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IP Assets and Infringement Claims: Insurance Coverage Considerations

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Coverage ConsiderationsWhat 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

A Live 90-Minute Teleconference/Webinar with Interactive Q&A

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Tuesday, September 14, 2010

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Program AgendaProgram Agenda• History of intellectual property insurance

market and co erage options for b sinessmarket 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

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The History of the IntellectualProperty Insurance Landscape

• IP liability and litigation risks have always beenIP 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

li i i i ll d i d f th i kpolicies principally designed for other risks

• The Commercial General Liability (CGL) insurance b l d f l icoverage battleground for IP claims

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A Checkered LandscapeA Checkered Landscape

• In contrast to other insurance coverage areas, theIn 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 opportunitypp y

• 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 retreatsA cycle of advances and retreats

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A New IP CoverageLandscape is Evolving

• Although IP claims coverage has been restricted underAlthough 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 coveragesbroader IP coverages

• For business transactions where IP reps and warranties t i R&W f th IP bare at issue, R&W coverage for the IP rep may be

available

• Patent infringement coverage – the evolving frontier 7

• Section No 1• Section No. 1

Why Buy IP Infringement Liability Insurance?

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Insurance Decreases Financial Risk

IP Insurance = Decreased Risk

Economic Increased uncertainty

Interest in ways toDownturn uncertainty

and riskways to

decrease risk

Greater likelihood that IP assets will become available

Greater uncertainty about who holds IP assets and

as companies go under or look for ways to generate

quick revenue

greater risk related to how such IP assets may be used,

especially patent assets

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IP Infringement Liability Risk

Specialty Line, Stand-alone

Ins an e Will Insurance Will Cover:

Defense Costs

Settlement or Damages Costs

For PastSome Contractual

LiabilitiesInfringement

Can cover patent, copyright, and trademark infringement liability risk, or any combination of the three

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IP Infringement Liability Insurance Is Useful When . . .

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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• OEM agreement• Joint development agreement

In an M&A Transaction:

» Company is purchaser looking for protection from potential patent exposuresexposures

» 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

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Company is rolling out a new product line or entering a new geographic market

• Section No. 2

How Do You Apply for IP Infringement Liability Insurance?

How to Access IP Insurance Products

Applicant Ins. Advisor/Broker MGA or Insurer

Through insurance intermediaries (brokers/agents)• Through insurance intermediaries (brokers/agents)

• However, not all insurance brokers are equal when it comes to knowledge of IP insurance products g p

• The insurance applicant should: – select an insurance broker with specific experience in this area

use a consultant to work with current broker or– 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

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Submission ProcessOff d

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• The submission and underwriting process rarely takes less than two weeks and usually takes around 4 weeks.

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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?g g– Patent? Copyright? Trademark? All three? Only patent? Trade Secret?

• Where does the applicant do business? The requested geographic coverage h ld b i i h h h li i d i b ishould be 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” lettersthose 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)?How much risk is the applicant willing to share (co insurance)?

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Underwriting Process

• Varies by carrier and risk being covered

• Expect detailed questions about:• Expect detailed questions about:– Products/services to be insured against IP infringement liability risk– IP covering products/services to be insured

Financials– 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 IPclaims history, market dynamics, strength of IP

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Conditions and ExclusionsTerms and conditions vary with the carrier and with each applicant, but be aware of

• The form– Typically claims-made, rather than occurrence – Typically written as an aggregate limit of indemnity

the following:

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

C diti• Conditions– Geographic scope– Scheduled products, IP, contracts – Choice of counsel: varies by carrier

“Prior Acts” definition– Prior Acts definition– “Claim” definition– “Litigation Costs” or “Defense Costs” definition– SIR and co-insurance

• Exclusions– Willfulness– Consequential damages– Certain counterclaims and declaratory judgment actionsy j g– Specific exclusions (i.e., claims brought by certain entities)

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• Section No. 3

How Does the Claims Process Work?

