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Intellectual property insurance evolves as exposures mount

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Intellectual property

CHICAGO — Managing intellectual property risk is an everchanging and increasingly difficult task, however more tools are available today to aid risk managers in their efforts to protect patents, copyrights and trade secrets, experts say.

With nearly 85% of the assets of S&P 500 companies in intangibles, companies are seeking more innovative ways to protect their intellectual property, said Nick Chmielewski, chief broking officer for IP solutions at Aon PLC in Chicago.

“The value is really in intangibles today,” Mr. Chmielewski said during a panel discussion at the 2019 Annual Hines Symposium on Wednesday afternoon in Chicago.

Companies have several ways to protect their patents, trademarks and trade secrets, said Grant Drutchas, managing partner at McDonnell Boehnen Hulbert & Berghoff in Chicago, including using civil litigation to enforce patents, the International Trade Commission to project a domestic industry from imports that may be infringing on their patent, and sometimes in the case of trade secrets, criminal proceedings are an option.

Insurance is also increasingly available to cover intellectual property risks.

Although trade secret and patent insurance coverage often was included in errors and omissions policies in the early 2000s, said Mr. Chmielewski, an “exodus” took place because of losses experienced by insurers. Now, with more data available to make an informed decision, he said insurers are investing heavily in the intellectual property marketplace, and he said he could “confidently” provide as much as $300 million in patent coverage in the right circumstances.

“The market is definitely evolving,” said Mr. Chmielewski. “Similarly, in the trade secret area, when you talk about value of trade secrets being $6 trillion, there’s a lot of innovation happening in that space as well, both from a first-party and third-party perspective.” 

Liz Walker, director of enterprise risk and global insurance for Groupon Inc. in Chicago, said the increasing number of high-profile technology-related lawsuits have “definitely driven risk management thought processes more toward ‘how can I insure for this.’”

She said patent infringement lawsuits are always a concern for risk managers, particularly when the company is working with vendors such as software-as-a-service providers who provide the technology that may be integrated into company’s own public-facing technology.

“If you’re using tech that’s integrated with your product, and it’s not your tech necessarily, you have to make sure that the tech you’re using has the proper rights,” she said. “If it’s integrated with your final product, you’re susceptible to infringement suits.”

To mitigate the risk, Ms. Walker said the company has been building out “robust indemnification provisions to the extent that we can” and focuses on vetting vendors before entering into a contractual relationship to make sure the technology they’re using has the proper rights.

In court, direct competitors who can show that they were commercially affected by an infringement can recoup their lost profits, said Mr. Drutchas.

“Their lost profits can be in some situations larger than your gross revenues,” he said. “If you’re not direct competitors, or can’t show direct financial loss through the infringement,” the plaintiff may be entitled to a reasonable royalty. And that number can vary widely because it’s often determined by a jury, he said.

In some jurisdictions, a company may also be enjoined from selling its product, said Michael Friedman, CEO of Hilco IP Merchant Bank in Chicago.

Gavin Souter, editor of Business Insurance, moderated the panel.

 

 

 

 

 

 

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