IP Assets and Infringement Claims: Insurance Coverage Considerations What IP Counsel Needs to Know

Transcription

1 presents IP Assets and Infringement Claims: Insurance Coverage Considerations What IP Counsel Needs to Know A Live 90-Minute Teleconference/Webinar with Interactive Q&A Today's panel features: Carl E. Metzger, Partner, Goodwin Procter LLP, Boston Kimberly Klein Cauthorn, Director, Intellectual Property Practice, Duff & Phelps, LLC,, Houston Tuesday, September 14, 2010 The conference begins at: 1 pm Eastern 12 pm Central 11 am Mountain 10 am Pacific You can access the audio portion of the conference on the telephone or by using your computer's speakers. Please refer to the dial in/ log in instructions ed to registrants.

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4 Program Agenda History of intellectual property insurance market and coverage options for business insureds The current need and market for intellectual property insurance, and how it works Key practical tips and considerations going forward Questions and answers 4

5 The History of the Intellectual Property Insurance Landscape IP liability and litigation risks have always been present, but the landscape has become substantially more treacherous in recent decades The insurance industry s relationship with providing coverage for such risks has been mixed Certain industry-specific risks have had tailored coverages (such as for media companies) Typical companies have had limited IP coverage through policies i principally i designed d for other risks The Commercial General Liability (CGL) insurance coverage battleground dfor IP claims 5

6 A Checkered Landscape In contrast to other insurance coverage areas, the intellectual property coverage options for business insureds have historically been limited What makes this risk different from other major risks that insurers routinely cover? A landscape of danger and opportunity In the past, insurers who have tried to take advantage of this opportunity (particularly in the patent infringement context) have encountered difficulties and losses A cycle of advances and retreats 6

7 A New IP Coverage Landscape is Evolving Although IP claims coverage has been restricted under some traditional coverages, the options for specialized coverages have improved Technology errors and omissions coverages and cyberliability coverages offer certain limited but broader IP coverages For business transactions where IP reps and warranties are at tissue, R&W coverage for the IP rep may be available Patent infringement coverage the evolving frontier 7

8 Section No. 1 Why Buy IP Infringement Liability Insurance? 8

9 Insurance Decreases Financial Risk IP Insurance = Decreased Risk Economic Downturn Increased uncertainty and risk Interest in ways to decrease risk Greater likelihood that IP assets will become available as companies go under or look for ways to generate quick revenue Greater uncertainty about who holds IP assets and greater risk related to how such IP assets may be used, especially patent assets 9

10 IP Infringement Liability Risk Specialty Line, Stand-alone Insurance Will Cover: Defense Costs Settlement or Damages Costs For Past Infringement Some Contractual Liabilities Can cover patent, copyright, and trademark infringement liability risk, or any combination of the three 10

11 IP Infringement Liability Insurance Is Useful When... Company is negotiating a contract where IP infringement liability indemnification is an issue or IP insurance is required: License Distributor agreement Supplier or vendor agreement OEM agreement Joint development agreement In an M&A Transaction:» Company is purchaser looking for protection from potential patent exposures» Company is seller looking for relief from burdensome reps & warranties, escrow, indemnification, delay Company is rolling out a new product line or entering a new geographic market 11

12 Section No. 2 How Do You Apply for IP Infringement Liability Insurance?

13 How to Access IP Insurance Products Applicant Ins. Advisor/Broker MGA or Insurer Through insurance intermediaries (brokers/agents) However, not all insurance brokers are equal when it comes to knowledge of IP insurance products The insurance applicant should: select an insurance broker with specific experience in this area use a consultant to work with current broker, or suggest the retail broker use a knowledgeable wholesale broker Keep an attorney involved in the process 13

14 Submission Process Applicant Submits application Insurer Offers terms and conditions Insurer Provides indication of interest Insurer & Applicant Negotiate Applicant Detailed submission Underwriting fee Legal opinion or patent search Applicant Accepts terms and conditions and pays premium Insurer Conducts underwriting analysis Insurer Places the coverage Varies by carrier and by risk(s) being covered The submission and underwriting process rarely takes less than two weeks and usually takes around 4 weeks. 14

15 Full and Accurate Information Required Which risk(s) is the applicant seeking to cover? For which products or services or IP indemnification obligations is the applicant seeking coverage? Patent? Copyright? Trademark? All three? Only patent? Trade Secret? Where does the applicant do business? The requested geographic coverage should ldbe co-extensive with where the applicant is doing business. Has the applicant told the carrier everything? Come clean now, even about those pesky offer to license letters. How have any past IP disputes been handled and what did they cost? How much risk is the applicant willing to retain (SIR)? How much risk is the applicant willing to share (co-insurance)? 15

16 Underwriting Process Varies by carrier and risk being covered Expect detailed questions about: Products/services to be insured against IP infringement liability risk IP covering products/services to be insured Financials IP risk management policies and practices IP dispute history, including cost Pricing Based on risk profile Ranges anywhere from 1-10% rate-on-line (for example, 5% premium rate on line for $1M limit of indemnity policy = $50,000) Price deflators/inflators = deductible, co-insurance percentage, industry, claims history, market dynamics, strength of IP 16

