won their court battle which resulted in being compensated and having the competitor’s similar product pulled from the market. The cost of the pursuit totaled $389,000 which ended up being covered by their policy, less the deductible.

The Takeaway

-Intellectual Property coverage has three components – legal defense or responding to an alleged infringement, enforcement or pursuing an entity infringing on your IP and reputational harm or damage control

-Intellectual Property coverage can save both startups and established entities from a financially catastrophic loss

-Don’t assume Advertising Injury Liability is the same as Intellectual Property coverage, because it isn’t!

-Engage with a licensed Insurance Agent or Broker to identify your needs