Why is intellectual property insurance essential for your business?
Intellectual property (IP) is one of your most valuable business assets. Whether you’ve created distinctive branding, invented technology, designed a new production method, or launched original products, you need to protect what makes your business unique.
By Alan Boswell Group
- Why protecting your IP is critical for business success
- What is intellectual property?
- The high cost of an IP dispute
- What is intellectual property insurance?
- Other benefits of IP insurance
- Who needs IP insurance?
- Factors that affect the cost of IP insurance
- How can you protect your intellectual property?
In this article
- Why protecting your IP is critical for business success
- What is intellectual property?
- The high cost of an IP dispute
- What is intellectual property insurance?
- Other benefits of IP insurance
- Who needs IP insurance?
- Factors that affect the cost of IP insurance
- How can you protect your intellectual property?
Unfortunately, IP disputes are not only increasingly common, but they can be eye-wateringly expensive. Defending or bringing a claim can quickly escalate into hundreds of thousands of pounds in legal fees. A consultation response by the Intellectual Property Lawyers’ Association (IPLA) to the Civil Justice Council notes:
The total costs of a small to medium size patent dispute will usually be in the range of £1.5 – 2.0 million.
Costs like these are why specialist intellectual property rights insurance is important. It’s vital to help protect your business from the financial impact of infringement disputes and to help you protect your copyright, trademarks, patents, and other intellectual property.
Why protecting your IP is critical for business success
Your intellectual property is much more than a legal concept; it’s a commercial asset that’s vital to your business’s growth. These are just some of the key reasons why protecting your intellectual property is critical for your success.
Protecting your competitive advantage
IP rights prevent competitors from copying your ideas, branding, or innovation. This helps you prevent others from encroaching on your market share and profiting from your hard work.
Protecting direct income
Certain types of IP can generate substantial direct income. For example, if you have a unique product or service, you can get income from direct sales, franchising, merchandising, or even selling the IP rights themselves.
Protecting indirect income
IP can also generate indirect value in a variety of ways. For example, it can strengthen customer loyalty and brand trust, ultimately leading to increased sales. Those extra sales can then lead to greater operational security, giving you more confidence to invest in further innovation.
Increasing business value and attracting investment
A strong IP portfolio increases a business’s value, reassuring investors and lenders that your competitive edge is protected. This can be crucial during fundraising or acquisition discussions.
Protecting your brand identity and trust
Brand-focused IP, including trademarks, designs, and other creative assets, can help customers identify your business and build trust. This recognition can become one of your most valuable commercial advantages.
What is intellectual property?
The UK government defines intellectual property as something that you create using your mind. This can include things like the names of products or brands, their design, your inventions, and things that you write, make, or produce.
There are four main types of intellectual property rights. Some are granted automatically, while others require application or registration. They are:
Copyright
Copyright is automatic and covers original creative works, including books, articles, music, written content, artworks, films, software, photography, and other forms of creative media. It grants the owner exclusive rights to reproduce the work and control its distribution. In the UK, the duration of copyright depends on the type of work or performance, as well as the type or identity of the creator. You can find more details here.
Patents
Patents are used to protect inventions, such as technical products, industrial processes, or scientific innovations. If granted by the UK Intellectual Property Office (IPO), a patent gives you the right to take legal action against anyone who makes, uses, sells, or imports the patented invention 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 the distinctive identity of your business. For example, they can be assigned to the name of your company, products, and services, as well as logos, slogans, and even certain sounds and colours. A trademark prevents others from using your brand without your permission, making it less likely that someone will use it to harm your reputation or steal your sales.
Trade secrets
Trade secrets are confidential information that provides commercial value, such as formulas, manufacturing methods, processes, and business plans. 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.
The high cost of an IP dispute
Intellectual property disputes can be disruptive, stressful, and extremely expensive. Even where the law is on your side, enforcing or defending your rights can cost tens or even hundreds of thousands of pounds. For many businesses, these costs alone can threaten their ability to operate.
To give you an insight into the high costs of IP disputes, below are just a few examples from the UK.
Hoover ordered to pay Dyson £4m for patent infringement. Hoover had launched its Triple Vortex cleaner in 1999, but UK courts later ruled that it infringed Dyson’s patent and ordered it to be removed from sale immediately.
Ed Sheeran and his co-writers were awarded more than £900k in legal fees in a copyright case. In 2022, a judge ruled that Sheeran had “neither deliberately nor subconsciously copied” a song by grime artist Sami Chokri.
Luxury carmaker Bentley was forced to destroy a line of branded clothing in a trademark infringement claim. In 2019, the High Court ruled that the car manufacturer had infringed the trademark of the Manchester-based company Bentley Clothing.
