HIDAYATULLAH NATIONAL LAW UNIVERSITY

RAIPUR (C.G)

Law of Insurance
Intellectual Property and Insurance
Submitted To-
Ms. Apoorvi Shrivastava Maam
Faculty, Law of Insurance
Submitted by-
Meera Kashyap
Sem VIII Sec A
Roll no 90

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 ACKNOWLEDGEMENTS

I feel highly elated to work on the topic Intellectual Property and Insurance

The practical realization of this project has obligated the assistance of many persons. I express
my deepest regard and gratitude for Ms. Apoorvi Shrivastava Maam, Faculty of Law of
Insurance, Her consistent supervision, inspiration and invaluable guidance have been of immense
help in understanding and carrying out the nuances of the project.

I take this opportunity to also thank the University and the Vice Chancellor for providing
extensive database resources in the library and through the internet.

Some printing errors might have crept in, which are deeply regretted. I would be grateful to
receive comments and suggestions to further improve the project.

Meera Kashyap

Sem VIII

R.No. 90

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CONTENTS
1. Objective and Research Methodology..(4)

2. Introduction..(5)

3. Business and Intellectual Property...............................(7)

4. Risk Involved.......(8)

5. Need for Special Coverage..............................(9)

6. Poicy Particulars.............................(9)

7. Types of Policies.(10)

8.Indemnifying Advertising Injury ........(12)

9 Indian Scenario............................................................................................................(14)

9. Conclusion..(15)

9. Bibliography.......(16)

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 OBJECTIVE

To study the insurance policies for intellectual property

To examine the insurance market for intellectual property
To observe the challenges in this market

RESEARCH METHODOLOGY

The research work is Doctrinal in nature. It is of descriptive type. No empirical approach has
been used. Secondary sources such as books, articles/ journals are referred while making this
project.

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 INTRODUCTION

Concern for safety and security of life and property is very basic to human nature. Arising out of
this basic human concern, insurance as an instrument to provide security, developed over a
period of time. To begin with insurance was more concerned with providing relief in case of
damage / destruction of physical assets and consequences arising thereof. As society evolved and
with rapid industrial and technological development, threat to the existence of organization /
individuals started emanating from a new source liability under statutory and common law. As
a result, a whole lot of liability insurance products developed to cater to this need.

The concept of Intellectual Property and Insurance is a relatively new concept which functions in
the similar manner as in any other insurance policy, but it comes with its own unique set of terms
and conditions. The main coverage provided under the ambit of intellectual property is in
relation to the costs of legal proceeding and charges only. Given the volatile nature of intellectual
property and the time take for procuring registration leaves the claim to be only about the costs
for the legal proceedings. Intellectual property is gaining prevalence and pace in the market and
industry and given the growing field like India, the scope of development is very promising.

The major reason for safeguarding the intellectual property is the immense economic benefit
which it carries with it, which later turns out to the most valuable asset to the company. It is now
a well-accepted business valuation maxim that intangible assets such as brands, copyrights,
patents, and trade secrets are often valued greater than tangible assets consisting of buildings,
inventory, and equipment. Despite this, a vast majority of businesses fail to carry stand-alone
intellectual property insurance coverage. Intellectual Property insurance has always been
considered to be an alien concept its ambiguity and uncertainty of admissibility and protection.

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 BUSINESS AND INTELLECTUAL PROPERTY.

Basically, there are four types of intellectual property:

1) Copyrights, which apply to original works of authorship that are fixed in tangible mediums of
expression. Examples include literary works-including computer programs, pictorial and graphic
works, and motion pictures and other audiovisual works.

2) Patents, which protect the making, using and selling of a patented product or process.

3) Trademarks and service marks.

4) Trade secrets, which is information that is secret or not generally known in the relevant
industry and gives its owner an advantage over competitors. Examples include formulas,
patterns, methods, programs, techniques and processes

All businesses have IP and it may well be your most valuable asset. Like other business assets
you can get insurance to protect against risks associated with your IP. Much of this insurance
(but not all) is aimed at businesses who have already secured IP rights. However, you can also
protect yourself against inadvertently infringing the rights of others.

A company that infringes, or is even alleged to have infringed, on a competitor's intellectual

property is likely to be threatened with lawsuits that, even if unsuccessful, are expensive to
defend. A successful defense of alleged copyright infringement can cost $150,000 and often
more. The cost to defend allegations of patent infringement averages $1.5 million and even
higher in jurisdictions like New York, Boston and San Francisco 1. A recent patent-infringement
lawsuit resulted in a judgment of less than $2 million while costing more than $3 million to
defend.

