Have You Considered IP Insurance?
Many small companies erroneously assume that their Commercial General Liability (CGL) Insurance policy will cover defense costs in case of a suit over intellectual property (“IP”) infringement, such as a patent infringement claim. Insurers typically have two principal duties under a third party CGL policy: the duty to defend and the duty to indemnify. The duty to defend gives rise to an insurer’s obligation to pay expenses that the insured company sustains in the course of investigating and defending against a lawsuit. Often, the insurer is obliged to defend against damages covered by the policy and also damages potentially covered by the policy.
In California, the duty to defend under a CGL policy generally does not extend to claims of patent infringement. One court case interpreting California law has specifically held that patent infringement can constitute an advertising injury that may be covered under a liability policy when the patent is on an advertising process instead of the product being advertised.
However, this is but a narrow exception with very specific application that may not be useful against traditional infringement claims. Most modern CGL policies contain an explicit exclusion of any IP infringement claims, leaving companies of all sizes with IP assets exposed to litigation risk. Many companies do not realize that they need IP insurance to protect their assets and market share and to deter claims brought by patent trolls.
Intellectual property lawsuits remain on an upswing, with many inactive patent holding entities filing suit for the sole purpose of extracting a sizeable settlement from smaller companies that lack the resources to defend against a suit. IP insurance policies allow companies to address this risk just like any other business risk. Such a policy can serve as a much needed life preserver for startup companies facing frivolous IP infringement claims from experienced entities. If your company’s value is heavily dependent on IP assets, you may be well served to consider an IP insurance policy as part of your overall corporate risk strategy.