Everyone knows that one of the first things you do once you’ve bought a house or a car is to get it insured, and there are many different options available to allow you to do so. But what about your intellectual property rights? Is it a good idea to insure those as well, and how would you go about doing it?
Paul and Ian Wishart from Sybaris Legal & IP, a firm specialising in IP insurance, gave a presentation on this topic at Keltie LLP which this IPcopy writer attended to find out more.
IP insurance covers all types of IPR, from patents and trademarks to designs and copyright and even trade secrets and unfair competition. Insuring your intellectual property rights (or IPR) can be a selling point for potential investors, as it shows that you have seriously considered the value of your product or service, have carried out some due diligence on your own, and likely have a solid business plan in place. In addition, IP insurance is useful as a deterrent for potential competitors (for example, if the presence of IP insurance is advertised on a company’s website – see sample deterrent stamp below), who will think twice about copying your product since there is a real risk that you will have the means to follow through on an infringement suit.
Compared to car insurance, where policies for cars of the same age and model generally start off the same and then are tailored slightly to fit the needs of the particular customer, IP insurance is a completely bespoke service, as the relevant IP assets, situations and needs of each customer vary greatly in each case. Unfortunately, this means that IP insurance doesn’t come cheap.
What does IP insurance cover? Well, in the event that you are sued or you decide to sue an infringer, your IP insurance policy will cover your legal fees up to a particular value that you choose (usually somewhere between £100,000 and £5 million). In addition, depending on the agreed terms, the policy can also provide damages cover, as well as cover for contractual indemnities (for example, when requesting interim injunctions, it is often necessary to give a cross-undertaking to compensate the injured party if it later transpires that the injunction was wrongly granted).
Obtainable IP insurance comes in two main forms: Before-the-Event (BTE) insurance, which is similar in principle to the common or garden variety of insurance policy you would normally take out for your house or car; and After-the-Event (Insurance), which is designed to provide cover for those already engaged in a dispute or litigation. This latter type of insurance can be a very useful type of cover to obtain, as ATE insurance pays the other side’s legal costs if you lose a case that you do not have BTE insurance for. In addition, litigation funders will usually require that ATE insurance is in place before committing to providing the funds, as it has been held to be the case in court (1,2) that a litigation funder can be held liable for any adverse costs up to the amount that they funded. Unsurprisingly therefore, ATE insurance is significantly more expensive than BTE insurance, as it effectively provides cover for a customer with a ‘pre-existing condition’ exclusion (such as are common in medical insurance).
Largely, potential customers will normally consider ‘standard’ BTE insurance, unless they are already involved in a specific dispute. In BTE insurance, as with normal car or house insurance, the customer will usually take out a policy (for specifically declared IPR) that is renewable annually, although the premium for each policy will depend on factors such as the number of assets to be covered, the type of assets, the jurisdiction(s) in which cover is required, as well as the upper monetary limit and level of excess selected. In general, trademarks seem to be cheaper to insure than patents, most likely due to the complexity of the patented technology and the sheer number and complexity of the issues that will need to be considered during litigation proceedings. Likewise, obtaining insurance cover in generally more litigious countries (such as the USA), can be more difficult and correspondingly more expensive.
For a simple trademark in the UK, with a low indemnity limit of around £100,000 and an excess of around £2,500, the annual premium would be around £1,000. Of course, premiums can be lowered at the cost of a high excess.
The process of applying for IP insurance also appears to be relatively simple – you simply provide details of the IP assets that you wish to insure, some background about your business and any pertinent information you might have about potential competitors. This is then used by the brokers (who act as an intermediary between the customer and the insurer) to carry out a risk assessment in conjunction with the insurers, and ultimately issue a quotation. This process is also relatively quick – in some cases, it can be possible to go from enquiry to getting ‘on risk’ within about 2 weeks, as all the consideration that is required is a promise from you to pay the quoted premium.
In summary, IP insurance (whilst not being particularly cheap) does seem to be relatively simple to obtain, and certainly appears to be a good investment, particularly for start-ups and SMEs in the software and biotech industries, as these are crowded technological fields that are prone to litigation, and the cost of initiating or defending infringement actions in the civil courts can (occasionally) make or break the company.
Samantha Walker-Smith 22 September 2016