Celgard obtained an injunction to stop a Chinese firm from selling products in the UK. It was claimed that a former employee passed on trade secrets related to lithium-ion batteries.
Even when you are the injured party, enforcing your IP can be prohibitively costly. Smaller businesses may find themselves unable to challenge a larger competitor, even when they have a legitimate claim.
What is intellectual property insurance?
Intellectual property insurance helps you defend your business against allegations of IP infringement and pursue those who infringe your own IP.
Cover available under an IP insurance policy can be tailored to your individual business, but it typically includes the following features:
Defence costs, covering the legal fees and expenses incurred if you inadvertently infringe someone else’s IP. Defence costs can be substantial and include expenses such as expert witness fees.
Pursuit costs, which provide 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 counterclaims.
Loss of profits, for example, by having to withdraw products.
Payment of damages or settlement costs.
Reputation management.
Loss of IP rights.
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 may not have professional indemnity insurance, so this option will not be 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.
Other benefits of IP insurance
In addition to protecting you legally, there are many other good reasons to consider purchasing IP insurance. These include:
Other benefits of intellectual property insurance:
Protecting your patents: insurance provides you with the funds to protect your patents.
Protecting the value of your IP: protecting your IP rights maintains their value, which can be diminished if infringements go unchallenged.
Avoiding re-engineering: avoiding expensive re-engineering costs to ensure non-infringement.
Protecting your investment: the development of new inventions or creative work requires significant time and money. IP insurance protects not only your IP, but the development costs that went into it.
Securing investment funding: proving you are protecting your patents and trademarks can provide reassurance to potential investors.
Protecting income: IP insurance can protect your income from potential losses associated with licensing or franchise agreements.
Who needs IP insurance?
All businesses, regardless of size or sector, hold some form of intellectual property.
For major brands like Nike, this includes trademarks such as the company name, the ‘Swoosh’ logo, the ‘Just Do It’ slogan, and product names like ‘Air’. However, even small businesses own IP such as a logo, brand name, or website domain.
The Organisation for Economic Co-operation and Development (OECD) estimated that in 2021, global trade of counterfeit and pirated products, which infringed UK trademarks, was as much as £1.2 billion and resulted in 20,000 lost jobs.
Given this backdrop, IP insurance is important for almost every type of business. That said, the sectors most at risk include:
Technology and software
Manufacturing and engineering
Creative fields (design, media, marketing)
Consumer products
Pharmaceuticals and life sciences
To give a few examples, creative professionals, such as photographers and designers, face the risk of their work being reproduced without permission, especially when it is shared online. Rights holders in sports and film are continually exposed to illegal streaming, while musicians remain vulnerable to piracy. Additionally, most companies maintain business-critical databases that require robust protection.
Businesses operating in technology and life sciences face some of the greatest IP risks, as their commercial success often depends on innovative and highly specialised ideas. If your business is in this sector, we strongly recommend you review your IP insurance on a regular basis.
Factors that affect the cost of IP insurance
The cost of IP insurance varies depending on your specific circumstances. Premiums are based on several factors, including:
Your industry
The type and value of IP
Whether you are enforcing or defending rights
Business turnover
Required indemnity levels
How can you protect your intellectual property?
The first step to protecting your IP rights is to conduct a thorough audit of your business to highlight all your IP assets.
In addition to the obvious elements, such as your name and logo, this process may also involve identifying an employee who is creating protectable innovations or designs, or ensuring that documentation is in place to establish ownership of IP created by a third-party, such as a creative agency.
Next, consider what protection can be put in place for the identified assets, ensuring that you search for current patents or trademarks to determine if someone else has already secured them.
You should also have a procedure in place to access all your IP assets, including copyrights, patents, trademarks, and designs. Be sure to use the free IP Health Check tool from the IPO to list the IP you own.
Other ways to protect your intellectual property include:
Make sure all your employment and third-party contracts state your ownership of any IP developed by your company.
In case of doubt about your IP protection, seek advice from either the Chartered Institute of Trademark Attorneys or the Chartered Institute of Patent Attorneys.
Registering IP can take time, especially when applying for patents, so start the process as early as possible.
Protect any sensitive information stored electronically with strong passwords, multi-factor authentication, anti-virus software, and firewalls, and restrict access to only those who need to view it.
Use search engines to check if anyone is using your images, logo, design work, or photographs without your permission.
Be prepared to take legal action in the event of IP infringement. It shows you’re serious about protecting your assets, and a stern letter could yield the desired result.
It’s also worth noting that if you trade overseas or plan to in the future, you will need separate international patent and trademark protection.
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