Presentation on theme: "How to Overcome Your Intellectual Property Fear Factor."— Presentation transcript:
How to Overcome Your Intellectual Property Fear Factor
Introductions Moderator: Margaret Reetz, Esq., Partner, Kerns Frost Pearlman Panelists: Kimberly Cauthorn, Esq., Director, Dispute and Legal Management Consulting, Duff & Phelps, LLC Robert W. Fletcher, President, Intellectual Property Insurance Services Corp Michael Headley, Principal, Fish & Richardson P.C. Garrett Koehn, President Northwest US, Crump Insurance Services, Inc. Ian Lewis, Director, SAMIAN Underwriting Agency 2
Agenda Types and Examples of Intellectual Property (IP) IP Risks, Claims Scenarios, and Insurance Coverage IP Insurance Application and Underwriting Processes IP Disputes and Insurance Claims Discussing IP Risk and Insurance with your Clients IP Insurance Case Studies 3
Now, This Is Scary! 4
TYPES AND EXAMPLES OF IP 5
You Cant Escape IP: Its Everywhere 6 Intellectual property (IP) refers to creations of the mind: inventions, literary and artistic works, and symbols, names, images, and designs used in commerce. Intellectual property protection is a crucial part of each clients business strategy. [Our law firm] helps us patent our innovative products and packaging. [They] think outside the box (or bottle). Ocean Spray Cranberries, Inc. [F&R client]
You Cant Escape IP: Its Everywhere 7 It is imagination made real. It is the ownership of a dream, an idea, an improvement, an emotion that we can touch, see, hear, and feel. It is an asset just like your home, your car, or your bank account. [USPTO website] PATENTS protect inventions and provide rights for up to 20 years; 3 broad categories: utility (medications, computer hardware), design (the look of an athletic shoe, Star Wars characters), plant (Hybrid tea roses). (Creative Idea) TRADEMARKS protect words, names, symbols, sounds or colors that distinguish goods and services (can be renewed). [The roar of the MGM, the pink of Owens-Corning insulation]. (Origin/Reputation/Branding) COPYRIGHTS protect works of authorship: writings, music, works of art tangibly expressed. (Life of the author + 70 yrs.) (Message) TRADE SECRETS: information that companies keep confidential to give them an advantage over their competitors. [Formula for Coca-Cola]. (Know-How) Invention Branding Message Know-How
9 Courtesy of SAMIAN Underwriting Agency All Rights Reserved. Copyright in Software Registered Designs Trade Marks Patents Domain Names Licensed Manufacturers Licensed Distributers USB Standards Trade Secrets …and we mean everywhere.
IP RISKS, CLAIM SCENARIOS, AND INSURANCE COVERAGE 10
Non-Patent IP Risks: What Keeps Your Clients Up at Night? Claim Scenarios Copyright –Software –Publisher Trademark –Shockwave –Yahoo Trade Secret –Customer Lists –Employee hiring issues 11
Types of Non-Patent IP Insurance to Help your Clients Sleep at Night TypeCoverage Media Liability – Media companys business activities (or any traditional company with media exposures) – Non-media companys marketing and advertising of its products and services – Copyright infringement, trademark infringement, sometimes design patent infringement, sometimes theft of trade secret, title, slogan, trade name, trade dress, service mark, service name E&O (often technology related) – To cover claims arising out of the policy holders professional service activities, including software development – May cover certain aspects of hardware – Depending on market, may include or negotiate IP protection, but cover typically does not include trade secrets or patent Cyber Liability – To cover claims arising out of cyber activities; coverage may be limited to activities on the Internet – Copyright infringement, trademark infringement, piracy if related to copyright or trademark infringement claim 12
Types of Non-Patent IP Insurance to Help your Clients Sleep at Night TypeCoverage Package Carriers – Typically exclude IP in their base forms (may cover some advertising exposures) and tend to be conservative about offering it on a limited basis by endorsement Unauthorized Disclosure – Trade secret theft protection and protection against unintentional revelation of personal identifier information IP Stand- Alone – Usually offers the option of trademark, copyright, and/or patent infringement liability coverage 13
Patent Risks: What Gives your Clients Nightmares? 14 Average Patent Infringement Suit Costs Survey: Amount in Controversy $25M End of Discovery: $490K $1.6M $3.6M Through Trial: $916K $2.8M $6.0M Costs above are litigation costs only and do not include awards for costs and damages. *2011 survey, American Intellectual Property Law Association. Survey is conducted every two years.
