The expense and labor invested in the development and subsequent protection of valuable IP usually is significant. Given the high cost of protecting IP assets, what can be done when outside factors, such as a party’s ability to pay or geographical location, create unfair advantages over competitors? As many smaller innovators will attest, there is a real fear of losing IP ownership when they lack the resources to protect their rights. The insurance industry may offer a solution that eliminates these unfair advantages, according to Todd M. Rowe, an attorney, with Tressler LLP. In addition to providing additional resources for establishing rights to IP, insurance can offer the means for innovators to focus on developing their IP assets rather than the distraction of finding the resources to protect them.

In general, insurance for IP assets can be offensive, by providing protection when a third party infringes the policyholder’s IP, or defensive, by offering protection in the case of infringement claims against the policyholder, Rowe explains. Insurance policies available for IP assets spread the risks associated with innovation in three main ways:

1. Defense cost and damages reimbursement coverage. Certain products reimburse defense costs incurred by a policyholder during infringement litigation. In addition, these products enable policyholders to assert claims of invalidity against a complainant, fund research to re-examine the validity of the policyholder’s IP rights, and possibly pay for damages awarded against a policyholder. Coverage is provided on a “claims-made” basis, which requires that a lawsuit be filed during the period in which the policy is effective. Typically, coverage is contingent upon the policyholder obtaining an opinion of non-infringement from the USPTO or similar government body and excludes willful acts of infringement. Because these policies are defensive in nature, they provide no coverage to policyholders in enforcing their IP rights against an infringing party.

2. Multi-peril coverage. Some products provide coverage for additional costs incurred as a result of infringement claims against a policyholder, including insuring against losses sustained from liability for infringement of another’s IP. Multi-peril policies cover “perils” commonly seen in IP litigation, such as business interruption, loss of commercial advantage, loss of trade secret advantage, and the cost of redesign, remediation, and reparations that may result from protracted litigation.

3. Offense-based coverage. Policyholders can also obtain coverage for reimbursement of costs associated with enforcing IP rights. Known as “abatement policies,” these provide reimbursement for the use of expert witnesses as well as other costs incurred in proving infringement. Coverage is provided on a “claims-made” basis, which requires that the infringing conduct take place during the policy period. To establish coverage, policyholders must typically obtain a legal opinion stating that they hold the rights to the IP. Abatement policies bar coverage for willful acts by the policyholder that may have given rise to the infringing conduct.

The abatement policy has another feature unique to the insurance industry: monetary damages awarded for infringement are allocated between the policyholder and the insurance company. The insurance company, however, will not receive amounts exceeding 125% of the costs paid toward litigation. While an abatement policy allows a smaller company to enforce its rights against a larger one with more resources, this type of coverage has been criticized since insurance companies might pursue only litigation for cases considered to promise a successful outcome. Moreover, any monetary award made against the infringer does not go back into the policyholder’s pocket. Instead, amounts recovered through judgment or settlement are used to replenish the funds available to the policyholder in the event that future claims are made under the policy.

Source: WIPO News and Events

Posted August 10th, 2011 under Tech Transfer

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