Blog: Why brokers need to think about intellectual property insurance

Maddi Brown CFC

CFC's Maddi Brown discusses the need for SMEs to protect themselves amid a rise in the number of disputes as larger companies allege IP infringements in the hope that their smaller target won’t have the resource with which to defend itself.

One of the many outcomes of the pandemic so far has been the recognition by businesses of all shapes and sizes of the importance of their intangible assets and the need to protect them – and this includes their intellectual property (IP).

There is more IP in existence than ever before and in more areas than many people realise. As companies constantly look for ways to improve their processes and develop new solutions, new technologies are being developed in less obvious industries such as construction, agriculture and manufacturing.

This brings new exposure to IP litigation to companies in these industries which previously had not faced such a risk and so had no need to discuss it – but that’s changing as the world starts to emerge (hopefully) from the worse of the pandemic, all businesses are searching for ways to grow revenues again.

A key issue for many SMEs is that they don’t always provide an end solution; rather they are part of a larger value chain which means they have contracts to abide by. Most of these will have an indemnity obligation on the SME which means they need to both indemnify and enforce their IP – a larger risk than many can afford.

And as SMEs start to grow and potentially gain market share, they become vulnerable to strategic litigation from larger competitors who can’t afford to lose further business and revenue. The aim of these larger businesses is to either push their smaller rivals out of the market or push their market value down so they become a palatable acquisition.

If an SME doesn’t have any IP insurance in place, the time and both physical and budgetary resources required to defend themselves against litigation is often out of reach. It’s unlikely that many will have had occasion to have worked with an IP specialist lawyer so there is a huge amount of uncertainty about quality of advice and representation when it comes to instructing one in a dispute and their charges are often unaffordable, especially for micro businesses.

But it’s clear there is a growing need amongst SMEs for the protection that IP insurance delivers. We are seeing an increasing number of disputes – many of them spurious – as larger companies allege IP infringements in the hope that their smaller target won’t have the resource with which to defend itself.

In one recent case we managed, a manufacturing business who is fast developing in their space had cause to call on their insurance within six months of purchasing cover when they were contacted by a large corporate competitor who claimed that the insured was infringing their product.

When the insured had developed their own product, they had done deep level due diligence of their market to ensure they were not infringing and their concept was novel. In particular, their solution has a very large and obvious differentiator to this particular competitor.

It was clear from the outset that this claim had no merit and that their competitor was simply trying to disrupt the insured’s operations. However, to dispute their claim, they had to undertake further due diligence and assessment and all at significant cost. This claim took months to resolve and resulted in a cross-licence between the companies.

The insured’s IP policy covered the legal costs incurred defending the dispute. The policy also provided access to specialist legal support and, should it have been required, it would have paid damages and settlement costs.

There’s no doubt the protection their IP policy afforded allowed them to survive the dispute and maintain their position against their larger competitor – real David and Goliath stuff.

This case is just one of many that demonstrate how IP insurance is not only valuable as part of an SME’s risk management practices, but also a business enabler for the SME sector.

SMEs both need and want this cover – but many don’t know it exists so now is the right time for brokers to start opening up discussions with their clients and helping them protect their IP exposures.

Maddi Brown is intellectual property practice leader at CFC

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