Intellectual property is an intangible business asset that often helps set companies apart from their competitors. Unfortunately, few businesses know precisely what their IP is worth, or how to protect it. Let’s step into the world of IP and explore the risks that you could be facing – and how you can build resilience for your business. This guide is put together in collaboration with CFC Underwriting, a leading provider of insurance solutions for life science and technology companies.
What is intellectual property?
Intellectual property (IP) is a broad term used to describe the legal rights arising out of intangible creations and assets, such as a product or process, a piece of software, a brand or even a customer database. Covering a wide range of areas from inventions and algorithms to products, manuscripts and design including a name, image, symbol or logo, intellectual property rights allow the original creator to apply for legal protection of their IP in the form of a patent, copyright or trademark. Intangible assets, including IP, now make up to anywhere from 70 to 80 per cent of a typical company’s balance sheet.1 Businesses are also investing more in intellectual property – like research and development, software, branding and design – than they are in physical assets, creating more value in IP.
Understanding IP Risk
The biggest IP exposure a small or medium-sized enterprise (SME) will often face is a claim of infringement by another company, rather than a direct threat to their own IP. Many businesses assume they’re immune to this risk because they hold some form of IP rights (i.e., a patent, copyright or trademark) or because they simply don’t understand what constitutes infringement. Infringement can arise out of business activity – i.e. the import, sale or manufacture of a product – or the delivery of a service. It doesn’t matter whether a business holds IP rights or not. Holding a patent, copyright or trademark doesn’t protect a business from infringing on someone else’s IP. Given the volume of IP rights in existence, it’s nearly impossible to guarantee that a company isn’t infringing on someone else’s IP. IP rights also often overlap, and patents rarely cover an entire product. For example, a business may think that it holds the IP rights for a pen, but may lack the rights to the cap, the ink or the spring.
Intellectual property is highly relevant to companies of all sizes and in all industries.
It’s not just Large Organisations that Need to Worry About IP Risks SMEs may also find themselves targeted by large competitors who want to prevent competition and who have more established IP portfolios because of their size and age. IP can present a classic David versus Goliath scenario, and without sufficient resources, the smaller organization can face more dire consequences. Smaller businesses can present an easy target for IP infringement claims because they lack the resources to properly address or defend them. Many SMEs could struggle to survive an IP dispute. Consider what would happen should your business face an injunction preventing you from selling your product? Or if you were required to pay significant damage or royalties to the rights holder?
The cost of simply defending a claim can be significant for a small business even if they believe they are not infringing.
How does IP insurance work?
A claim of IP infringement can have a devastating impact on a firm’s finances and reputation. Protecting your business with IP insurance can help fund legal action against an infringer or defend a patent’s validity. Simply having IP insurance in place can be a powerful deterrent to any potential infringer. IP insurance provides cover for claims alleging infringement of IP rights, including patents, trademarks, copyright and trade secrets. It can also provide cover for contractual indemnities, the enforcement of IP rights and the costs associated with loss of IP rights or loss of profits. The insurance will only cover claims which the insured was not aware of at inception.
Typical IP insurance policies include:
- Patent and IP infringement liability
- Contractual indemnities cover
- Pursuit of infringers
- Loss of IP right cover
- Loss of future profit
- Let’s explore these in more detail.