Product Fundamentals: Intellectual Property Insurance
There are two insurance products designed to cover exposures relating to intellectual property (IP), these are:
1. Third party IP infringement insurance
Covering the risk of claims against you alleging infringement of any patent trade mark, copyright, design, domain name or miscellaneous IP rights. This cover is provided on a modular basis, subject to policy terms and conditions and exclusions, and includes various coverage sections as follows:
This section of coverage is provided for the legal fees and expenses, or damages (including settlements) or both, incurred in defence of any civil action brought against the insured, alleging that the insured had:
- Infringed a third party’s IP, through dealing in any of their products or services or through their use of licensing of any of their own IP;
- Through dealing in any of their products or services, they have directly justified the imposition of an injunction;
- Made baseless formal infringement allegations against a third party relating to any patent, trade mark, copyright or design.
- No IP rights or ownership, thereby resulting in dispute and legal threats;
- Brought counter claims to a judicial proceeding listed above.
This provides coverage for legal fees and expenses or damages (including settlements), or both incurred in defending legal proceedings by a third party against the insured for indemnification as a result of an indemnity agreement or hold harmless provision in a contract. Third parties such as distributors, suppliers, manufacturers, retailers or licensees may take legal action under such indemnity provisions in relation to infringement by a product or service or any invalidity of the insured’s IP.
Directors’ and officers (D&O) liability covers the legal fees and expenses or damages incurred in defending judicial proceedings against the directors and officers of the organisation for personal liability in the infringement of third party IP rights through the insured’s products or services.
2. IP value insurance
A separate IP value insurance product is available to provide first party coverage for any loss of net profit and increased operational cost incurred by the policy holder resulting from:
- Legal claims: coverage is provided where a legal claim is brought against the insured alleging that any of the insured’s IP rights are invalid or these infringed the claimant's IP rights. Also covered are any claims by employees for ownership of IP that they were involved in the creation of.
- Actions by government and states: coverage is provided where any law, order, decree or regulation prevents or limits the policy holder from enforcing or fully exploiting their IP rights. Prevention on the policy holder may involve cancellation of any export or imports authority of a product. Instances of restrictions can involve a competitor being granted exact IP rights.
Scope of IP infringement insurance coverage
Types of IP include patents, trade marks, copyright design, domain names, or any miscellaneous property rights. Companies that design, manufacture, sell or supply a product or service may inadvertently infringe on third party IP rights and incur liability. This can be exacerbated through contributory infringement whenever the insured supplies a product designed or manufactured by a third party.
For further information on insurance considerations relating to IP risk, see our article here.
Claims examples
- An Australian software company created a mobile phone video game. An overseas company brought an action alleging the design of one of the characters in the game infringed upon an element of its copyright. The Australian company’s IP policy covered the legal costs incurred to defend the action.
- A software provider developed an online platform for online transacting and share trading. The technology used to operate the software was patented. The provider became aware of a competitor promoting a software that appeared to be operating with technologies that infringed features of its platform. The provider’s IP insurance covered the costs to pursue the infringer to enforce its patent rights.
For further information, or a review of your IP exposures, please contact our Team of risk advisors via the form below.