1
: American Property Law Association 1999

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We still hear that "scrubbing" a company's intellectual property (carefully checking it to ensure
that it is unlikely to be challenged for infringing on another's rights) is a better solution than
protecting it with insurance. We also still disagree. Even a well-scrubbed intellectual property is
subject to loss that may need to be insured. A combination of effective scrubbing and competent
insurance should be considered2

Even if an uninsured defendant prevails in an intellectual-property lawsuit, it can be put out of

business just by litigation costs, and investors' or customers' fears that it may not win. The need
to defend an alleged infringement can distract management and dissuade investors. Even a
successful defense can result in business failure. Indeed, many well-entrenched companies will
attempt to defeat new competitors by challenging their patents, rather than compete in the
marketplace.

An alleged infringer has few options:

-Abandon its intellectual property rights.

-Negotiate a license from a position of weakness.

-Defend the suit.

Patent holders are not the only potential targets of patent infringement lawsuits. Retailers,
distributors and others that contribute to the alleged infringement can be-and often are-sued as
participants in the stream of commerce.

2
Richard S Betterly,An Overview of Intellectual Property Insurance Market

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 RISK INVOLVED

Unlike physical property which are exposed to actual physical loss / destruction arising out of
various contingencies (natural / man made), I.P. is exposed to risk of different nature. But for
sure both would lead to monetary loss. In case of tangible property, you can see the loss /
damage, but in case of non-tangible IP asset, you may not even be aware of your IP right being
violated. It may even have cross border implications. It should be appreciated that a huge amount
of money is invested to create IPs. Besides, creation of IP involves lot of effort, planning and
time consumption.

However, advances made in technology enable easy creation and use of protected material.
Digital technology specially can be very easily made use of for making copies and transmitting
copyright protected works. This illegal business is thriving worldwide and it has serious financial
implications for the originator / creator of the IP. The other aspect is that you may infringe the IP
right of other unintentionally and may create huge liability exposure for yourself. It should be
appreciated that despite being intangible, IP contributes substantially towards the profit of
business organizations. Yet another aspect of the risk exposure is high cost of litigation involved
either for protecting your IPR or defending yourself if unintentionally you have violated
someone elses IPR. Again, these legal battles may have to be fought in different countries of the
world.

World is now a global village. Funding legal battle is an issue. Protecting or defending may
become a question of survival The irony is the IPR by itself is a protection mechanism but you
have to fight legal battle to ensure that protection provided to you is not violated by others. For
the offenders the temptation is always there for it is a low investment and very high return
proposition. For the holder of IPR, to counter this is a big challenge, IPs are now a days
exploited through licensing and distribution agreements. These contractual agreements bring in
their own risk exposure

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 NEED FOR SPECIALIZED COVERAGE

Typical commercial insurance products, even sophisticated ones, do not cover intellectual-
property claims. Although some argue that the commercial general liability (CGL) policy's
advertising liability coverage provides protection for this exposure, insurance companies usually
disagree. Indeed, most court cases involving the CGL policy's coverage for intellectual-property
claims have ended in victory for the carriers. Most advertising liability insurance is written to
focus narrowly on advertising activities; even piracy is covered only when it is committed in the
course of advertising a product or service3. Since allegations of intellectual-property
infringement can be made in many contexts not involving advertising, it is apparent that a CGL
policy, even with its advertising liability insurance, is an ineffective source of coverage. Another
problem with relying on the CGL for coverage is that an infringement can be construed as an
intentional act and thus excluded.

POLICY PARTICULARS

Who is covered?

Keeping in mind that there are two main types of coverage-enforcement and defense (we will
ignore the rare first-party coverage)-most policies cover the usual insured: corporate entities,
directors, officers, stockholders and employees. Other parties, like distributors, can be named in
intellectual-property lawsuits, so it is important to identify them if you wish to extend them
defense coverage.

3
Guidance, Intellectual Property Insurance, https://www.gov.uk/guidance/intellectual-property-insurance, last seen
27 March 2017

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What is covered?

Enforcement policies typically cover the cost of attacking a third-party infringer. Benefits
include:

-Funding for intellectual-property suits an insured brings against third parties for infringement
initiated during the policy period.

-Coverage for the cost to defend against counter suits alleging that the insured's patent is invalid.

-Coverage for the cost to re-examine the insured's patent, if the defendant tries to invalidate it.

-Coverage for the costs to reissue the patent, if required to strengthen the claim.

Defense policies respond to allegations that the insured has infringed upon the intellectual
property of another.

TYPES OF POLICIES4

Intellectual-property defense cost (so-called "defense" coverage), which protects a company

against allegations that it improperly used the intellectual property of another. This is the most
common form of intellectual property insurance.

Intellectual-property abatement coverage (so-called "offense" or "enforcement" coverage),

which funds legal action against a party that improperly uses the insured's intellectual property.

