Intellectual property insurance may not be appropriate for every business however you may find that IP insurance has numerous benefits.
About Intellectual Property (IP) and insurance
How can I learn more about the IP I may own and how to protect it?
All businesses have IP and it may well be your most valuable asset. Like other business assets you can get insurance to protect against risks associated with your IP. Much of this insurance (but not all) is aimed at businesses who have already secured IP rights. However, you can also protect yourself against inadvertently infringing the rights of others.
To decide if your business could benefit from investing in IP insurance you firstly need to recognise, understand and if appropriate, protect your IP. The Intellectual Property Office (IPO) has a range of free online tools to help you understand more about trade marks, designs, patents and copyright.
What is before the event IP legal expenses insurance?
‘Before the event’ or ‘BTE’ legal expenses insurance (LEI) policies can cover you against your own legal costs and/or the legal costs of someone you are in dispute with.
However, BTE LEI will only cover risk before a claim is made or before the possibility of a claim is known about or ought to be known about. In relation to IP, you can only get BTE cover if the (alleged) infringement has not yet occurred. A decision to take out BTE insurance is important and you should consider it as early as possible.
What types of IP Insurance products are available?
Insurance products can cover one or more rights and a variety of IP risks including:
- opinion only: covers legal costs of you obtaining an opinion on the likelihood of successfully enforcing or defending an IP claim (see also IPO patent and proposed designs opinions)
- enforcement and defence: covers legal costs of you taking action to stop others infringing IP rights and defending allegations of infringement. Can cover enforcement and defence either separately or together
- damages: covers any damages payable if you lost an infringement action
- validity: covers legal costs of defending challenges to validity of your rights
Other products which you might consider include:
- lost revenue: covers revenue lost as a result of you losing IP rights
- indemnity: covers liabilities arising under guarantees you give to third parties
- cyber: covers losses from a variety of cyber incidents, including IPR breaches
Some of these products may be more relevant and appropriate to your industry or sector than others. A broker will provide you with advice on this.
Domestic cover will be cheapest followed by cover for Europe, Worldwide cover excluding USA, Worldwide cover including USA. The premiums you pay will reflect the geographical cover you need. Taking out domestic cover early and expanding the cover as your markets grow could be cheaper than taking initial cover for a large geographical area.
Is IP legal expenses insurance the same as other types of insurance?
In numerous ways, IP legal expenses insurance works the same as other types of insurance. For instance, your premiums will be lower or higher depending on the perceived level of risk. If your business is in a sector where the technology is complicated or the market is highly competitive then the risks may be higher. In these sectors you should expect to pay more for a policy and some sectors may not be acceptable risks for insurers.
You should also expect there to be exclusions and excesses in IP insurance policies. The level of excess, the amount of any claim that you will have to pay before the insurer will begin paying, can sometimes be decided by you. You can use your excess to raise or lower the level of your premium. For the lower indemnity policies, excesses will typically start at £1000.
Another form of “excess” is co-insurance. This is a percentage of the costs of any claim, which you will have to pay. This means that you share the risk and costs. Insurers believe this can ensure that you more carefully consider your actions before making a claim and/or during a dispute. It is important that you carefully read and understand the policy terms and in particular the exclusion and excess clauses and that you discuss these and their implications with the broker.
Benefits and costs
Why might I purchase IP Insurance?
IP insurance may not be appropriate for every business: the price may be prohibitive because of the perceived risk. However, you may find that IP insurance has numerous potential benefits for helping protect your business assets:
- it can protect cash-flow: IP insurance can ensure that your dispute and particularly litigation, does not tie up capital which you could use to grow the business
- it can provide a deterrent: LEI can give you the power to take action to enforce your rights where your financial position might not otherwise allow it. If a potential infringer knows that your insurance will cover making a claim, then it may be less likely to infringe or more likely they will stop when challenged. Some insurers are happy for you to confirm in marketing literature or on websites that your IP is insured, alerting competitors that insurance is in place
- it can improve your negotiating position: If this deterrent does not work then the knowledge that you can go to court (as a last resort) can encourage the alleged infringer to negotiate or mediate. Insurance can provide you with the means to take vital defensive action meaning there will be no need to settle on poor terms
- it might allow your IP to be used as collateral and can add value: Insurance can reassure lenders and investors that the value will not be lost because you cannot fight infringers/invalidity challenges. Potential licensees will also know that you can take legal action if necessary and will be indemnified if required
Is IP insurance expensive?
There are certain criteria which the insurers will use to decide your level of premium.
For IP LEI these are:
- the type and level of cover you need
- the IP right(s) you want to insure
- the sector in which you operate
- the territorial scope of your protection.
The IP Enterprise Court (IPEC) is intended to provide a less costly and less complex alternative to intellectual property litigation in the general Chancery Division of the High Court, particularly for small and medium sized organisations. You can now buy policies which require lower levels of financial cover (‘indemnities’) as a result of the clearer costs in the IPEC. This means that premiums are lower for the levels of cover which these policies provide.
The insurer will indicate the actual premium once they have received your application. As a rough indication, £100,000 of cover can cost around £1,500 for patents (and less for other rights). Premiums can often be paid in instalments. You can buy these policies for sole use in the IPEC or you can get similar policies with slightly higher cover which will offer you greater flexibility.
Premiums will increase in line with the level of risks. Some types of cover for certain risks and technology sectors will need more careful consideration by insurers, particularly where they require higher levels of cover or wider geographical cover.
The on-cover and claims process
How do I get IP insurance cover?