Patent Risks: What Else Gives your Clients Nightmares? Contractual indemnification IP reps and warranties in M&A transactions Company rolling out a new product line or entering a new geographic market or industry market sector NPE/troll suits 15
Patent Risks: Sweet Dreams Instead of Nightmares Small player in electronic security industry sued by dominant player in the industry for infringement of patents on electronic surveillance tags. Patent insurance allowed the policy holder to pay defense costs without diverting significant resources away from business operations. It also allowed the policy holder to mount a defense and win at trial in a plaintiff- friendly venue. As the policy holder said: You never know when you will need insurance. 16
Patent Risks: Sweet Dreams Instead of Nightmares Small shoe manufacturer and distributor was accused of infringement by a non-practicing-entity (NPE). The NPE had already successfully enforced its patent against several smaller manufacturers unable to pay defense costs. The policy holder discussed the situation with IPISCs Litigation Management department, which was able to offer guidance on how to respond to the NPE. Using the power of its defense policy, the policy holder was able to convince the NPE to drop its frivolous claim. 17
Types of Patent Insurance: Ways to Get a Good Nights Rest TypeCoverage Patent Infringement Liability (Defensive) – Defense costs – Damages – Infringement liability indemnification obligations Patent Enforcement/Abatement (Offensive) – Litigation costs to enforce patent rights against infringer Patent Asset Value & Protection (Multi-Peril) – Loss of patent asset and related product or licensing revenue, and/or – Consequential loss due to imposition of injunction for infringing anothers patent Reps & Warranties (M&A) – Carved out of standard reps and warranties policy – Title, infringement, validity, enforceability 18
IP INSURANCE APPLICATION AND UNDERWRITING PROCESSES 19
Dont Be Left in the Dark: the Non-Patent IP Insurance Application and Underwriting Process Time – depends on marketing effort; one day to several weeks Submission material Financial statements Application (coverage specific: tech E&O versus Cyber versus Media, etc.) Common hang-ups include: Social Media - take-down procedures, automated? line of business IP screening procedures, if using others content/IP To approach all markets, need to engage wholesaler and/or London broker although, there is some market overlap between the two 20
No Monsters in the Closet: The Patent Insurance Application and Underwriting Process Which risk(s) is your client seeking to cover? –Client is worried about being sued for infringing someone elses patent = Patent infringement liability coverage –Client is worried about someone infringing its patent = Patent enforcement coverage Has your client told the underwriter everything, even those pesky offer to license letters? Expect detailed questions about: – Patents – Products – Financials – Patent risk management policies and practices – Patent dispute history, including cost How much risk is your client willing to retain? – SIR – Co-insurance 21
No Magic Spells: Patent Insurance Policy Forms The form –Typically claims-made and reported, rather than occurrence (claim must be made during the policy period) – Typically written as an aggregate limit of indemnity ($1-10 million LOL) Conditions – Geographic and temporal scope – Scheduled products, IP, contracts – Choice of counsel and duty to defend: varies by carrier – Definitions: Prior Acts, Claim, Litigation Costs or Defense Costs – SIR and co-insurance Exclusions – Willfulness – Consequential damages – Certain counterclaims and declaratory judgment actions – Specific exclusions (i.e., claims brought by certain entities or certain patents) 22
No Scary Stories: Available IP Insurance Markets 23 Available Contracts Insurance Markets Media Liability Market Ace Westchester, AWAC, Axis Pro, Beazley, CFC/Lloyds, Chartis, Hiscox/Lloyds, One Beacon, ThinkRisk Technology / Cyber Markets Ace Westchester, Aspen, AWAC, Axis Pro, Ace/Lloyds, Barbican/Lloyds, Beazley, CFC/Lloyds, Chartis, CN A, Corona, Euclid Managers/ Hudson, Hiscox/Lloyds, Kiln, NAS/Lloyds, ThinkRisk, XL Patent IPISC, Liberty, RPX, Samian (Europe offers additional carriers)
IP DISPUTES AND INSURANCE CLAIMS 24
Falling off the Cliff: IP Litigation Typical Allegations: –Patent: Plaintiff alleges it owns and has standing to sue for infringement of a U.S. patent [specifically named]; defendant has infringed patent by conducting commerce on its website, which is covered by at least several claims of the named patent; plaintiff seeks judgment, injunctive relief, damages, attorneys fees/costs. –Copyright: Plaintiff (owner of various works) alleges copyright infringement, contributory copyright infringement, and vicarious copyright infringement. Plaintiff seeks equitable relief to prevent or restrain infringement of Plaintiffs copyrights, including a permanent injunction requiring that Defendant ceases infringing Plaintiffs copyrights, an award of either actual damages and profits derived by Defendant as a result of the infringing activities or statutory damages, attorneys fees and costs. 25
Falling off the Cliff: IP Litigation (contd) Typical Allegations: –Trademark: Plaintiff alleges defendant has conducted business under a specific designation virtually identical to Plaintiffs registered mark. Plaintiff seeks damages for infringement in violation of the Lanham Act and false and deceptive trade practices in violation of state law. Plaintiff seeks permanent injunctive relief, monetary damages, Defendants profits, attorneys fees and costs. –Trade Secrets: Plaintiff alleges Defendant, founded by former employees of Plaintiff, stole Plaintiffs trade secrets, customer lists, and other proprietary information. Plaintiff seeks damages for trade secret misappropriation and unfair competition, including injunctive relief, damages, recovery of all profits attributable to Defendants alleged wrongful acts, and attorneys fees and costs. 26
