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Guide to intellectual property rights insurance

8.06.22

By Alan Boswell Group

Intellectual property rights insurance

Your company’s intellectual property (IP) is one of its most valuable assets, whether it’s your branding, a design, secret recipe, invention, or method of production.

It’s what makes your business unique, and protecting it is becoming increasingly important as IP disputes increase across the world.

The cost of pursuing or defending an IP claim can be significant, seriously affecting your bottom line and potentially hampering your business plans.

That’s why more companies and investors are turning to intellectual property rights insurance to protect their copyright, trademarks, and patents.

What are intellectual property rights?

Your intellectual property is anything unique that you have created, like a design, invention, brand name, logo, or piece of art, music, or literature.

The law gives you intellectual property rights in the form of copyright, patent, and trademark legislation so that only you can use and profit from your creative work.

An intangible asset, your IP can be a source of:

  • direct income, such as James Dyson’s invention and patent of the bagless vacuum cleaner, or through licensing software or franchising your brand;

  • indirect income by building reputational value and client loyalty;

  • increased security with patents creating barriers to entry to competitors;

  • funding when seeking investment.

Intellectual property can belong to businesses or individuals, have more than one owner, and can be sold or transferred.

What are the different types of intellectual property rights?

There are five main types of intellectual property rights, some of which are granted automatically and some of which require application or registration.

Copyright is automatic and covers original creative works including books, articles, music, advertising copy, art, films, software, photography, and databases.

It gives the owner exclusive rights to make copies of the work and control its distribution.

In the UK, copyright expires 70 years after the author’s death for written work.

Patents

A patent is used to protect an invention and, if granted by the UK Intellectual Property Office (IPO), gives you the right to take legal action against anyone who makes, uses, sells or imports it without permission.

To be granted a patent, an invention must be something new that can be made or used, and which is not simply a modification of something that already exists.

Trademarks

Trademarks can be registered to protect your brand, such as your company name, or the name of a product or service.

It prevents others from using your brand without your permission and potentially harming your reputation or gaining business on the back of your name.

Trademarks can be words, logos, sounds, advertising phrases, colours, shapes, or any combination of these.

Design rights

Unregistered design rights are automatic in the UK and prevent people from copying or stealing your design.

Protection covers the:

  • shape and configuration of 3D products for 10 years after it was first sold, and 15 years after it was first created;

  • appearance of a 2D or 3D product including its shape, colours, texture, materials, and ornamentation for three years after it was made public.

You can also register your design, which prevents anyone from copying it for up to 25 years.

Trade secrets

Coca-Cola’s recipe is one of the most famous trade secrets, kept under wraps since 1891 despite not being protected by copyright or patent laws.

Trade secrets are protected by legally-enforceable non-disclosure agreements (NDAs) or confidentiality clauses in employment and other contracts.

Examples of IP infringements claims

It may be useful to look at some real-world examples of IP infringement claims to explore how issues can arise across different industries.

Singer-songwriter Ed Sheeran successfully defended a copyright claim from grime artist Sami Chokri in the UK High Court.

Chokri had claimed that Sheeran’s 2017 hit Shape of You plagiarised part of his 2015 song Oh Why, but the judge ruled that Sheeran had “neither deliberately nor subconsciously copied” the song.

In order for copyright infringement to be established, Chokri needed to prove that Sheeran had listened to his song. He failed to do so.

Patents

In 2002, Hoover was ordered to pay Dyson £4m for infringing the patent on Dyson’s dual cyclone cleaner.

Hoover had launched its triple vortex cleaner in 1999, but UK courts later ruled that it infringed Dyson’s patent and ordered it be removed from sale immediately.

Trademarks

Luxury car manufacturer Bentley was forced to destroy a range of branded clothing after a successful trademark infringement claim by Manchester-based Bentley Clothing.

The clothing company first approached Bentley Motors in 1998 about the branding clash but, after years of negotiations, launched legal action in 2017.

Bentley Motors had made unsuccessful attempts to cancel Bentley Clothing’s trademark, registered at the IPO since 1982.

Trade secrets

Celgard, a US battery company, successfully obtained an injunction to prevent a Chinese firm from selling products in the UK after claiming a former employee stole trade secrets.

Litigation surrounded claims that Dr Xiaomin Zhang, who left Celgard to go and work for Shenzhen Senior Technology Material, passed on trade secrets relating to highly engineered ‘separators’ for use in lithium-ion batteries, with a view to taking business away from his former employer.

What industries are at risk from IP claims or disputes?

All businesses and industries hold intellectual property of some kind.

