Risk Management and Intellectual Property …

1 Licensing Analytics Insights Risk Management and Intellectual Property insurance Coverage Don Glazier As Intellectual Property (IP) assets continue to increase in value and importance to more companies, the need to protect those IP assets increases. Many look to insurance as part of the solution to help manage the risks associated with claims of IP infringement. The marketplace offers various risk transfer solutions that warrant consideration as part of any entity's risk Management strategy. Introduction Among the risks facing companies, those asso- ciated with Intellectual Property (IP) present less Basic risk Management analysis involves assessing obvious insurance solutions. the probability of an event and multiplying it by its impact. It goes without saying that IP assets are certainly worthy of protection and risk Management consid- Applied at a personal level, the chance of a eration.

2 For many organizations, IP represents the fire burning my house to the ground or a repair- largest and most valuable asset, providing its biggest man being seriously injured are small. However, competitive advantage. And, the importance of IP. the impact of those events are potentially huge continues to increase. nowhere to live, my largest investment gone, and a As an indicator, the number of patents granted catastrophic financial judgment against me. by the United States Patent and Trademark Office In business, risk assessment is part of manage- continues to increase steadily, increasing by 14 per- ment's responsibilities and many companies have cent over last year. a dedicated risk manager or an entire department While robust risk Management can decrease focused on this area. insurance represents perhaps both the likelihood and severity of infringement the most important element for an enterprise's risk claims, resolving these matters many times involves Management strategy.

3 An expensive legal battle. Stripped to its core, insurance simply involves Consequently, infringement has the potential to shifting a particular risk to another entity, which diminish the value of IP assets and potentially an agrees to accept it for an agreed upon price. risks entity's financial survival. of fire, wind, and other insurance perils have well- established avenues of coverage through Property Despite the risks presented in the IP area, the insurance . insurance marketplace does not as of yet offer a single, all-inclusive insurance product addressing all Companies address their liability exposures facets of the exposure. through various lines of insurance including As described below, the insurance industry does, directors and officers liability insurance for claims however, present solutions for certain aspects of against Management and all types of variations IP risk, either through more widely held insurance of professional liability errors and omissions products or more specialized offerings.

4 Coverage. 56 INSIGHTS SPRING 2016 Multicoverage Policies Comprehensive General Liability insurance Most business entities purchase some form of comprehensive general liability insurance (CGL) coverage. Those poli- cies are a logical first place to look upon receipt of an IP-related lawsuit. Depending upon what is alleged in the suit, CGL policies may respond with defense and indemnity, but are limited in scope and do not provide blanket coverage for all types of IP infringement claims ranging from copyright infringe- ment to patent infringement. Under the insuring provisions in CGL policies, there is often coverage for what is known as advertising injury. These policies are most commonly purchased Depending upon the wording of the particular by media and entertainment insureds including policy, coverage for advertising injury often exists traditional and online publishers, broadcasters, and with respect to claims made against the insured companies with significant marketing activities.

5 Any for copyright infringement as well as trademark company with a market-facing presence may benefit and trade dress (product design and packaging) from looking at media liability insurance . infringement. These policies cover liability resulting from The alleged infringing activity must be a direct a wide range of claims, which depending on the result of the actual advertising itself. Patent infringe- insured's particular policy terms, may include alle- ment is often excluded from coverage. gations of defamation, disparagement (including product disparagement), copyright infringement, Since alleged infringement can occur in many plagiarism, and other unauthorized use of material, situations not involving advertising, it is apparent names, or trademarks. that a CGL policy, even with advertising injury liability coverage, may only offer limited value in IP Media liability policies can be coupled with an risk Management .

6 Errors and omissions insuring section, which pro- tects companies from claims involving professional Another problem with the CGL policy cover- negligence in their work for customers. age is that an infringement can be construed as an intentional act, implicating a policy exclusion, and Media liability coverage is generally not written providing a basis for the carrier to deny coverage for on standard form policies. Instead, most media lia- the claim submitted. bility insurers manuscript policy forms to meet their insured's specific needs. In that regard, the policy In light of the fact that the CGL policy is not normally extends only to claims arising out of the normally considered a primary source of protec- insured's business, which is defined in the policy. tion for third-party claims based on allegations of IP infringement, there are a number of other The breadth of this definition can have a signifi- potential sources of insurance coverage for IP cant impact on the scope of coverage provided.

7 As related risks . such, careful consideration should be given to make sure this term accurately reflects all the entity's media activities prior to purchasing coverage. Media Liability insurance Media liability policies may extend coverage to claims that many times would otherwise be exclud- Cyber Liability insurance ed under other liability policies. Media liability Another line of insurance coverage designed mainly insurance is a specialized type of errors and omis- to focus on a non-IP-type of risk, but which may also sions insurance that offers protection against claims offer some protection from IP-related litigation is a brought by third parties. cyber liability policy. INSIGHTS SPRING 2016 57. While most attention related to cyber insur- Defense Only Policy ance focuses on data breaches and privacy issues, Due to the specialized and many times uniquely policies often provide multimedia liability coverage technical nature of patent litigation, defense costs similar to stand-alone media policies that provide are many times significant.

8 Because of this expo- protections for IP-related exposures. The policies sure, carriers may offer a policy only covering the may provide protection for liability stemming from defense cost portion of the total loss associated with claims alleging copyright, trademark, or other IP. a patent infringement claim. infringement claims. The policies would not cover the amounts need- ed to resolve the claim by way of paying for a settle- IP Only Policies ment or judgment. Nonetheless, defense only poli- cies can offer a valuable risk transfer option. Patent Only Policies The insurance marketplace has not embraced insur- IP Withdrawal Expense ance coverage for exposures associated with patents As not all patent litigation turns out in favor of the to the same extent as other Intellectual Property insured, insurers can offer a component of cover- risks such as copyright or trademark.

9 Patent expo- age to reimburse the insured for costs associated sures are different difficult to underwrite, adjust with removing a product from the marketplace as claims, and expensive to resolve. directed by a court. Some insurers who had ventured into insuring The insurer will cover the costs and expenses patent-related exposures suffered significant losses such as transportation to withdraw the product from and eventually exited that market segment. As a the distribution chain as well as relabeling, destruc- consequence, most policies that cover other IP tion and disposal of the product, packaging or label- exposure such as copyright or trademark will spe- ing materials. cifically exclude patent claims from coverage. There have been a few exceptions to those car- IP Abatement Policy riers not willing to consider patent-related risk.

10 Certain specialized insurers offer insurance prod- Enforcement or abatement insurance is a unique ucts of different varieties that can help serve as plaintiff's policy, which reimburses the litigation risk Management tools for those who either own expenses to enforce IP rights against infringers. The patents or are worried about claims from other insurance is available, however, only for insureds patent owners. who are likely to prevail in such claims. To obtain this coverage, outside independent patent counsel Besides patent coverage, these policies will also must provide an opinion that the patent in question cover alleged infringement for other types of IP is valid. rights addressed in other polices. The underwriting process involved in obtaining insurance for patent- The value in abatement coverage is that it pro- related claims is more involved than that for other tects companies who possess a valid patent but lines of coverage, but the insurance is available in cannot protect their asset because of the significant various forms.