Intellectual property (IP) generally consists of intangible assets, such as copyrights, patents, brand identities, proprietary knowledge and trademarks. Such assets can be extremely valuable to a company. However, when other companies improperly take advantage of these assets (i.e., infringement), asset value may quickly diminish. Conversely, defending claims of infringement may also prove to be extremely expensive.
One way to protect against the potential for losing patent rights and the associated defense costs is to procure insurance. Patent insurance became widely available in the 1990’s. Since then, patent litigation has increased dramatically and the costs of either pursuing or defending IP lawsuits have also soared.
Forms of Intellectual Property Insurance
Initially, coverage for IP claims was frequently pursued under a company’s commercial general liability (CGL) policy, specifically the “advertising injury” coverage portion. Even when such claims were worthy of coverage, they still needed to be tied to “advertising activities.”
Thus, while infringement of copyrights and trademark rights may have been covered, CGL coverage provided little assistance in protecting IP rights in general or defending against claims of patent infringement by the insured. Further, it did not help with awards if the litigation was lost. — One result was the development of specialized IP and patent insurance policies.
Patent Insurance and IP Insurance
Sometimes called “infringement abatement insurance,” this type of insurance generally covers costs associated with enforcing IP rights against infringers, usually as follows:
Covers or reimburses litigation expenses for enforcement
Pays legal costs when IP rights are challenged in a countersuit for invalidity
Can cover U.S. and foreign IP rights, plus patent or trademark applications
Covers cost of re-examination of the insured’s patent, if petitioned for by the defendant
Although the terms and conditions of such policies can vary, generally, the insured must notify the insurer of the infringement by submitting a claim form provided by the insurer. In addition, the insured should provide the insurer with a favorable opinion letter from an intellectual property attorney regarding enforceability, validity and infringement of the IP rights at issue.
An applicant may generally apply for IP insurance upon completion of an IP search and registration for a trademark, copyright or patent. Additionally, as a prerequisite, the applicant must also be unaware of any current infringement or violations of its IP rights.
This is generally “claims-made” insurance, meaning that the infringement must be timely reported during the “policy period.” Premiums can be expensive, often costing close to $25,000 per year.
Patent Infringement Liability Insurance
Sometimes called “infringement defense cost reimbursement insurance,” Patent Infringement Liability policies usually cover the cost of defending against a claim of infringement and any award of profits, royalties, attorneys’ fees, etc., to the plaintiff as a result of the action.
This too is generally a “claims-made” insurance, requiring prompt notification of the claim to the insurer during the policy period. When a claim is made against the insured for infringement and it has been submitted to the insurer, the insurer may accept it on a “reservation of rights.” This means the insurer believes the claim may be covered but wants time to investigate before committing itself. Many state courts hold that the insured may retain separate counsel in such circumstances (as opposed to using counsel hired by the insurer, who may have little experience in IP defense). If the insurer rejects the claim as not covered, the insured may bring a declaratory relief action in court to determine coverage.