Back in the 1970s, approximately 80% of the value of any business was to be found in its tangible assets – the property, the machinery and the products it produced. But fast-forward 50 years and that picture has been flipped on its head.
The real value of a business today lies in its intangible assets, estimated to be between 80-90%. Intangible assets represent the intellectual property (IP) that sits behind the product or service and the patents that are designed to protect it. Despite that, in a commercial insurance market worth billions of dollars, it is estimated that the IP insurance accounts for just $60m… globally.
With the intrinsic value of any given company shifting towards intangible assets, it appears that while some businesses have recognised this shift and responded to protect themselves, others have not followed the change in direction with their insurance buying behaviour.
There are a host of possible reasons for this – ignorance of the product and how it works, a belief that they don’t hold any IP and that even if they do it’s not at risk – but as Stéphanie Landes, senior underwriter for financial lines at Tokio Marine HCC warns, the threats to company IP have never been more pressing.
“Companies can take a variety of legal steps to protect their IP but that doesn’t prevent an expensive legal claim being brought against them,” she explains.
“For example, patent trolls are a real threat and will bring litigation against companies of all sizes claiming IP or patent breaches. And with the cost of IP legal claims ranging from the tens of thousands to millions of euros, the threat is very real, particularly for smaller businesses.”
Patent trolls are companies that, more often than not, don’t actually produce any goods or services but buy up IP and patent rights from active or bankrupt companies with the sole intention of bringing legal claims against any company they can, arguing that their IP rights have been breached.
“They are usually based in the US and will start their proceedings with mediation to try to secure a payment for the claimed breach. But if they don’t get a settlement, they will take it to court, and when you consider that US IP lawyers charge as much as $1,500 an hour, the costs for any business can be prohibitive,” says Stéphanie.
And with an estimated 12,000 IP cases filed every year in the US alone – driven to some extent by the surge in the development and use of AI and renewable energy technology – it’s obvious that the appetite to challenge IP breaches is growing.
“It is a real and increasing risk for many companies, particularly those in the software and tech sectors as there is a huge amount of IP that sits behind the products and services they create,” Stéphanie says.
“Our core appetite lies in the software and tech, life science and manufacturing sectors but our protection is available to a wide range of organisations as we know that patent trolls will go after any kind of company and of any size if they think they can pursue a successful claim.”
And it is to protect against this kind of legal pursuit that Intellectual property insurance has been designed, with two main types of cover available – one that protects against legal action and one that allows a business to pursue it.
“The most common type is a defence policy that provides cover for damages, defence and plaintiff costs and it will cover the cost of a product recall following a successful claim against the insured,” Stéphanie explains.
“On the other hand, we have the enforcement cover, which allows policy holders to sue someone who has breached their IP and pays for the associated legal expenses as well as any investigative costs that may arise.”
While the life sciences and manufacturing sectors are core targets, she says that the most at-risk businesses are those that don’t manufacture anything and therefore believe they have no risk to protect. But as their operations become increasingly digital in nature, ignoring the protection afforded by IP insurance leaves them exposed to claims.
“Most big service companies, like large banks and retailers, are digital now and they have their own technology and IT subsidiaries that have IP rights inherent within them. That puts them at risk,” says Stéphanie.
“Being a service company rather than a manufacturer doesn’t mean you don’t have any valuable IP, and you could find yourself on the wrong end of a legal claim if you don’t protect it. And even if the claim isn’t valid, answering it can be very expensive and distracting to the business.”
And she adds that with patent trolls targeting start-ups and small businesses, insurance can make the difference between survival and failure: “Having the insurance in place is vital as many companies won’t have the funds to defend themselves. A €1m limit on your policy can provide a very high level of protection, even in response to the most ambitious legal claims.”