Montalvo Insurance Agency

What if your Big Idea Isn't Yours? Intellectual Property Risks

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Your business is chugging right along, creating products and efficiencies, offering services and deploying marketing strategies that separate you from competitors. Everything is working flawlessly. And then it happens. You receive notice that something about your business has drawn the attention of an intellectual property (IP) owner and she’s not pleased. She demands that you cease and desist any activity involving her IP and informs you of her intent to follow up with aformal allegation of financial damages.

Such a claim, even if proven groundless, can force your business to make abrupt changes to workflows and incur substantial legal defense costs. At best, the claim is a crushing blow. At worst, it could mean the end of your business. To protect yourself and your business, you need to understand the various types of intellectual property, examples of IP-related risks to your business and how to prepare financially for such a risk with insurance.

Slow down... What's Intellectual Property?

The World Intellectual Property Organization (WIPO) defines "intellectual property" as "creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names and images used in commerce." Four common types of IP are patents, trademarks, copyrights and trade secrets.

Patent

An exclusive right granted for an invention that is registered with the United States Patent and Trademark Office (USPTO).

Trademark

A sign that distinguishes the goods or services of one enterprise from those of another that is registered with the USPTO.

Copyright

A sign that describes the rights that creators have over their literary and artistic works. A copyright is not required to be registered, but creators may choose to register them with the Unites States Copyright Office.

Trade Secret

Broadly defined, this is a way of using information in a business to obtain an economic advantage over competitors who do not know or use it. Trade secrets are not required to be registered.

How Big of a Deal is Intelectual Property?

It’s big. Really, really big. In June of 2018, the USPTO issued patent number 10 million. The first patent, granted in 1790 and signed by George Washington, was for "improvements in the making of pot ash and pearl ash". Not surprisingly, the influx of internet-based technology led to a surge in patents and copyrights in the late 1990s that continues today. IP rights can range from something meticulously described, such as specific software programming code, to something broad in scope. One patent owner, Personal Audio, sued podcasters, big and small, claiming its patent covered the entire concept of podcasting. U.S. Patent Officials invalidated some of Personal Audio’s claims, and the federal appeal court agreed with them. Podcasters everywhere are now safe, unless Personal Audio gains an audience with the Supreme Court and a decision in its favor.

Is your Business At Risk?

The range of IP ownership is mind-boggling, and the safest way to identify your exposures is to hire an IP law firm to thoroughly examine your current business practices and evaluate any future plans. For most businesses, doing this is cost-prohibitive, so the burden of due diligence falls on you. (But, hey, searching the USPTO’s patent database sounds like loads of fun, doesn’t it?) IP ownership is not exclusive to technology, but if your business uses technology, it’s safe to say that you’re at risk of violating another’s IP. A few examples may include:

  • Building an app for your business that uses code or functions patented by another.

  • Using code from another software program or developer to improve a business function.

  • Copying and pasting content from a website onto your company’s website or social media account without permission.

  • Including a video clip in a marketing email without permission of that video’s owner. A few non-technology-specific examples may include:

  • Using a slogan, song or logo that’s trademarked by someone, in any medium, such as radio, television, print, etc.

  • Manufacturing any product — such as auto part, tool, building material, plastic good, pharmaceutical, cosmetic, etc. — for which the design, mold, form and/or chemical compound is patent-protected.

  • Serving a meal at your restaurant using a patented recipe. (Yep, that’s actually a thing.)

Pretty Please? Must I Always Pay to Use Someone's IP?

Obtaining permission from the IP owner is essential, and in some cases, it may be granted at no cost. For example, many companies post on their websites descriptions of their IP, the circumstances in which permission for use is required, and their terms for its use. If you want to use a copyrighted work, you might not need permission if the law of fair use applies.

In other cases, owners charge a licensing fee because they wish to be compensated for use of their intellectual property. If the fee is not paid, they can allege damages ranging from the unpaid cost of a use license to reputational harm, or even punitive damages. To avoid potential legal costs, businesses may rush to settle such disputes quickly — including those in which the business, if it had the funds for legal defense, may have prevailed. And speaking of legal costs, according to American Intellectual Property Law Association’s “2017 Report of the Economic Survey,” the average legal cost of one type of IP litigation — patent infringement cases with $1 million to $10 million as stake — was $1.7 million in 2017. In cases with below $1 million at stake, the average legal cost was $800,000.

Insurance for IP Claims

Traditional business liability insurance is designed for claims alleging:

  • Bodily injury.

  • Property damage.

  • Personal and advertising injury.

The only one of the three that might kick in for an IP claim is personal and advertising injury. Unfortunately, even if it does, coverage is typically limited. In many policies, for example, coverage may apply only if a claim alleges that your business infringed on certain IP rights specifically in an advertisement for your goods or services. There are specialty insurance policies designed to cover a variety of IP exposures. For example, patent insurance is available to provide coverage should your business be sued for infringing on a patent. Other types of IP insurance policies are available and vary depending on the nature of your business. Such policies are typically sold at limits starting at $1 million. On the flip side, If you are concerned about others infringing on your IP rights, there are policies designed to cover your legal costs if you are the one who needs to sue.

This IP Stuff is Confusing and Scary

Yes, technology has made IP rights easier to violate, and IP owners can be relentless in their pursuit of perceived offenders, big and small. But technology has made IP rights easier to protect, as well, and you don’t have to brave the world of intellectual property risks alone. Your Trusted Choice® Independent Insurance Agent can be your IP hero, helping you to determine your risks and the types of IP insurance you should consider. To protect your business, contact your Trusted Choice® agent today.