Abatement coverage is available from few markets. While still offered by Intellectual Property
Insurance Services and Miller Insurance Services Ltd. (Lloyd's), many insurers may view the

4
Richard S Betterly,An Overview of Intellectual Property Insurance Market, Para 6

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product as having narrow application and thus outside their interests. It strikes us that the product
requires very specialized underwriting and likely will always remain a niche product, but a
useful one.

First-party intellectual-property coverage (similar to business income insurance), which can

cover the insured's direct loss when its revenue is diminished from a violation of its intellectual
property rights. This is an interesting product currently offered by only one market (Kiln)
participating in our survey.

IP asset protection (loss of value coverage): the policy compensates for the loss of IP value on
either a first person or third person basis i.e. loss in revenue resulting from, for example, an
unsuccessful defense of an infringement action preventing it from marketing of a product,
government action, etc. Assigning value to IP rights is a difficult job. The factors taken into
account for placing a value for an IP are licensing Royalties, contribution of IP to the sale of the
product, amount of R & D spent on patent, etc.

When considering which carrier to use for intellectual-property insurance, keep in mind that each
product is unique, so coverage terms should be the deciding point. However, also keep in mind
that this is a very complex product to underwrite, requiring great skill and knowledge of
intellectual-property law and business. In view of the nature of IP, we cannot have a standard
run-of the mill kind of product5. There is, therefore, a need to devise coverage based on clients
requirement. Apart from the obvious benefit of IPR policies, the indirect benefit may include
possible discouragement to the infringing firm, fearing the financial strength of the patent holder
provided by the muscle power of insurance company. Besides, patent insurance ensures long-
term survival of the company and builds investors confidence.

5
Stephen H. Sulmeyer and David A. Gauntlet, Intellectual Property Law and Insurance: Recent Developments-Jstor

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INDEMNIFYING ADVERTISING INJURY-

Under the coverage provisions in standard comprehensive general liability insurance policies,
there is often coverage for what is known as "Advertising Injury." Depending upon the wording
of the particular policy, coverage for Advertising Injury often exists with respect to claims made
against the insured for copyright infringement, trademark and trade dress (product design and
packaging) infringement and sometimes for patent infringement as well.

Advertising Injury" means injury arising out of an offense committed during the policy period
occurring in the course of the named Insured's advertising activities, if such injury arises out of
libel, slander, defamation, violation of right of privacy, piracy, unfair competition, or
infringement of copyright, title or slogan6

Even if a company has not previously focused on the need to have coverage for Advertising
Injury, it is quite possible that such coverage already exists as part of a standard comprehensive
general liability policy. Most state forms of liability insurance policies contain at least some
coverage for Advertising Injury. A potential concern with this definition from an insurance
coverage perspective is that it seems to require that the offense occurred "in the course of the
named insured's advertising activities." Insurance companies have succeeded at times in avoiding
coverage unless there is a "causal connection" between the infringement and the insured's
"advertising activities7 A benefit of this form of policy language is that it specifically covers
"unfair competition," which a court could view as broader protection than that afforded to
traditional copyright, trademark or patent infringement claims.8

6
Moritt Hock and Hamroff, Using General Insurance Policies to cover Liability Claims.
7
Hosel & Anderson v. ZV II
8
Ruder & Finn v. Seaboard Surety, 422 N.E.2d 518, 52 N.Y.2d 663, 439 N.Y.S.2d 858 (N.Y. 1981).

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It is often not enough that a claim falls within the definition of Advertising Injury as there are
specific exclusions contained in the insurance policy that could relieve the insurance company of
its obligations even though the claim may otherwise fall under a coverage definition. Below are
some typical exclusions to Advertising Injury coverage. Most policies will not contain all of the
exclusions listed but all policies will include several9:

This insurance does not apply to Advertising Injury:

Arising out of oral, written or electronic publication of material, if done by or at the

direction of the insured with knowledge of its falsity;
Arising out of oral, written or electronic publication of material whose first publication
took place before the beginning of the policy period;
Arising out of a wilful, dishonest, criminal or fraudulent act committed by or at the
direction of the insured;
Arising out of any breach of contract, except an implied contract to use another's
"advertising idea" in your "advertisement";
Arising out of the failure of goods, products or services to conform with any statement of
quality or performance made in your "advertisement";
Arising out of the wrong description of the price of goods, products or services

As held by the U.S. Court of Appeals for the Second Circuit10, "well recognized is the general
rule that ambiguities in an insurance policy are to be construed against the insurer, particularly
when found in an exclusionary clause" and "[a] term in an insurance contract that is reasonably
and fairly susceptible of more than one meaning is said to ambiguous his rule of contract
interpretation can help carry the day in a legal dispute with an insurance company over coverage
for Advertising Injury.

