American business owners protect a lot of things when it comes to insurance. They purchase property insurance to cover all of their contents. There's liability insurance to protect companies from lawsuits for slips and falls, errors and omissions, products, personal and advertising injuries, and from actions of the directors and officers. There's liability for employment practices, automobiles, the Internet, etc. Companies also protect their employees with workers compensation, health insurance, disability, life insurance and other group benefits. The list could go on and on. However, there's one thing that companies fail to buy insurance to protect, and it's the main thing that their company was built upon. Most American companies are built around their intellectual property (IP), yet few of them protect it.
Intellectual property comes in many forms, but if you're in the business of selling something unique, then intellectual property is your business. For instance, say you are a software development company. You've developed a great software program and it's selling like hotcakes. You can have a fire, lose all of your computers and furniture, and eventually get back up and running because you have a great program. You can have a liability suit and eventually recover your losses because your making money from your program. You can even lose an employee, and although it will be difficult, you can eventually train someone to take his or her place. But, what you cannot afford to lose is your product.
The laws and procedures in place in the United States to protect intellectual property have been a cornerstone in the foundation of this nation's commercial and industrial prosperity. People all over the world know that if they create a new product they will have the ability to market and sell their product without the fear that someone else will simply copy it and try to sell it for less under another name. This protection gives inventors and innovators the incentive to work tirelessly to improve the world. It also gives venture capitalist the sense of security knowing that the investments that make will be protected. However, defending your company and pursuing lawsuits in the United States legal system can be very costly. This cost can be a deterrent from filing an infringement claim or defending one's self from infringement claims
So, how do you know if intellectual property insurance is right for your company? Number one, before you proceed further, you must ask yourself if your intellectual property is properly patented and registered. If you're unsure, or you are sure, that it's not, intellectual property insurance is not right for you, yet. What you need to do is contact an intellectual property attorney, or call me, and I will put you in touch with one.
After you have the first process taken care of, ask yourself, what percentage of my company's total revenue does this intellectual property represent? If this segment of my revenue were drastically reduced or eliminated due to infringement by a competitor or unsuccessful defense in a lawsuit brought against my company, what would be the impact on the company's business plan? Another question you need to ask yourself is does our company have the liquid capital necessary to pay the legal costs of a successful enforcement or defense of an intellectual property infringement suit?
So who creates intellectual property and should protect themselves with this insurance?
Manufacturing companies - if they are manufacturing their own product or they have an intellectual property associated with their manufacturing process.
Technology Companies – Software developers, electronics manufacturers, and other technology companies that have patented their services or products.
Biomedical and medical equipment and device manufacturers and designers.
Textile and Fashion designers and manufacturers
Engineering Firms
Now that you can understand the importance of intellectual property insurance, and who should purchase IP insurance, we should discuss what the insurance covers. The first type of IP insurance is called, "Defense Cost and Damages Reimbursement Insurance". This coverage provides litigation expense reimbursement for IP infringement suits brought against the insured during the policy period, assertion of patent invalidity counterclaims in covered litigation, and re-examination proceedings initiated by the insured as a defense to the covered litigation. Intellectual property damages reimbursement insurance can be added by endorsement. Policy limits start as low as $100,000 and could be increased to fit the company's needs. Most policies cover inside the United States, its territories and districts, but foreign coverage can be added by endorsement.
When a company faces a situation in which they need to defend themselves against an intellectual property infringement suit, the financial ability to obtain the most qualified legal counsel could be the difference between winning and loosing, survival and bankruptcy.
Not all of the risks stemming from intellectual property have to do with defense. There are many companies out there that can go after the intellectual property that you've worked so hard to create and try to pirate, or reverse engineer your designs. Intellectual property infringement abatement insurance reimburses litigation expense for authorized litigation brought by the insured against an alleged infringing company during the policy period. The policy also pays, in authorized litigation, for Defense of Patent Invalidity counterclaims, re-examination in the Patent Office of the insured's patent if petitioned by the Defendant in an attempt to invalidate the insured's patent, and lastly, the reissue costs in an effort by the insured to strengthen the patent claims. The cost associated with enforcing your intellectual property can be very high. This creates just as much of a risk as you face by not properly insuring your defense.
The risk you face is very high. There are four ways to deal with risk: risk retention, risk avoidance, risk mitigation, and risk transference.
Risk retention is what many companies, probably your company included, are practicing now. Risk retention can also be called self-insurance. But there are two types of self-insurance: funded and unfunded. This goes back to the question I asked earlier. Does your company have the liquid capital necessary to acquire qualified legal representation when you are challenged on your intellectual property? And if you company does have it, what would be the long-term effects of using that liquid capital for defense costs as opposed to business development? If you were self-insured, but unfunded, then what would happen to your company if you could no longer use your intellectual property? Would it look something like a captain without a ship?
The second way to handle risk is risk avoidance. This is also not a viable option. Risk avoidance is abandoning intellectual property, or setting up licensing agreements, from a weak position, to sell your IP through someone else.
The last two are what your company should be doing, risk mitigation and risk transference. Risk mitigation can be done by hiring a highly qualified intellectual property attorney. In addition to the attorney, mitigation will also be a focus when you contact your intellectual property insurance agent go through the application process.
Lastly, but most importantly, risk transference is done by purchasing insurance. You pay your premium, and in return, the insurance company takes on the risk that your company previously had. By effectively mitigating and transferring your risk you can prevent losing important capital for defense spending and reward settlements. Also, your company now has the funds necessary to put a strong front against the suit.
Everyday companies all over the world are creating new products and innovating existing products and creating new procedures and services that change our lives. These geniuses put in time and money and work tirelessly to improve society. In our capitalist society these innovators and creators are rewarded with great prosperity. However, there are pirates and thieves out there looking to prosper without doing the work. There are also opportunities for mistakes to take place. In order to protect your company, your livelihood, and the livelihood of your employees you should look into purchasing intellectual property insurance. Premiums are based on the strength and numbers of your patents and can cost less that the price of your property insurance.
