If your company has valuable intellectual property (IP), it may be helpful to take out an intellectual property insurance policy.
IP insurance covers the costs of IP litigation, which limits risks when dealing with trademarks in the broader market. Keep reading this Legal Kitz blog to find out more about intellectual property insurance.
What is IP insurance?
Intellectual property (IP) insurance can help enterprises defend their intellectual property from infringement.
With the rise of the digital age, intellectual property breaches are becoming more prevalent. It is very important for small businesses to protect their intellectual property, especially where it is highly valuable to their company. Many policies are now targeting smaller businesses at more affordable rates.
The insurance policies can provide protection against costly claims associated with IP rights by covering the costs of legal proceedings.
Why is IP insurance important?
With many businesses adopting digital supply chains and online channels, a business’ audience reach is broader than ever before. However, having a global reach can create many vulnerabilities for business owners and their IP ownership. These include:
the process of registering trademarks in countries with local systems for IP registration in local languages;
exporting internationally through retailers and distributors;
distributing products with pending patents;
dealing with multiple supply chain partners outside of Australia.
By adequately insuring IP ownership, a business can enforce their IP rights or defend itself against infringement claims. It is especially important for small businesses which may not be able to cover the cost of litigation, even where they have a strong legal case.
IP insurance can assist businesses to better manage IP-related risk by providing cover at a fixed rate, and deter third parties from infringing on their IP or bringing trivial claims against it.
Do I need IP insurance?
It is important to ask the follow questions while considering whether IP insurance is a good idea:
What is the likelihood of litigation, both within your individual business and within the industry?
What is the value of the intellectual property to your business, and is it worth protecting?
What level of coverage should you pursue, depending on the circumstances of your business?
Is it possible to self-fund any potential litigation, and would that be a more viable option than paying for IP insurance?
What can IP insurance cover?
IP insurance policies can provide protection against:
Legal costs for enforcing claims against infringers. These claims may include pursuing damages for loss of profits or reputation. IP insurance policies cover any IP rights within Australia or worldwide.
Legal costs for defending infringement claims made against an entity, including against customers or licensees. This may refer to a violation or copyright or other policy violation. This only includes IP that is specifically identified to the insurer. Keeping track of your business’ IP in a portfolio may make this easier.
What are the costs of IP insurance?
IP insurance generally starts from approximately $3800 for a limit of $500,000, and can go up to $25,000. The cost of a policy will take into account:
previous ownership dispute history (which requires further assessment from the IP insurer company);
any undertaken due diligence; and
whether the insured is an importer or exporter of IP.
Important Elements of IP Insurance
An IP insurance policy must:
be current at the time of the IP claim; and
have an adequate limit to meet possible legal costs.
With that in mind, it is important to consider which policy is suitable for your company, to fund or protect against any infringement claims.
The first and most important element to look for is worldwide cover. IP infringement can occur anywhere in the world, and it is important to account for differences in legislation and the ability to trade mark different elements. Without worldwide cover, a business may run the risk of infringing on an international trade mark.
The second element is having a choice of legal representation, ensuring that a business has the opportunity to work with their existing legal team, instead of starting on a blank slate with the IP insurance company’s choice of representation. This is especially important where there are IP law experts included on the business’ team.
The third element is upfront cover of costs, ensuring that the company is not left to fund unlimited legal expenses, risking financial burdens or debt in the instance of IP infringement. The insurance policy should allow legal firms to directly bill the insurer instead of the business.
The fourth element is inclusion of contractual liability, where the IP insurance can extend to protect parties who have contracts with the policyholder. This can reassure companies that they can do business with the policyholder.
The final element is domain expertise. This is where the protection insurance has been underwritten and brokered by domain experts. This ensures that the insurance policy protecting the IP risk covers the IP landscape.
Limitations of IP insurance
It is important to consider the limitations of what intellectual property insurance covers, and how that may impact your company during potential IP litigation. The IP insurer:
must be satisfied that a case has a good chance of success before funding legal action;
may have the right to withdraw funding if the policyholder is acting unreasonably;
will not fund unlimited legal expenses; and
may not protect the business’ defence costs in certain circumstances, such as knowingly infringing a third party’s IP.