9
Supra note 6
10
Quitman Mfg. v. Northbrook Nat. Ins., 698 N.Y.S.2d 469

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Perhaps the most highly publicized, if not the most important, insurance case in the intellectual
property arena to be decided years ago is Bank of the West v. Superior Court.11 This case, which
expressly limits its focus to indemnity issues, may signal an end to the comparatively liberal
"California approach" to insurance policy interpretation in intellectual property cases. This
approach, dating back to CNA Casualty of California v. Seaboard Surety Co12. usually finds
that only a minimal causal connection is required between "advertising" and resulting "injury"
and that the various listed offenses which constitute "advertising injury" are ambiguous.

INDIAN SCENARIO

India Inc does not seem to be very familiar with patent insurance, which provides protection
against infringement of patents and associated costs.

In India, no insurance company, either in the public or private sector, offers any type of patent
insurance for patent-holders. Insurance Regulatory Development Authority of India
acknowledges that no insurance company in India has even applied for a patent insurance
product. This is because there is a perception that patent protection in India is not as stringent as
it should be. This perception is faulty. Once a patent is granted in India, Courts will protect rights
of patent holders. Hence, there is a vast scope for patent insurance in India.13

But extension for IP infringement is available under Directors and Officers Liability Policy in
Indian market, which is very limited in nature. These policies are issued on claims made basis
which means that the claims to become payable must occur within the policy period and must
also be reported within the policy period. One year discovery period can be provided at 125% of
the policy premium. This means that the claim can be reported and will be entertained also by
insurance company even up-to one year after expiry of policy.14

11
10 Cal. Rptr. 2d 538, 833 P.2d 545 (Cal. 1992)
12
. 2. 222 Cal. Rptr. 276 (Cal. Ct. App.
13
Concept of Patent Insurance,Harirani and Co., http://hariani.co.in/June_3_2013.php, last seen, 27 March 2017
14
Singh and Associates, Intellectual Property Insurance: A Future Gamechanger

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The policies are subject to a minimum deductible per claim. The insured has to compulsorily
participate as co-insurer (10% - 15%). Willful infringement is not covered. Infringement before
the effective date of policy is also not covered. Fines, penalties, etc. are not covered. The
premium ranges between 2 to 5% of limit opted. The following feature of the policy called
economic benefit clause needs special mention. This is meant to recover money advanced by
insurance company to the insured in certain circumstances. This clause has two dimensions.

When the insured wins a monetary award or settlement against a patent litigation, it will have
to reimburse the insurance company on a proportionate basis till the entire money advanced by it
is recovered.

The clause enables an insurance company to recover presumed economic benefit from the
insured

Apart from the obvious benefit of IPR policies, the indirect benefit may include possible
discouragement to the infringing firm, fearing the financial strength of the patent holder provided
by the muscle power of insurance company. Besides, patent insurance ensures long-term survival
of the company and builds investors confidence.

CONCLUSION

We remain excited and optimistic about intellectual-property insurance. Although many

insureds are still at the "Why do we need this?" stage of analysis, a role for this product clearly
exists, particularly for defense insurance. When one considers the value of intellectual property
and the high cost of defending infringement allegations, it is clear that many insureds should
seriously consider this coverage.

The relatively low limits available for defense insurance are not helping its popularity, although
we are sympathetic to the carriers' unwillingness to risk big limits in such an evolving area.

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Perhaps as intellectual-property litigation settles down, the risk will become easier to underwrite,
although that statement may be overly optimistic

The ground reality is that more and more intellectual property claims involving infringement of
patent, copyright and trademarks are being filed and litigated at a huge cost to both the parties.
Patent cases top the list. Whereas limited coverage for copyright/ trademark infringement is
available with CGL policy under the advertising injury section, patent per se is excluded from
the scope of the policy. A comprehensive cover that can address the concerns of various
stakeholders is required. The Indian insurance company must rise to meet this new market need.

BIBLIOGRAPHY.

CASES

Bank of West v. Superior Court

CAN Casualty of California v. Seaboard Surety Co.

ARTICLES

R. Qaiser, Professor, NIA, Pune, Intellectual Property Right Liability Insurance

Richard S Betterly,An Overview of Intellectual Property Insurance Market
Singh and Associates, Intellectual Property Insurance: A Future Gamechanger
Moritt Hock and Hamroff, Using General Insurance Policies to cover Liability Claims.
Stephen H. Sulmeyer and David A. Gauntlet, Intellectual Property Law and Insurance:
Recent Developments-Jstor
India Stumbles into IP Insurance, http://dunlapcodding.com/phosita/2006/02/india-
stumbles-ip-insurance
Concept of Patent Insurance,Harirani and Co., http://hariani.co.in/June_3_2013.php

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