Clearly large companies like Nike have their name, ‘swoosh’ logo, ‘Just Do It’ slogan, and product names like ‘Air’ to protect, but even small businesses have IP, even if it’s just a logo and internet domain name.

Industrial espionage is a growing threat for manufacturing industries, while counterfeit goods cost global industry an estimated $2.3bn, according to researchers Incopro.

Creative industries like photographers and designers are at risk of their work, which is often available online, being reproduced without permission.

The holders of rights to sporting events and films are at constant risk of illegal streaming, while musicians remain susceptible to piracy.

Businesses that operate in the technology and life sciences sectors have some of the biggest exposures when it comes to their intellectual property rights as the commercial viability of these companies is often reliant on new, innovative, and specialist ideas.

Most companies will have databases that are vital to their businesses that they need to protect.

How can you protect against intellectual property rights infringement?

The first step to protecting your IP rights is to conduct a thorough audit of your business to highlight all of your IP assets.

As well as the obvious things like your name and logo, this could include identifying an employee creating protectable innovations or designs and ensuring that documentation is in place to identify the ownership of IP created by a third-party, such as a creative agency.

Now consider what protection can be put in place for the assets identified, making sure to search for patents or trademarks to establish whether someone else has got there first and protected them.

Ensure you have a procedure to access all of your IP assets, including any copyrights, patents, trademarks, and designs, and use the free IP Health Check tool from the IPO to list the IP you own.

More ways to protect your intellectual property.

  • Make sure all of your employment and third-party contracts state your ownership of any IP developed by your company.

  • If you have any doubts about your IP protection, seek advice from either the Chartered Institute of Trademark Attorneys, or the Chartered Institute of Patent Attorneys.

  • Registration of IP can take time, especially applying for patents, so start the process as early as possible.

  • Protect any sensitive information stored electronically with robust passwords, anti-virus software and firewalls, and restrict access only to those who need to know.

  • Use search engines to check if anyone is using your images, logo, design work, or photographs without your permission.

  • If you trade overseas, or plan to in the future, you will need separate international patent and trademark protection.

  • Be prepared to take legal action over IP infringement. It shows you’re serious about protecting your assets, and one stern letter could get you the desired result.

What is intellectual property rights insurance?

Intellectual property insurance helps you defend your business against allegations of IP infringement and pursue those who infringe on your own IP.

Cover available under an IP insurance policy can be tailored to your individual business but typically includes the following features:

  • Defence costs, covering the fees and expenses incurred if you inadvertently infringe someone else’s IP. Defence costs can be substantial, and infringement claims are on the increase.

  • Pursuit costs, which provides a ‘fighting fund’ to pay for legal expenses incurred in pursuing third parties who infringe your own IP.

  • Third party indemnity, which covers the costs of pursuing or defending a claim made against a business in your supply chain.

  • Agreements made in commercial transactions such as mergers, acquisitions, or the sale of IP rights.

  • The costs of defending counter claims.

  • Loss of profits.

  • Payment of damages.

  • Reputation management.

  • Loss of IP rights.

Are IP rights covered by professional indemnity insurance?

Innocent infringement of IP rights can sometimes be covered by professional indemnity insurance. However, patents generally fall outside the scope of a normal professional indemnity policy, and trade secrets are often excluded. Where cover is provided for patents, it is often a lower limit and will exclude claims brought and maintained in the USA and Canada.

It’s also worth bearing in mind that many businesses will not have professional indemnity insurance, so this won’t be an option available to them. A specialist IP policy is normally required for anything other than limited cover and many investors will request that the company they are investing in has IP insurance as part of their contract.

What are the benefits of intellectual property rights insurance?

IP insurance can be vital to protecting your bottom line in the event of either a defence or pursuit claim, providing funds to fight, and potentially settle, legal action that would otherwise seriously hit your cash reserves.

Other benefits of intellectual property insurance:

  • Protect your patents: insurance provides you with the funds to protect your patents.

  • Hold the value of your IP: protecting your IP rights maintains their value, which can be diminished if infringements go unchallenged.

  • Deterrent: the mere fact of having IP insurance, and advertising as such on your website, can be enough to put off potential infringers.

  • Avoid re-engineering: avoid expensive re-engineering costs to ensure non-infringement

  • Protect your investment: the development of new inventions, or creative work, costs significant time and money. IP insurance protects not only your IP, but the development costs that went into them.

  • Secure investment funding: proving you are protecting your patents and trademarks can provide reassurance to potential investors.

  • Protect income: IP insurance can protect your income from licensing or franchise agreements.

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