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Insuring Your Intellectual Property
Learn how insuring your intellectual property is essential to further protect your company's most vital assets.

Home » Business Insurance » Insuring Your Intellectual Property

Insuring Your Intellectual Property

Learn how insuring your intellectual property is essential to further protect your company's most vital assets.
As intellectual property becomes a vital part of more firms’ assets, businesses must consider the additional exposures. Several types of intellectual property are protected under federal law: trademarks, copyrights, patents, trade dress, and trade secrets. To help protect your business, there are two types of intellectual property coverage available: the first protects a company sued for infringement by paying for legal defense, and the second helps pay the legal expenses of suing an alleged infringer.
 
If the threat exists that (1) your company could be sued by a competitor for infringement or intellectual property theft, or (2) you do not have the funds to cover legal fees associated with defending your patent or trademark, you must purchase this coverage. Defending infringement litigation can cost hundreds of thousands of dollars, not including the cost of damages and prejudgment interest. In patent infringement cases, attorney’s fees can easily top $1 million.
 
Budgeting and planning for the protection of intellectual property rights may save your company a significant amount of capital; it may also help keep your business viable when legal bills accumulate rapidly. There are several options to cover these exposures: the “advertising injury” provision in the standard Commercial General Liability policy; endorsements to Errors and Omissions policies; and specialized policies offered by certain insurers designed explicitly to protect intellectual property rights.
 

Commercial General Liability Policy – Advertising Injury

The Commercial General Liability Policy, or CGL, offers broad coverage and a standard liability policy. Coverage for an advertising injury often falls under Coverage B in a CGL. Any act by the insured that somehow violates or infringes on the rights of others (referred to in the policy as an offense) is the subject of personal and advertising injury liability coverage. However, only those acts listed explicitly in the policy are covered. The coverage under the “advertising injury” provision is limited to injuries directly related to the advertisement. Therefore, the policy covers debts owed by the insured party due to claims filed against it.
 
Coverage B policyholders are sometimes covered in cases relating to trademark infringement; however, copyright claims are only successful where they are directly related to advertising, and patent claims are rarely covered under the “advertising injury” provision. The cases which allow for coverage in a patent infringement case are generally limited to instances in which a court finds contributory infringement or inducement to infringe through an advertising medium. Since the “advertising injury” provision in a standard CGL is limited, many businesses consider additional coverage.
 

Special Endorsements and Policies

Beyond the CGL, specialized policies can be better suited to a business’s unique exposures. Errors and Omissions liability policy endorsements can vary in focus from media and communications to patent infringement. Note that these policies have not been the subject of much litigation, and therefore, judicial guidance on coverage determinations is comparatively limited. It is essential to consider multiple carriers since available coverage varies widely from carrier to carrier.
 

Infringement Defense and Abatement Insurance

A third option relates primarily to patents, though riders for copyrights and trademarks may be available. Carriers have developed policies specific to intellectual property, generally with patents. Concerning patents, there are three basic policy types: (1) defense and indemnity; (2) defense only; and (3) offensive, or infringement, abatement insurance.
 
A defense and indemnity policy would provide defense coverage in a patent infringement suit and, if the party in question is found liable, would pay for damages, including prejudgment interest. Much like it sounds, a defense-only policy covers only the cost of defense and does not cover damages awarded to the successful party. In contrast, an offensive policy covers only the costs of pursuing an infringer. Certain carriers will amend some of the above-mentioned policies to include trademark and copyright infringement endorsements for an additional premium.
 

Exclusions to Coverage

In addition to special exclusions, there is a general exclusion to the CGL stating that there is no coverage “for an offense committed by an insured whose business is advertising, broadcasting, publishing or telecasting.” With the increase in claims, many carriers are drafting exclusions that specifically omit coverage for copyrights that fall outside of infringement of copyrighted advertising materials, patents, trademarks, and the like.
 
