Legal Review
A New Way to Pay for Intellectual
Property Infringement Litigation
… and Peace of Mind
Everyone is familiar with defensive insurance, which pays for your legal defense and, if you are found liable, 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 we are alleged to
be at fault for a car accident. Some insurance policies
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 new insurance policies have
come out that can cover you, on certain terms and conditions of course, as 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.
Imagine that you’re a small company with a successful product. Now, imagine that another company —a
much bigger company with much greater financial resources than you — comes along with a similar product
or a similar advertising campaign. Indeed, 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 10, 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.
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.
Everything changes, however,
if you’ve got insurance that pays
for your legal fees, or for a substantial portion thereof, in your
IP infringement case. Your adversary, in analyzing its settlement
versus litigation options, will
know you can go the distance
and that will make all the difference. These policies are
called “intellectual property abatement/enforcement”
policies.
How do these policies work? First, you need to have
some form of registered intellectual property which is
insured under the express language of the policy: a registered trademark, patent or copyright. Second, 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).
After that, the carrier authorizes your case for insurance, and you’re off to the races. In most of these policies there is a co-pay, a self-insured retention amount
that you need to spend, and a policy limit.
What if you win the case? There is a unique aspect to
these policies: 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.
Usually, the way these policies are written, the obligation to repay the carrier is triggered not only if you
win damages or other monetary relief, whether by settlement or at trial, but also if you get any benefit of any
kind as a result of the case. 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. It is only if you bring the IP infringement
case and lose the case that you don’t need to repay the
carrier.
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. And, in a big case,
they can finance the often complex and time-consuming activities that are required, like extensive discovery,
depositions, expert witness reports, preliminary injunction hearings, motions, and trials. ■
