INSIGHT

IP insurance: are you sure it's too expensive?

Insurance Intellectual Property Industrials Patents & Trade Marks

In brief 3 min read

IP disputes can be costly. One way firms can manage this risk is to obtain IP insurance. Once regarded as too expensive to work, recent developments in the market suggest that, for smaller businesses in particular, protection may now be more affordable. Graduate Stefan Ladd discusses below.

What is IP insurance?

IP insurance provides protection to the policy holder in respect of certain IP risks. Depending on the policy, the protection may extend to:

  • the costs of enforcing IP rights against infringers;
  • the costs of defending infringement claims; and
  • the costs arising from licensing disputes.

The changing landscape for IP insurance

IP insurance was once regarded as too expensive. However, recent developments in the insurance market suggest the landscape may be changing. With an increase in the number of policies now aimed at smaller businesses, certain insurance providers are now offering IP insurance at more affordable rates. Further, the rise of automation has seen the application process become increasingly streamlined.

Why get IP insurance?

Many businesses are inadequately insured against the costs associated with IP disputes. Whether a business needs to enforce its IP rights, or defend itself against infringement claims, the costs involved can be significant. These concerns are heightened in the case of smaller businesses for whom the cost of litigation alone can discourage the pursuit of proceedings, even in circumstances where they have a strong legal case.

In that context, IP insurance offers a number of important advantages:

  • it can assist businesses to better manage IP-related risk by providing cover at a fixed rate; and
  • it can deter third parties from infringing the policy holder's rights or bringing frivolous claims against it.

Key considerations

For businesses considering obtaining IP insurance, there are several factors to consider. In particular:

  • does the business hold IP, and how valuable are those rights to the business as a whole?
  • does the business operate in an industry in which IP disputes are commonplace?
  • is the business already protected from the costs of any potential IP dispute under an existing insurance policy?
  • what extent of IP-specific coverage is appropriate to ensure the business is adequately protected?

Limitations of IP insurance

There will, of course, be limits to the scope of protection provided by an IP insurance policy. For example:

  • the insurer's liability may be capped;
  • the policy may not protect the business in certain circumstances, such as where it has knowingly infringed a third party's IP or where the insurer is not satisfied the policy holder's case is likely to be successful; and
  • even where the business is protected under the policy, the insurer may be entitled to withdraw its support in particular situations, such as where there ceases to be good prospects of the proceedings being resolved in favour of the insured.

As such, businesses should always consider the terms and conditions of any policy before electing to proceed.

Conclusion

IP insurance can provide an important risk management tool for businesses. Further, with the emergence of IP insurance policies specifically geared towards smaller businesses, such protection may now be more accessible.

IP is only valuable to a business if the relevant rights can be enforced or defended. It is important for businesses not to be prevented from enforcing or defending their IP by prohibitive cost. As such, all businesses should now consider whether to take out IP insurance.