Intellectual Property Insurance

In the midst of Florida winter, it’s easy to forget about the dangers lurking from June to November. It’s been ten years since a major tropical system has made landfall in Florida. When was the last time your building caught on fire or a lightning strike completely fried your electronics? It’s probably been awhile. Yet, these facts don’t stop you from buying Property Insurance to protect your company’s physical assets. Whenever I mention purchasing Intellectual Property insurance coverage, I often hear, “Well that’s not going to happen to us,” or “It’s probably too expensive,” but I would bet many of you have had the same number of property insurance claims as you have had Intellectual Property lawsuits – zero. If I were to suggest going bare (no insurance coverage) on your business property you would look at me like I was crazy. So why isn’t it crazy to go bare on your IP? Well, it is crazy. Insurance is designed to protect your assets from disaster, whether caused by nature, negligence, or legal issue. Let’s review a few scenarios.

ABC Tech, a software design company, could likely weather the storm (literally) after hurricane damage by purchasing laptops and allowing the employees to write code from home or a hotel. What does ABC Tech do if a court slaps an injunction on them because their software allegedly violates XYZ Software’s copyright on XYZ’s code? Does ABC Tech settle the claim alleging $2,000,000 in damages or do they fight it? Without insurance protection, that decision is going to be made based on what ABC Tech can afford to do. With insurance coverage, an insurance carrier is contractually obligated to put their money on the line and fight alongside ABC Tech. Rhetorical question: which situation sounds better to you?

Acme Systems has developed a great, new product – the Widget 3000 (Patent Pending) – that has revolutionized their industry and they’re making $1,000,000 per month in year one! That’s going to attract some attention. Unfortunately, that attention is coming from No Actual Products Corporation, a Non-Practicing Entity (sometimes called Patent Trolls, whether fairly or unfairly) that files suit in federal court. What does Acme Systems do if a court slaps an injunction on them because a component of their product design allegedly violates patent recently purchased by No Actual Product Corporation? Does Acme Systems settle the claim alleging $6,000,000 in damages or do they fight it? Without insurance protection, that decision is going to be made based on what Acme Systems can afford to do. With insurance coverage, an insurance carrier is contractually obligated to put their money on the line and fight alongside Acme Systems, which could result in a settlement, licensing arrangement, or outright victory. Rhetorical question: which situation sounds better to you?

If your company already has an Errors & Omissions (Professional Liability) Policy, typically coverage for Copyrights, Trademarks, and Trade Secrets can be added for a limited charge; all your broker has to do is ask. Unfortunately, not every carrier will offer this and almost no E&O carrier will add coverage for Patents. Patent coverage must be purchased separately. Typically, the carriers that offer Patent Coverage can also cover Copyrights, Trademarks, Trade Secrets, and Unintentional Disclosure of Confidential Information on one policy. Which set-up is right for you would depend on the specifics of your company and the products/services offered.

Remember why people would sue you for actual or alleged infringement: MONEY! How do these judicial decisions affect you? The court can issue an injunction requiring you to stop your business activities that may be infringing upon another’s IP; an injunction temporarily/permanently removes your products and services from the market. The court can award damages to allow the plaintiff to recover revenue/profits you’ve made from infringing activities. The court can award royalties to the plaintiff; royalties are a form of licensing that allows the plaintiff to receive a portion of any future revenue/profits you make from the infringing activity.

The question you must ask yourself is, “How do I protect myself?” A Proper Enterprise Risk Management plan should include Insurance policies (risk transfer that can be leveraged for licensing and often deters the need for escrow when selling Intellectual Property), consistent monitoring and updating of your IP portfolio and risk management plan, and constant consultation with your IP attorney to review your risk management plan and your IP portfolio.

If you have any questions about IP insurance contact me at jmongold@bbbrevard.com or 321-757-8686 x130.
If you have any questions about IP risk management and legal protection for IP contact Widerman Malek.

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