It is essential to be aware of the exclusions to any policy that you purchase. The most common exclusions specified in intellectual property policies are willful infringement, anti-trust violations, infringement existing or known on the policy’s effective date, and criminal acts.
 

Asserting Coverage

To maximize coverage, there are several steps that your company should follow. Failure to investigate coverage’s existence promptly can absolve a carrier of liability and create grounds for a malpractice case against the intellectual property legal counsel. While courts have held outside intellectual property counsel liable for failure to pursue coverage determinations, companies should still proactively recognize and review the potential for insurance coverage to protect their intellectual property assets.
 
  • If a claim has been asserted against your company, you must notify your carrier. Notifying your carrier immediately is in your best interest because a delay could be grounds for denying coverage. If a formal complaint has been served on the company, the following six steps are recommended.
  • Counsel should analyze the policy or policies to determine under which policies the claim may be covered. In this step, the complaint should be closely examined for types of issues raised and should be compared to the relevant policy clauses.
  • The company should promptly tender the defense to the carrier. All policies that may provide coverage should be identified in the tender, including the specific clauses.
  • Demand a prompt response to the tender. If a sufficient extension of the time to answer is not granted, a response to the complaint may be due before the issue of coverage is resolved. If that is the case, then defense counsel should be retained until the issue of coverage is determined.
  • Review the carrier’s response to the company’s tender. The carrier may accept defense; it may defend under a reservation of rights; the carrier or the policyholder may seek a declaratory judgment for a coverage determination, or it can reject the tender.
  • If there is a conflict in the interests of the carrier and the policyholder, the policyholder should insist on the right to control the litigation and should further insist upon independent counsel.
  • Be diligent about which documents are shared with the carrier, especially in cases where the carrier has reserved its rights to deny coverage. While the policyholder must cooperate with the carrier, in a case where a reservation of rights to deny coverage has been tendered, the production of certain documents to the carrier could result in the waiver of the attorney-client privilege as to the subject matter of the produced documents.
As intellectual property becomes a vital part of more firms’ assets, businesses must consider the additional exposures. Several types of intellectual property are protected under federal law: trademarks, copyrights, patents, trade dress, and trade secrets. To help protect your business, there are two types of intellectual property coverage available: the first protects a company sued for infringement by paying for legal defense, and the second helps pay the legal expenses of suing an alleged infringer.
 
If the threat exists that (1) your company could be sued by a competitor for infringement or intellectual property theft, or (2) you do not have the funds to cover legal fees associated with defending your patent or trademark, you must purchase this coverage. Defending infringement litigation can cost hundreds of thousands of dollars, not including the cost of damages and prejudgment interest. In patent infringement cases, attorney’s fees can easily top $1 million.
 
Budgeting and planning for the protection of intellectual property rights may save your company a significant amount of capital; it may also help keep your business viable when legal bills accumulate rapidly. There are several options to cover these exposures: the “advertising injury” provision in the standard Commercial General Liability policy; endorsements to Errors and Omissions policies; and specialized policies offered by certain insurers designed explicitly to protect intellectual property rights.
 

Commercial General Liability Policy – Advertising Injury

The Commercial General Liability Policy, or CGL, offers broad coverage and a standard liability policy. Coverage for an advertising injury often falls under Coverage B in a CGL. Any act by the insured that somehow violates or infringes on the rights of others (referred to in the policy as an offense) is the subject of personal and advertising injury liability coverage. However, only those acts listed explicitly in the policy are covered. The coverage under the “advertising injury” provision is limited to injuries directly related to the advertisement. Therefore, the policy covers debts owed by the insured party due to claims filed against it.
 
Coverage B policyholders are sometimes covered in cases relating to trademark infringement; however, copyright claims are only successful where they are directly related to advertising, and patent claims are rarely covered under the “advertising injury” provision. The cases which allow for coverage in a patent infringement case are generally limited to instances in which a court finds contributory infringement or inducement to infringe through an advertising medium. Since the “advertising injury” provision in a standard CGL is limited, many businesses consider additional coverage.
 

