Insurance for IP Litigation Costs

If you own any intellectual property (IP) rights, are you concerned about your exposure to litigation, and how you will finance any legal action?  One way to address this concern is by means of an insurance policy.

There are two main types of IP litigation costs insurance available, depending on whether litigation has been threatened:

• Before the Event (BTE) insurance; and,
• After the Event (ATE) insurance.

BTE insurance provides cover in advance of litigation arising; like taking out car or property insurance before an accident occurs.  One benefit of BTE insurance for an IP rights holder is that it can act as a deterrent to potential infringers, as they may be less likely to start or continue to infringe if they know you have the financial means to pursue litigation.  Additionally, BTE insurance can provide reassurance to potential investors, and allow you to keep cash available for other uses, such as to invest in growing your business.  BTE insurance can also provide coverage for infringement of the rights of others.

Insurers will tailor policies to meet your requirements and can typically cover:

• the costs associated with enforcing your rights against infringers;
• the cost of defending yourself against allegations of infringement;
• the payment of damages for infringement; and/or,
• the loss of income if you lose your IP rights.

Generally, insurers will require you to obtain permission before incurring any litigation costs, and they may refuse to cover certain legal actions if your chances of success are less than 50 – 60% based on the opinion of appropriate legal counsel (e.g., a barrister).

Factors affecting premiums for BTE IP insurance policies can include:

• geographical coverage required: single country (e.g., UK only) is typically the cheapest, with international or worldwide being the most expensive, especially if coverage extends to the USA;
• the level of risk involved: some technology sectors are known to be highly competitive and litigious, and so premiums will tend to be higher;
• the limit of coverage required: e.g., policies covering litigation in the UK Intellectual Property Enterprise Court (IPEC) only will have lower premiums due to the cap on costs recoverable in this court; and,
• the excess amount payable by the insured: this can start at around £5000 for patents; however, if the perceived risk or limit required is high, or if US cover is needed, then it could be up to £250,000 or more.

ATE insurance provides some cover after litigation has been threatened or started, but policies will typically only cover your costs should you lose at trial.  As with BTE insurance, many insurers will require a prospect of success at trial of at least 50 – 60% based on the opinion of appropriate legal counsel before agreeing to provide cover.  Therefore, a key benefit of ATE insurance is that it can encourage opponents to be more agreeable and settle early, before getting to trial.

ATE premiums will be higher than BTE premiums, but many insurers can offer staged premiums (meaning if you settle early you will only pay a proportion of the full premium), or partly/fully deferred and contingent premiums (meaning you only pay the premium if you win at trial).  This can make the cost of ATE insurance more manageable in some cases.

IP insurance may not be appropriate for every IP rights owner, but it can provide value in certain cases.  For example, Mandy Haberman, inventor of the Anywayup® cup, was able to successfully enforce her IP rights in several different countries due to having IP insurance to help cover litigation costs.  By securing her monopoly in the marketplace, her own business was able to prosper.

We recommend considering IP litigation exposure as part of your regular business risk analysis and exploring whether IP insurance can help you manage any risks identified.  Should you require any assistance or advice, please contact me at christina.schiavone@wynne-jones.com.