Intellectual Property Litigation Insurance Sudipta De Sarkar.
Significance : An Overview.
Huge significance in matters of a Company’s assets; Could be as high as 75-80% of the assets.
Probability exists for unintentional infringement of another’s IPR in the course of doing business.
Traditional insurance policies doesn’t cover such risks.
IPRs are now considered as business commodities with both upside and downside risks.
Developed countries like US, EU etc. are serious about insurance of their IP
Patent Infringement Litigation in the US.
Scenario in the US.
Two situations…… The solution for both lies in IP Insurance . Company A Company B This company is a start up and is thinly capitalized. Unfortunately, it is also the defendant in an IP law suit. The cost of defending the suit is causing extreme cash flow problems. What will happen if the decision goes against the Company and it is made to pay huge sums as damages? This Company is suing another Company, which is suspected to be thinly capitalized. The plaintiff Company is unsure about fund from where the other Company will be paying the settlement or monetary damages in the case of a favourable judgment.
Change in view……
IP insurance now an integral part of IP risk management strategy.
Used to cover a wide range of risks, particularly legal costs.
However, “invisible costs” like company image and investor confidence still beyond coverage.
New methods being promoted to increase coverage.
IP Specific Policies.
IP issues may also be addressed by……
CGL Policy and the “advertising injury” clause.
Advertising injury is defined as an injury arising out of one or more listed offences, including “misappropriation of advertising ideas or style of doing business, and infringement of copyright, title or slogan. ”
Source : CGL Policy, ISO 1986.
IPRs and the clause……
Trademarks : Courts in US divided over the possibility of covering TM claims under the clause.
Copyrights : Possible in cases of infringement of the copyright holder’s display, dissemination or performance rights.
Trade Secrets : Possible in cases of disclosure of secret without consent of the holder, and accomplished via advertising.
Patents : Generally does not cover patent infringement claims.
However, the US federal patent statute has made “offering” for sale as a ground for infringement. But the scenario is still unclear as to whether it will come under the coverage of the clause.
Mandatory Insurance Policies(MIP)
A Report by CJA Consultants, in 2006, for the European Commission, suggests introduction of compulsory Patent Litigation Insurance (PLI).
Benefits included more settlements, sophisticated negotiations and benefits for both industry and SMEs.
Critics deem such scheme to be unnecessary
cost intensive and will increase litigation.
A Geneva based group, Green IP Project, has advocated MIP, attempting to divert the accrued funds for further research in public utility services, in the field of “neglected diseases” and environmental research.
Role of Counsel
Evaluate the company’s traditional insurance programs for present IP/Antitrust litigation;
Policy determination for enhancing coverage at insurers expense;
Advise on pursuing litigation when claims for settlement or contribution arises, etc.
Merits of IP Insurance
IPRs can be enforced at affordable cost;
Deters potential IP infringement;
Increases IP resale value;
Increases emphasis on R&D;
Improves the quality of IPRs, benefiting the society and promoting social development.
Demerits of IP Insurance
IP insurance schemes like PLI may increase cost of obtaining a patent;
Increased coverage will increase litigation;
Increased pressure on national IPR offices to verify authenticity of insurance certificates;
Increased influence of insurer in determining outcome of litigation process;
Patent Troll behaviour may rise.
Suggestions & Recommendations
Analyse new areas for expanding coverage;
Greater co-operation between all the factors involved in the process;
Identify existing barriers and address the concerns of critics;
Increase monitoring of IP portfolios;
Increase scope for ADR-arbitration and mediation;
Advantages of the scheme outweighs the disadvantages;
Developing Countries like India should adopt these practices;
If monitored properly, will be a boon for the SMEs;
Overall improvement of IPR quality and social progress.