Special Endorsements and Policies

Beyond the CGL, specialized policies can be better suited to a business’s unique exposures. Errors and Omissions liability policy endorsements can vary in focus from media and communications to patent infringement. Note that these policies have not been the subject of much litigation, and therefore, judicial guidance on coverage determinations is comparatively limited. It is essential to consider multiple carriers since available coverage varies widely from carrier to carrier.
 

Infringement Defense and Abatement Insurance

A third option relates primarily to patents, though riders for copyrights and trademarks may be available. Carriers have developed policies specific to intellectual property, generally with patents. Concerning patents, there are three basic policy types: (1) defense and indemnity; (2) defense only; and (3) offensive, or infringement, abatement insurance.
 
A defense and indemnity policy would provide defense coverage in a patent infringement suit and, if the party in question is found liable, would pay for damages, including prejudgment interest. Much like it sounds, a defense-only policy covers only the cost of defense and does not cover damages awarded to the successful party. In contrast, an offensive policy covers only the costs of pursuing an infringer. Certain carriers will amend some of the above-mentioned policies to include trademark and copyright infringement endorsements for an additional premium.
 

Exclusions to Coverage

In addition to special exclusions, there is a general exclusion to the CGL stating that there is no coverage “for an offense committed by an insured whose business is advertising, broadcasting, publishing or telecasting.” With the increase in claims, many carriers are drafting exclusions that specifically omit coverage for copyrights that fall outside of infringement of copyrighted advertising materials, patents, trademarks, and the like.
 
It is essential to be aware of the exclusions to any policy that you purchase. The most common exclusions specified in intellectual property policies are willful infringement, anti-trust violations, infringement existing or known on the policy’s effective date, and criminal acts.
 

Asserting Coverage

To maximize coverage, there are several steps that your company should follow. Failure to investigate coverage’s existence promptly can absolve a carrier of liability and create grounds for a malpractice case against the intellectual property legal counsel. While courts have held outside intellectual property counsel liable for failure to pursue coverage determinations, companies should still proactively recognize and review the potential for insurance coverage to protect their intellectual property assets.
 
  • If a claim has been asserted against your company, you must notify your carrier. Notifying your carrier immediately is in your best interest because a delay could be grounds for denying coverage. If a formal complaint has been served on the company, the following six steps are recommended.
  • Counsel should analyze the policy or policies to determine under which policies the claim may be covered. In this step, the complaint should be closely examined for types of issues raised and should be compared to the relevant policy clauses.
  • The company should promptly tender the defense to the carrier. All policies that may provide coverage should be identified in the tender, including the specific clauses.
  • Demand a prompt response to the tender. If a sufficient extension of the time to answer is not granted, a response to the complaint may be due before the issue of coverage is resolved. If that is the case, then defense counsel should be retained until the issue of coverage is determined.
  • Review the carrier’s response to the company’s tender. The carrier may accept defense; it may defend under a reservation of rights; the carrier or the policyholder may seek a declaratory judgment for a coverage determination, or it can reject the tender.
  • If there is a conflict in the interests of the carrier and the policyholder, the policyholder should insist on the right to control the litigation and should further insist upon independent counsel.
  • Be diligent about which documents are shared with the carrier, especially in cases where the carrier has reserved its rights to deny coverage. While the policyholder must cooperate with the carrier, in a case where a reservation of rights to deny coverage has been tendered, the production of certain documents to the carrier could result in the waiver of the attorney-client privilege as to the subject matter of the produced documents.

The Last Word

Insuring your company’s intangible assets and its liability is a vital part of risk management. Insurance for both infringement of intellectual property and for an assertion of infringement against your company can provide financial security and peace of mind. Contact an InsureGood Advisor to compare your desired coverage to the specifically named offenses in policies based upon enumerated risks and will examine any exclusions that may weaken the coverage you seek. We are skilled at identifying the perils associated with intellectual property and high-technology companies and can assist you in selecting the right policy for you. 

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