Falling off the Cliff: IP Litigation (contd) Critical Phases: Patent – Markman Hearing Discovery Copyright – Beyond Motion to Dismiss Trademark – Pre-suit/pending suit TTAB proceedings Trade Secrets – Identification of Trade Secrets Discovery Essential 27
Breaking the Fall: the Claims Process Enforcement policies: may first be required to submit evaluation and claims chart before claim accepted and lawsuit initiated Other first party policies: may require a financial valuation Infringement liability policies: may need to obtain a legal opinion of non-infringement or invalidity before claim will be accepted Claims handling will depend on whether the insurer has a duty to defend Assuming no duty to defend, counsel selection is usually flexible but may be subject to different retentions and co-insurance percentages, and counsel will be expected to adhere to insurer-mandated billing, budgeting, and reporting procedures Notify the carrier early and often: notice of circumstance provisions Carrier settlement approval usually required No surprises 28
Making the Pain Go Away: Claim Resolution Strategies The OHare Exit: Meet at a neutral site and reveal you have insurance = early settlement Initiate a re-exam of the asserted patent(s) and move for a stay Agree to early mediation 29
Reality Games: Discussing IP Risk and Insurance with your Clients 30 Opportunities to review intellectual property exposure: In reviewing other insurance coverage: Package Placement -- review implications of Advertising Related losses Errors and Omissions -- may or may not include some IP in base form Directors and Officers -- not part of coverage offering, but right audience, especially GC As part of general risk audit. Intellectual property should be specifically discussed in four parts: Patents (if any) Trade Secrets (everyone has them -- ask about employees) Copyrights relating to technology (in particular software companies) Trademark and Media related topics and Web publishing exposures Do they simply use their web page as a brochure, or do they publish content? Have they had any trademark or service mark fights? Are they launching any new products that may have naming exposures?
Traps for the Unwary 31 Problems to Avoid: Failure to notify of claim: Client purchased media liability coverage. The treasurer (insurance contact) failed to tell general counsel they had coverage. The company then wound up in significant trademark litigation. The GC quickly settled suit for $2 million. No coverage applied! Events that would trigger a claim that are not noticed. For example, a takedown notice may trigger the definition of claim, but may not be noticed. Duty to defend or consent to counsel: Too many times to explain a single incident! Here is what happens: Duty to defend policy is purchased. The insured is sued, quickly engages counsel, then notifies the carrier. The carrier does not want to use insureds (expensive) counsel. Fight begins over counsel, rates, etc. Not Understanding the coverage purchased: Beyond obvious limitations of what type of IP cover you want or purchase (e.g., Patent v Copyright), failure is in to what the coverage applies -- Internet only? Advertising only?
Facing Reality: A Few Takeaways 32 Clearing up common misconceptions: 1.We dont need insurance for IP risk because we dont have any IP. 2.When asked about patent exposures, responds Dont we already have IP insurance? 3.Isnt it too expensive? 4.Wont the carrier make us use inexperienced, inexpensive legal counsel? 5.I dont want to share the companys confidential information with the carrier. 6.My lawyer says we dont have any risk because we have a freedom to operate opinion. 7.Were indemnified by our suppliers. 8.My IP lawyer carries malpractice insurance. 9.Whats IP? 10.Didnt the America Invents Act fix everything?
Facing Fears: Unauthorized Disclosure Coverage for Frozen Food Manufacturer Term - 1 Year Premium - $60, Limits - $3M per claim/aggregate SIR - $100K Co-pay - none Endorsements: Damages, Additional Insureds, Schedule of Insured Confidential Information 33
Facing Fears: Cyber Liability/Tech E&O Software Company with $10 million in Revenue Premium - $10,000, $25,000, $35,000 Limits - $1, $3, $5 million respectively per claim/aggregate SIR - $25 to $50,000 Co-pay - none Key IP Coverage - Copyright, Trademark, Trade name, some Trade Secret coverage Excluded: Patent 34
Facing Fears: Patent Enforcement Coverage for 5 Seed Production Patents + Applications Term - 1 Year Premium - $28,038 Limits - $1M per claim/ $2M per aggregate SIR - $0 Co-pay - 20% Endorsements: Territory, Renewal, Schedule of Insured Intellectual Property 35
Facing Fears: Patent Infringement Liability Coverage of Liquid for Use in Septic Systems Term - 1 Year Premium - $12,192 Limits - $1M per claim/aggregate SIR - $100K Co-pay - 10% Damages Covered Endorsements: Additional Insured, Renewal, Schedule of Insured Manufactured Products 36
Facing Fears: Multi-Peril Coverage of Medical/Healthcare Products Term - 2 Year Premium - $44,438 Limits - $2M per claim/aggregate SIR - $150K Co-pay - 10% Perils: Business Interruption, Cost of Redesign, Remediation and Reparations 37
Questions & Answers 38
Many thanks to … Peggy Reetz Kimberly Cauthorn Robert Fletcher Michael Headley Garrett Koehn Ian Lewis 39