IP: A new way to pay for intellectual property infringement litigation

New IP insurance allows smaller companies to defend their intellectual property

Probably you are aware that some intellectual property insurance covers you for your alleged infringement of someone else’s IP property. It covers your legal defense and your liability should you be found to be at fault.

However, there is a new type of IP insurance for the initiation of a case against an infringer of your IP property, where you are the plaintiff—not the defendant. The beauty of this insurance is that it gives you resources that you may not otherwise have to protect your IP property, and allows you to act quickly. It is called “intellectual property abatement/enforcement” insurance.

Imagine you’re a small company with limited financial resources, and have a successful product and/or advertising campaign. One day a bigger company, with greater financial resources, brings to market a similar product and/or campaign, essentially stealing your business away. Because their product and/or campaign is so similar to yours, you hire an attorney to review the similarities, and that attorney tells you that on the merits, you’ve got a strong infringement case. The next question to ask is: “Can I afford to litigate?” The answer: Probably not.

The harsh reality is that you probably can’t afford to fully litigate a case against a better-financed opponent. Litigation, besides being time-consuming, is exceedingly expensive. The big company knows that you, the little company, won’t be able to go the distance. If anything, bringing a case with your limited financial resources would leave you vulnerable to settling for far less than you deserve.

This new IP insurance turns the tables. With this insurance, if a company infringes on your IP, you will now be able to go the distance; and trust me, your adversary—when analyzing its litigation versus settlement options—will fully understand this. You will have leverage.

This type of insurance is well worth your consideration, and here are a few things to know in advance:

  • Your IP property (trademark, patent, copyright) must be registered with the U.S. Patent and Trademark Office or the U.S. Copyright Office.
  • If you file a claim, the insurance carrier will require an expert opinion from a neutral IP attorney (who is approved by the carrier, and who will not be involved in the litigation).
  • If the expert’s opinion is that your IP rights are being infringed, then the carrier will authorize your case to receive benefits.
  • Expect a co-pay (there is a self-insured retention amount that you need to spend).
  • Insurance policies have coverage limits

One caveat is that if you win the case, some of these policies may require you to reimburse the carrier for the cost of the litigation (although not all policies require this). This reimbursement obligation is triggered when you receive any type of benefit as a result of the case—not just a financial benefit. For example, if your case won an injunction that stopped the infringer (but didn’t recover money) then you obtained a benefit, and you would need to repay the carrier for what it paid for the prosecution of the litigation.

These policies can be a difference maker for small companies who otherwise cannot afford to fully litigate. They can:

  • Help prevent the loss of market share by enabling IP owners to quickly and forcefully sue infringers
  • Reduce cash drain on operations due to a pricey litigation
  • Reduce pressure to settle for less than you deserve, while helping you drive a harder bargain in settlement negotiations

I would even venture to say that such a policy might help attract investors since it is an asset, i.e., the policy may ease their concerns about financial harms caused by knock-off artists and counterfeiters.

When considering such a policy, read it carefully, have a lawyer review it, and do a cost-benefit analysis to learn whether it’s worth the premium, the co-pay, the self-insured retention and whatever limitations are set forth in the fine print. In the right situation this kind of policy can make all the difference.

One supplier of such infringement abatement insurance is the Intellectual Property Insurance Services Corp.. It was the "game changer" for a client of mine in a recent copyright and trademark infringement case where the client could not have afforded to litigate otherwise.

Contributing Author

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Gregory Sater

Greg Sater is a leading advertising attorney who has built an intellectual property litigation practice in advertising, marketing, trademark, copyright, patent, trade dress, trade secret...

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