Written By: Gregory J. Sater
Los Angeles, CA
Everyone is familiar with defensive insurance: insurance that pays for your legal defense and, if you are found liable, that pays for your liability, if someone sues you for an offense you allegedly committed that is covered by your policy. For instance, we all have, or should have, car insurance just in case someday we are alleged to be at fault for a car accident. Some insurance policies, as you may know, cover you for your alleged infringement of someone’s patent, trademark, or copyright. All of these policies are defensive: they cover you as a defendant.
But did you know that, now, new insurance policies have come out that can cover you, on certain terms and conditions of course, for you to be a plaintiff in an intellectual property infringement case? That is, they cover your legal fees incurred in suing somebody else for their infringement of your intellectual property and pay for offense, not defense.
If you were not aware of this, prior to reading this article, don’t worry, I wasn’t aware of it either until recently, and my job as an attorney is to litigate intellectual property infringement cases all the time. Yet it was news to me too.
Imagine that you’re a small company with a successful product. Perhaps it’s a success on TV, or online, or at retail. Things are going great. But now, imagine that another company – and let’s say it’s a much bigger company with much greater financial resources than you’ve got – comes along with a similar product or a similar advertising campaign and is basically stealing your business. Indeed, let’s say that their product and/or campaign are so similar to yours that, when you have an attorney review the case, the attorney tells you that you’ve got a strong patent, trademark, or copyright infringement case.
Nine times out of ten, despite that good news “on the merits,” the harsh reality is that you probably won’t be able to afford to litigate such a case if it’s against a bigger and better-financed opponent. Sure, you can afford to file such a case and litigate it for a short time; but if you’re like most small companies, you probably won’t be able to afford to “take it the distance,” because of the legal fees, and because your adversary probably knows that, they’ll have significant leverage in the case. Subpoenas, interrogatories, document demands, depositions, motions, oppositions to motions, expert witnesses, and pretrial preparations can cost a small fortune (not to mention going to trial and then going through appeals if any) so the pressure to settle for less than you deserve can become unbearable. That’s just the reality of hard-fought IP litigation.
Everything changes, however, if you’ve got insurance that pays for your legal fees, or for a substantial portion thereof, because then you can afford to go the distance in your IP infringement case, even against a wealthier adversary; and trust me, your adversary, in analyzing its settlement versus litigation options, will know you can go the distance and that will make all the difference: the table will have been turned.
These policies are called “intellectual property abatement/enforcement” policies.
I recommend checking out www.ipisc.com, for example, which is operated by Intellectual Property Insurance Services Corporation.
How these policies work?
First, you need to have some form of registered intellectual property which is insured under the express language of the policy: depending on the policy, it would be either a registered trademark, patent, or copyright. Second, obviously, you must pay an annual premium. Third, when you are confronted with someone who is infringing your registered IP, you need to file a claim with the carrier. Fourth, the carrier needs to obtain a favorable opinion by a neutral intellectual property litigation attorney (which means an attorney who is not the one who will be litigating your IP case, and who is approved by the carrier). That opinion lets the carrier know that your IP case is a good one. After that, the carrier authorizes your case for insurance benefits (meaning, it will pay for your legal fees and costs) and you’re off to the races. In most of these policies there is a co-pay, there is a self-insured retention amount that you need to spend, and of course there is a policy limit. In addition, if you want to bring non-covered claims versus your competitor, the carrier may tell you that it is going to apportion the fees and costs so that the carrier only pays for the fees and costs on the covered claims.
What if you win the case? There is a unique aspect to these intellectual property infringement abatement policies, and it is that, if you win the case, you need to pay the insurance carrier back whatever sum it paid in legal fees and costs on your behalf during the course of the lawsuit. (One variation on this is that, in some of these policies, you don’t have to repay the carrier if your IP infringement case was resolved within the first $100,000 that was expended by the carrier; this enables you to bring and resolve a series of smaller-sized IP infringement cases.)
Usually, the way these policies are written, the obligation to repay the carrier what it paid on your behalf in fees and costs is triggered not only if you win damages or other monetary relief from the infringer, whether by settlement or at trial, but also if you get any benefit of any kind as a result of the case. Thus, for example, if you brought the infringement case and the carrier paid for your legal fees and costs and you got an injunction out of the case, stopping the infringer, but didn’t recover money, then you did obtain a benefit and you will be obliged to repay the carrier. Similarly, if you brought your case and you settled by entering into some sort of license agreement with the accused infringer, then that too is a benefit to you, as defined by these policies, and so it triggers your duty to repay the carrier. It is only if you bring the IP infringement case and lose the case that you don’t need to repay the carrier … although, hopefully, that will never happen!
I personally have seen these policies be “the difference maker” in IP litigation cases, especially for small companies who otherwise cannot afford to litigate such cases far beyond the initial stages of litigation. These policies can help prevent the loss of market share by letting IP owners quickly and forcefully sue infringers as and when they appear; they can greatly reduce the cash drain on operations, company cash which otherwise would have to go to paying lawyers like me; in a big case they can finance the often complex and time-consuming activities that are required in such cases, like extensive discovery, depositions, expert witness reports, preliminary injunction hearings, motions, and trials; and they can reduce the pressure to settle for less than you deserve, helping you drive a harder bargain in settlement negotiations and ultimately optimize the end result of your case. I would venture to say that such a policy even could help attract investors for your business, since you will have an asset, i.e., the policy, that may ease their concerns about knock off artists and counterfeiters and the financial harms caused thereby.
If you do consider such a policy, read it carefully, have a lawyer read it carefully, and do a cost-benefit analysis. The question is whether it’s worth the premium, the co-pay, the self-insured retention, and whatever limitations are set forth in the fine print of the policy. From the point of view of an attorney who specializes in litigating IP cases (among other things, in the world of direct response law) I can tell you that in the right situation this kind of policy can make all the difference.