17 Conditions and Exclusions Terms and conditions vary with the carrier and with each applicant, but be aware of the following: The form Typically claims-made, rather than occurrence Typically written as an aggregate limit of indemnity Typically a duty to indemnify (insurer must reimburse insured for funds expended to defend claim) rather than duty to defend (insurer must assume control of claim, including selection of defense counsel) policy form Conditions Geographic scope Scheduled products, IP, contracts Choice of counsel: varies by carrier Prior Acts definition Claim definition Litigation Costs or Defense Costs definition SIR and co-insurance Exclusions Willfulness Consequential damages Certain counterclaims and declaratory yjudgment actions Specific exclusions (i.e., claims brought by certain entities) 17

18 Section No. 3 How Does the Claims Process Work?

19 Claims Process Tips Varies by carrier May need to obtain a legal opinion of non-infringement or invalidity before claim will be accepted Claims handling: How much is written into the policy form? Counsel selection is usually flexible: SIR amount and co-insurance percentage may be lower if agree to use insurer-approved claims counsel Notify the carrier early and often: notice of circumstance provisions Carrier settlement approval usually required No surprises 19

20 Section No. 4 What Is Available?

21 Appetite IPISC For patent, scope of product/service coverage co-extensive with patent claims Can offer up to $5 million LOI, but higher limits may be available Submissio Can first request an indication n Process Application + underwriting fee or patent search or legal opinion Form Claims SIR = minimum 2% of per claim limit Co-insurance = minimum 10% Claims made and reported Worldwide coverage available by endorsement 90 day waiting period Opinion of non-infringement required Short list of approved claims counsel Capacity Gotham and Lloyd s of London 21

22 SAMIAN Appetite Submissio n Process Form Claims Capacity Can offer up to $15 million LOI, but higher limits up to $50 million are available Covers infringement liability + offers endorsements available for open source, D&O, trade secret, contractual liabilities Worldwide coverage is automatic unless request otherwise Also offers reps and warranties coverage Staged submission process: first apply for and receive non-binding indication Underwriting fee ranging from $1,000-2,500 Claims made and reported SIR depends on whether use approved claims counsel Co-insurance depends on whether use approved claims counsel Claims acceptance and management process included within policy form Lloyd s of London 22

23 Appetite Submissio n Process Liberty International No software Covers infringement liability + contractual obligations, contractual disputes, and D&O Can offer up to $5 million LOI Not yet established Form Not yet available Currently offering excess coverage and following form of primary carrier Claims Capacity Information not yet available Liberty International 23

24 Other Options Ambridge Darwin Chartis? Captives IP reps & warranties coverage, as well as IP infringement liability infringement indemnification coverage for licensing deals Patent infringement liability endorsement on tech E&O policy May offer something similar to Darwin May be some captives being formed; access available only to members of certain organizations 24

25 IP Insurance Providers Table PROVIDER PRODUCT IP infringement Liability -Related Coverage Allied World/Darwin Tech E&O Patent infringement endorsement Ambridge MGA Partners Transactional and IP reps and warranties, coverage for IP infringement indemnification in licensing Litigation Risk deals, IP litigation appeal risk Insurance Chartis Patent Patent indemnity for companies domiciled in the U.S. Infringement Liability IPISC: Intellectual Property Defense Cost Damages and defense costs for TM, patent and infringement actions Insurance Services Corporation Liberty Munich Re/MARP Reimbursement Insurance Intellectual Damages and defense costs for TM, patent and infringement actions Property Infringement Insurance IP Infringement Patent, TM, infringement liability coverage for non-us companies only Liability Insurance SAMIAN (Subsidiary of IPGuard TM, Patent, infringement liability coverage Safeonline) SAMIAN (Subsidiary of Safeonline) RepSure IP reps and warranties coverage 25

26 Practical Tips and Considerations The first step is to carefully assess the IP liability risk landscape for your company Conduct a risk mapping analysis, including severity and frequency of possible claims, and seek kthe advice of experts Assess the extent to which risk mitigation protocols already are in place for the indentified IP risks Indemnification rights and insurance coverage are key components of such protocols Remember, IP insurance is an IP risk management tool, not the IP risk management tool 26

27 Litigation Considerations Analyze all insurance coverages that could be applicable Litigations and claims evolve over time, and your insurance coverage may as well, so continue to consider possible coverage IP litigation buy-out coverage -- specialty coverage options may exist If you are intending to be a plaintiff in an IP litigation, consider the defendant s possible insurance coverages -- to trigger or not to trigger? 27

28 Carl E. Metzger, Esq. Goodwin Procter LLP Exchange Place 53 State Street Boston, MA Tel: (617) Kimberly Klein Cauthorn Duff & Phelps, LLC 1111 Bagby Street, Suite 1900 Houston, TX Tel: (713)