What's the point of filing a patent if I can't afford to enforce it? When I ask patent attorneys what their Small to Medium Enterprise (SME) clients’ concerns are when patenting innovation, this is a question they often have to answer -- and clients have good reason to be concerned. IP litigation, especially patent litigation, whether in the UK, Europe or the US is prohibitively expensive. SME clients do not want to spend their hard-earned money on expensive IP lawyers when spending it on product development, staff and marketing is a far better way to grow their business.
What most clients don’t know however, is that they can mitigate this significant business risk by purchasing Before the Event IP insurance. This relatively inexpensive insurance covers the legal cost of IP litigation anywhere in the world but most IP rich businesses are not aware that it even exists.
And this is where IP advisors can play an important role. By raising it with clients, attorneys can overcome awkward questions about the cost of enforcement and also provide clients with the opportunity to put a valuable IP risk management solution in place. Clients are frequently appreciative of the opportunity to go on cover, whether they decide to do so or not.
So how do these policies work and, more importantly, how much do they cost? Well, below are answers to a number of FAQs, which ideally answers any enquiries you might have. If you have additional questions, please do not hesitate to get in touch and I’d be delighted to answer them.
Which rights are covered?
Policies cover all registered and unregistered IP rights including patents, trade marks, designs and trade secrets.
What exposures are covered?
Before the Event (BTE) IP insurance policies now respond to an increasing number of IP risks.
Policies cover own side and adverse costs, disbursements and damages relating to a range of different types of action. These include:
- Enforcement and defence actions
- Revocation actions
- Pre and post grant Trade Mark and Patent Oppositions (in the UK, EU and US)
- Title disputes; and
- Contractual breaches of IP agreements such as NDAs.
In addition, they will cover loss of profits if rights are found to be invalid and also exposures arising under indemnities in licensing agreements.
How much do policies cost?
By their very definition, IP rights are unique so every policy will be priced differently. The key criteria for calculating premiums will be turnover, the type of cover required (defence alone or defence and enforcement together), the IP right(s) being insured, the sector in which the policy holder operates and the territorial scope of protection.
Notwithstanding this, the market has developed a two-tier pricing structure, one for smaller businesses with a turnover of less than circa €7m and another for larger companies.
For smaller companies pricing is fairly predictable. To insure all IP with worldwide pursuit and defence cover, the premiums tend to be as follows:
- €1m cover (of which a maximum of €500k can be used for any one enforcement action) = €4k – €5k pa
- €500k cover (of which a maximum of €250k can be used for any one enforcement action) = €2,500 – €3k pa
- €250k cover (of which a maximum of €125k can be used for any one enforcement action) = €1,500 – €2k pa.
Policies for larger organisations tend to be more bespoke and premiums are typically between 0.5% and 2% of the amount of cover sought. So, for example, a legal consultancy business insuring its trade mark in the EU will pay significantly less for €1m of cover than a company launching new software in the US in an industry with a history of NPE activity.
It is important to note that enforcement cover, which funds actions against infringers of rights, is often capped at €500k at least in the first year of cover.
What else does the insured have to pay? Excesses and co-insurance
As with all insurance policies the insurance will almost invariably be subject to an “Excess” – an amount of any claim that the insured will have to pay before the insurer has any liability. Excesses typically start at €5000. In some cases, the insured can decide how much excess it wants to pay although this will have an impact on the premium.
The insured also contributes what’s known as co-insurance. This is a percentage of the costs of any claim which the insured meets alongside the insurer. Part of the insurer’s interest here is to reduce the level of “moral hazard” – i.e. the possible perception by the insured that they have nothing to lose now that they have insurance, and therefore their behaviour will change which increases the insurers risk. The co-insurance aligns the interests of the insured and insurer.
Co-insurance levels are typically 5% for defence actions and 10% for enforcement actions but the level of excess and co-insurance can vary depending on the nature of the risk.
What is the process for getting on cover?
In order to obtain an initial indication of terms the client just needs to provide its name, website address and turnover. From this information the insurer can provide an indication of terms, often within 48 hours.
Can a policy be purchased if an infringement is ongoing or is likely to occur?
BTE policies do not cover legal actions which have already commenced or, importantly, disputes that the insured knows about or ought to know about before purchasing the policy. The client will need to sign a declaration that it is not aware of any claims prior to the policy incepting.
Once insurance is in place, can all claims be pursued?
For a potential claim against a third party infringer, the insured will need to obtain an opinion on the claim’s prospects of success.
This opinion must be obtained from an IP specialist of the insured's choosing, such as a barrister and/or patent attorney, and depending on the wording of the policy, this opinion must confirm that the insured has a reasonable or good chance of successfully pursuing a claim. This threshold is required throughout the claim. So if a defence is received that calls into question the validity of the right, a further opinion would be needed on the force of that defence.
In relation to defence actions, if the advice is the insured party has no reasonable defence to the claim, the insurer will pay to extract the insured party from the claim and pay any damages that are agreed to be paid. On the other hand, If the advice received is that the insured’s defence does have reasonable prospects of success, then the insurer will fund the defence.
Can the insured choose its legal representative?
Yes. Insured parties can choose their legal representatives so long as they have the necessary skills and knowledge to fight the claim.
Are all costs covered if a claim is made?
The insurer will pay costs in accordance with the terms of the policy. Generally, costs up to the cover limit and which are reasonably and properly incurred are covered (subject to any excess and co-insurance).
Can attorneys advise on IP insurance?
In the UK, Financial Conduct Authority (FCA) regulations prevent patent attorneys (and many solicitors) from advising clients on specific insurance policies. Discussing the existence of patent insurance and referring clients to specialist brokers is allowed and may be valued by clients in the context of their substantial investment in IP.
FICPI's view and involvement
FICPI uniquely combines education and advocacy on topics around patents and trade marks, with a focus on developing the professional excellence of its individual members. FICPI Forums, Congress, committees and meetings are opportunities to gather insights from the international IP attorney community on any issue, whether it be practice-related or topics of patent and trade mark law.
Next steps
- Consider getting involved with FICPI's Practice Management Committee, established in 2008 to deal with matters of professional practice, with the objective of maintaining the standards of the IP profession to the highest level and further developing them, in addition to FICPI committees focusing on substantive IP issues.
- Events such as FICPI’s 2024 Open Forum (25-28 September, Madrid) offer the opportunity to attend technical sessions, and to meet and further discussions in congenial surroundings.