Tag Archives: Intellectual Property

Intellectual Property Insurance – The Most Underrated Insurance!

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Did you know that Intellectual Property (patent, copyright, trademark) claims are 5 times more frequent than Directors & Officer (shareholder) claims?  Yet, while most companies carry D&O insurance, very few companies will cover their intellectual property exposure.

Intellectual Property insurance reimburses the litigation expenses to enforce or defend against Intellectual Property infringement and protects against certain violations involving patent, trademark and copyright infringement.

The average patent infringement lawsuit cost $2.6MM, when the amount in controversy is between $1MM to $25MM.  The median litigation expense for an infringement suit through trial can range from $250,000 for copyright to $2,000,000 for patent.

With the economic downturn and companies’ operating revenues being less liquid or non-existent, a company’s ability to adequately defend itself in an Intellectual Property infringement lawsuit may be the key its survival.

By not having Intellectual Property Insurance you face the following risks:

  1. Abandon your accused products.
  2. Try to obtain a license from the accuser from a position of weakness.
  3. Defend yourself by using your cash reserves and available credit lines.

In my opinion, importers should be twice as cautious of getting embroiled into an infringement claim.   Since the overseas manufactures do not share in any of the risk of an infringement claims or expense, they are not as diligent or concerned about potential infringement claims.  I have seen countless instances and claims involving artwork on imported products and packaging.  For example, rug importers have to pay particularly close attention that their rug patterns are not similar or the same as their competitors and many of the foreign outsourcing manufactures have garnered bad reputations for using the same artwork on packaging for their different customers as a way to hold down development and production cost.

When Should You Buy Intellectual Property Abatement Insurance?

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On average, we get about three calls per month from inventors, patent holders and current product liability clients that are looking for insurance that would allow them to sue or protect their rights from those individuals or businesses that steal their patents or intellectual property. 

 Intellectual Property Abatement Insurance covers litigation expenses incurred in enforcing the insured’s intellectual property (IP) against infringers up to the policy limit (typically $100,000 to $3,000,000).

My advice for those looking to purchase Intellectual Property Abatement Insurance is always the same – only insure those patents that have the potential to make you very rich.   While intellectual abatement insurance does potentially provide you with financial resources that you otherwise would not have access too, it also requires that you pay a large part of the expenses to prosecute the offenders of your intellectual property rights.  Typically, the deductible is 2% or more and co-insurance is 20% or higher.  In other words, if your insurance carrier spent $100,000 going after a company that infringed on your intellectual property or patent in court, you are going to be responsible for slightly more than $20,000 of this expense.

From the insurance carrier’s perspective, they puposely want you to have some skin in the game and share a large portion of the expense because they want you to be thoughtful about choosing cases that are winnable and not seeing the insurance carrier as a deep pocket to sue every business that may have a similar patent or products. 

In summary, if your product has potential to earn millions of dollars of future revenues, Intellectual Property Abatement Insurance is a small price to pay to protect your interest.

Three Reasons Why Your Attorney May Discourage You From Purchasing Intellectual Property Abatement Insurance

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While many attorneys are looking out for the best interest of their clients and will recommend their client purchase Intellectual Property Abatement  coverage so their clients have the financial means to enforce their Intellectual Property rights or patents against infringers, it has been my experience many attorneys are quick to discourage their clients from purchasing this coverage. I believe there are three reasons why many attorneys will discourage their clients from purchasing Intellectual Property Abatement Insurance.

Intellectual Property Abatement Insurance covers litigation expenses incurred in enforcing the insured’s intellectual property (IP) against infringers up to the limits of the policy.

First, one of the conditions of the policy requires that before you can prosecute an infringer that stole your intellectual property or patent, you must submit to the insurance carrier a favorable letter from outside patent counsel (independent of the counsel you have chosen to litigate), at your cost, on matters of validity, infringement and legal impediments.  In other words, you must chose an unbiased attorney and present them with the facts of the case.  The unbiased attorney must provide a favorable opinion letter that your case is winnable based on all the facts.  

A second reason is when choosing an attorney to litigate against infringers your attorney 1)must be independent of the insured and 2) cannot have participated in the prosecuting or the securing of your Intellectual Property or Patent.

The third reason is, even if you current attorney passes the first two conditions or requirements, the insurance carrier requires that your attorney propose a reasonable budget for the work to be done to get you through a lawsuit.

In summary, the first two reasons above may exclude your attorney from being involved in the prosecution of infringers of your Intellectual Property; therefore, denying them an opportunity to make money. If you attorney passes the first two conditions, the third reason may limit what your attorney can charge.