As with other types of commercial insurance, you should consult a specialist broker who will advise you of the appropriate cover (see below). You may save time if you improve your understanding by looking at some of the policy summaries and case studies which are available on the internet.
A typical process could take you around 10 days and generally involves:
- you completing an application form;
- the broker assessing what cover is needed
- the broker getting quotes from one or more insurance partners;
- you discussing the quotes with the broker and what they mean to your business
- deciding which policy is best suited to your business.
This will usually involve an assessment of the likelihood of you being involved in a dispute. This assessment will not usually be shared with you and could result in cover not being provided. It may not involve assessment of the validity or strength of your right(s) at this point. Remember, cover cannot be provided if you are aware of an ongoing infringement or if you know/believe an infringement is likely to occur.
How do I make a claim?
The first step you would take would be to discuss the alleged infringement or dispute with your own lawyer/IP attorney. It may be that the assessment could be for them to take initial action or even not to make a claim on the insurance cover at all.
Whether that is the case or not, you should make the insurer aware of the potential dispute and that you are considering the way forward. You will not be able to recover any costs you incur before alerting the insurer or without their express agreement. In deciding on your strategy for resolving that particular dispute, you should consider again the policy clauses particularly in relation to your legal representation.
Can I use my own lawyer/attorney to resolve the dispute?
You should check the policy wording before starting any legal action. Sometimes a certain solicitor/patent attorney or one chosen from a panel must be used at least initially. Even if the policy allows you to use your own representative, the insurer will want to know that they have the necessary skills and knowledge to represent you. They will, therefore, be subject to the insurer’s approval.
Some insurers may maintain a list of preferred law firms with whom they will have negotiated an advantageous hourly rate. Using a panel lawyer could mean that the limit of your cover might stretch further.
If you have any subsequent dispute around your representative with the insurer which cannot be resolved, then you can ask the Financial Ombudsman to settle the matter.
What is the ‘reasonable prospect of success test’?
Whether you are insured or not, you will want to understand your dispute, and to assess if it went to court what your likely chance of winning the case would be.
If your policy includes enforcing your rights, insurers will require you to submit a legal opinion from a qualified person, confirming that the chances of successfully enforcing the claim are over 50% or in some cases 60% (this is what insurers call the ‘reasonable prospect of success’ or ‘RPS’ test). This is on the basis that no sensible business would pursue a court case if it is more likely to lose than win. Understandably, insurers are unwilling to fund such legal actions. You might consider that if you were not insured, would you think legal action in such a situation, a sensible commercial course?
Your advisor will take into account the validity of your right during the assessment of your dispute. It may be that this is not what you expect but understanding it would be necessary for deciding your strategy whether you were insured or not.
Policy documents will indicate whether it will be yours or in some cases, the insurer’s responsibility to assess the prospects of success. If the insurers do the assessment and you disagree with it, you should be able to submit an independent view in response. In all situations, you may find that an IPO Patent Opinion, which costs only £200, could help towards understanding the dispute and contribute to the RPS test.
What else might I consider in the policy wording?
The broker will advise you on all aspects of the policy including: what costs are covered if a claim is made and; what the insurer will pay out if your case settles early. The costs you recover will also be subject to any excess and co-insurance and must be reasonably and properly incurred. Sometimes you will need to seek the insurer’s permission on certain costs before they are incurred. Your legal representative will be able to advise you of these.
Your policy document will set out not only the ‘reasonable prospect of success’ test but also the terms of settling your dispute. The insurer will expect you to make every effort to recover costs from the opponent. In some cases, this can have the potential to lead to differences of opinion between you and insurer.
Resolving IP disputes and next steps
Are there cheaper ways I can better understand and/or resolve my dispute?
An Opinion from the IPO can help you negotiate a settlement or decide whether to proceed with full legal proceedings.
An opinion is not binding on you or others involved. You can still proceed with full legal proceedings in the court or with the IPO if you want to. An IPO opinion is an independent assessment of the main issues in a dispute, prepared by a senior examiner. The IPO bases opinions on papers you and anyone else involved submits.
Mediation is a type of alternative dispute resolution (ADR), a way of resolving disputes without going to court. It is cheaper and quicker than litigation and the outcome is usually beneficial to all parties. Most types of IP dispute are appropriate for mediation.
A court will expect you and the other party in dispute to have attempted to resolve matters before starting legal proceedings. It will also expect you to have properly considered a form of ADR and can impose financial sanctions if you do not. It can direct you to do so after you have started legal proceedings. Mediation allows you and the opposing party to talk about the dispute with the help of an independent person, a mediator. The mediator’s role is not to make a decision on the dispute but to help you to find a solution that both parties can accept.
There are other advantages to mediation. It can:
- involve discussion of a broader range of issues than those that are the subject of the litigation
- result in a positive outcome for all parties involved e.g. through licensing or commercial agreements
- help parties to maintain or even create business relationships
The IPO Mediation Service was set up to help businesses and individuals resolve IP disputes quickly, cheaply and effectively. It may be possible to arrange mediation over the telephone for some cases. The accredited mediators can help you to resolve disputes involving all rights.
Where do I go to find out more about IP Insurance?
Here you can find The Chartered Institute of Patent Attorneys (CIPA) and The Chartered Institute of Trade Mark Attorneys (CITMA) provides a list of companies that offer IP insurance products. Otherwise you might search ‘intellectual property insurance’ using a search engine or visit the BIBA website for more information.who understand and will advise you on IP Insurance. Alternatively you can visit the British Insurance Brokers’ Association website (under commercial/intellectual property). Given your potential investment in IP rights, it is likely that your IP adviser/attorney will raise the existence of IP insurance with you.