IP insurance can provide the necessary financial strength for both enforcement of your company’s IP rights and defense against accusations that your company (or its customer) infringes the IP rights of another party.
Given the very costly nature of most IP litigation, the purchase of IP enforcement insurance can level the playing field by allowing a small company to assert selected IP rights against a deep-pocketed competitor. In exchange for the payment of relatively moderate premiums, the small company will have the financial muscle to sustain the litigation while exercising control over their litigation attorneys, strategies, and settlement terms. Ultimately, IP enforcement insurance can give your company the financial backing to drive infringers from the market (or force them to agree to a license under your terms).
Likewise, your IP defense insurance policy shoulders most of the financial costs of litigation if it is accused of infringement. Equally importantly, IP defense insurance can protect your company from financial ruin (and also indemnify its executives from personal liability!) if financial damages are awarded against the company in an IP lawsuit.
It’s important to note that your company’s General Business Liability (aka Commercial General Liability) policy almost certainly does not provide coverage that addresses most types of IP infringement – whether enforcement or defense. When such a policy does provide IP coverage, it’s usually because your company had IP coverage added via a special endorsement to the policy. IP coverage also can be added to a professional liability (aka malpractice, errors & missions, or “E&O”) insurance policy or even to a directors and officers (D&O) policy to help protect your company’s executive team and/or board members from liability.
But most commonly, IP coverage is obtained through insurance policies specifically written for IP. Just as with any other kind of insurance, the time to seek out IP coverage is early – before it’s needed. In exchange for your premium payments, the insurer will cover legal bills (subject to any deductibles) that your company incurs to enforce its IP against an infringer and/or to defend against accusations that your company infringes other’s IP rights.
IP insurance underwriters typically assess the risk of needing to enforce your company’s IP by performing patentability, clearance, and infringement searches, competitive analysis, and the like. So “pre-existing conditions” unquestionably matter here and provide extra incentive to obtain coverage early on.
The degree of complexity and customization of IP insurance policies can vary greatly, depending on the kinds of coverage needed (enforcement vs. defense vs. both), the industry involved, and whether the insurer wants to play a more active role in enforcement measures (e.g., sending cease and desist letters on your company’s behalf).
For example, IP defense insurance has become of increasing interest as concerns have relatively recently arisen about possible copyright infringement liability due to the unauthorized use of other’s copyrighted content to train generative AI (e.g., large language models and/or chatbots).
Shifting gears, the mere mention that your company has IP insurance coverage can signal to would-be infringers, copycats, and attackers that your company is well-prepared to do battle and has financial resources to follow through. In this way IP insurance can scare away infringers and ward off weak infringement accusations. It also can help encourage early settlement, which might include a beneficial cross-license, supply agreement, and/or joint venture. By purchasing adequate IP enforcement insurance, a small company can be confident in the knowledge that, in exchange for the payment of relatively moderate premiums, it has the financial muscle needed to endure sustained infringement litigation while exercising control over its litigation attorneys, strategies, and settlement terms.
Both IP enforcement insurance and IP defense insurance require the payment of annual premiums that typically cost in the range of 1% to 3% of the insured amount. Thus, a $1 million patent enforcement policy would likely cost about $10,000 to $30,000 per year. Clearly that’s no small sum, but neither is having your highly valuable innovations effectively stolen by a competitor. Likewise, an IP defense policy with the same limits would cost roughly the same and possibly would protect your company from being bankrupted due to its own (allegedly infringing) activities.
With that sort of financial power at its fingertips, the small company becomes an equal to an opponent of any size, thereby leveling the playing field and facilitating favorable negotiations toward settlement.
Note that IP enforcement insurance can fund litigation to halt infringement of not only patents, but also trade secrets, marks, and copyrights, and can cover your attorney’s fees, court costs, and litigation expenses (e.g., for experts, trial exhibits, etc.). Enforcement insurance also can cover your exclusive licensees, allowing them to stand toe-to-toe with a massive competitor.
Similarly, IP defense insurance can essentially indemnify your customers, covering their legal costs if they are sued for using an infringing product your company sold them.
A final important point about patent defense insurance. Premiums might be reduced when your company has a solid portfolio of patents of its own, which gives it the ability to resolve an accusation of infringement by offering to cross-license one or more of its patents to the accuser.
There are more options than ever to find the right IP insurance policies for your company’s needs, priorities, goals, and budget – letting you focus on profiting from your company’s IP.