By: Nicholas G. Popp
It’s a Thursday afternoon and your phone rings. On the line is one of your oldest clients ― the owner of a successful but small local business. He just received a letter from a company out of East Texas claiming that his best-selling product infringes upon one of its intellectual property rights. Although he feels certain that his product is not infringing, he is worried that fighting the claim would prove too costly.
His concern is justified. According to a 2013 survey performed by the American Intellectual Property Law Society, the median costs of litigating a patent infringement claim through trial was approximately $700,000 where the amount in controversy was less than $1 million. Am. Intellectual Prop. Law Ass’n, Report of the Economic Survey 34 (2013). These costs jump up to $2 million for cases with $1 million to $10 million at risk. Id. Litigation costs for trademark and copyright infringement are comparatively less but still run into the hundreds of thousands of dollars. With the potential of such staggering defense costs, how can your client afford to defend his business against these allegations?
Insurance coverage for intellectual property is often overlooked, despite it frequently being among an organization’s most valuable assets. Fortunately, some protection can be found in a company’s standard Commercial General Liability (CGL) policy. However, most CGL policies exclude coverage for “infringement of copyright, patent, trademark, trade secret or other intellectual property rights,” unless the infringement occurred in an advertisement and was one of “copyright, trade dress, or slogan.” Insurance Services Office, Inc., Commercial General Liability Coverage Form CG 00 01 04 13 at 7 (2012).
Although this exclusion narrows coverage for IP infringement, it doesn’t eliminate it completely. Courts have held that this coverage includes trademark (Hyman v. Nationwide Mut. Fire Ins. Co., 304 F.3d 1179, 1193–1194 (11th Cir. 2002)) and copyright infringement (St. Luke’s Cataract & Laser Inst., P.A. v. Zurich Am. Ins. Co., 506 F. Ap’x 970, 977–978 (11th Cir. 2013)), and even patent infringement (Elan Pharm. Research Corp. v. Employers Ins., 144 F.3d 1372, 1380 (11th Cir. 1998)), provided that there is a sufficient causal connection between the infringement and the advertising activities of the insured.
But what if the claims against your client are unrelated to advertising activities? Fortunately, you previously told your client about some relatively new insurance offerings with broader indemnities for IP claims. Many of these products (whether as a standalone IP policy or as part of a cyber liability policy), cover patent and copyright infringement unrelated to advertising activities. Some insurers even offer IP abatement policies, which help inventors and IP owners fund offensive litigation against infringers.
Thanks to your knowledge of insurance options for IP infringement, your client can now afford to fight back against these claims without bankrupting his business.