Claims Process Tips

• Varies by carrier

• May need to obtain a legal opinion of non-infringement or invalidity before l i ill b t dclaim 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• Notify the carrier early and often: notice of circumstance provisions

• Carrier settlement approval usually required

• No surprises

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• Section No. 4

What Is Available?

IPISCwww.patentinsurance.com

Appetite •For patent, scope of product/service coverage co-extensive with patent claimswith patent claims•Can offer up to $5 million LOI, but higher limits may be available

Submissio •Can first request an indicationSubmission Process

Can first request an indication•Application + underwriting fee or patent search or legal opinion

Form •SIR = minimum 2% of per claim limitp•Co-insurance = minimum 10%•Claims made and reported•Worldwide coverage available by endorsement•90 day waiting period•90 day waiting period

Claims •Opinion of non-infringement required•Short list of approved claims counsel

C it G th d Ll d’ f L dCapacity Gotham and Lloyd’s of London

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SAMIANwww.samian-underwriting.com

Appetite •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 otherwiseWorldwide coverage is automatic unless request otherwise•Also offers reps and warranties coverage

Submission Process

•Staged submission process: first apply for and receive non-binding indication•Underwriting fee ranging from $1,000-2,500

Form •Claims made and reported•SIR depends on whether use approved claims counsel•Co-insurance depends on whether use approved claims counsel

Claims Claims acceptance and management process included within policy form

Capacity Lloyd’s of London

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Liberty InternationalLiberty Internationalwww.libertyiu.com

Appetite •No software•Covers infringement liability + contractual obligations, contractual disputes, and D&OC ff t $5 illi LOI•Can offer up to $5 million LOI

Submission Process

Not yet established

F N il blForm •Not yet available•Currently offering excess coverage and following form of primary carrier

Claims Information not yet availableClaims Information not yet availableCapacity Liberty International

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Other Options

Ambridge IP reps & warranties coverage, as well as IP infringement liability infringement indemnification coverage for licensing deals

Darwin Patent infringement liability endorsement on tech E&O policy

Chartis? May offer something similar to DarwinCaptives May be some captives being formed; access

available only to members of certain organizations

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IP Insurance Providers TablePROVIDER PRODUCT IP infringement Liability -Related CoverageAllied World/Darwinwww.darwinpro.com

Tech E&O Patent infringement endorsement

Ambridge MGA Partnerswww.ambridgepartners.com

Transactional and Litigation Risk

IP reps and warranties, coverage for IP infringement indemnification in licensing deals, IP litigation appeal risk

InsuranceChartiswww.chartisinsurance.com

Patent Infringement Liability

Patent indemnity for companies domiciled in the U.S.

IPISC: Intellectual Property Defense Cost Damages and defense costs for TM, patent and © infringement actionsInsurance Services Corporationwww.patentinsurance.com

Reimbursement Insurance

Libertywww.libertyiu.com

Intellectual Property

Damages and defense costs for TM, patent and © infringement actions

Infringement Insurance

Munich Re/MARPwww.marp.com/MARP

IP Infringement Liability Insurance

Patent, TM, © infringement liability coverage for non-US companies only

SAMIAN (Subsidiary of IPGuard TM, Patent, © infringement liability coverageSafeonline)www.samian-underwriting.comSAMIAN (Subsidiary of Safeonline)

RepSure IP reps and warranties coverage

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www.samian-underwriting.com

Practical Tipsand Considerations

• The first step is to carefully assess the IP liability risk landscape forThe first step is to carefully assess the IP liability risk landscape for your company

• Conduct a risk mapping analysis, including severity and frequency f ibl l i d k th d i f tof possible claims, and seek the advice of experts

• Assess the extent to which risk mitigation protocols already are in place for the indentified IP risksp

• 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

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Litigation ConsiderationsLitigation Considerations• Analyze all insurance coverages that could be applicableAnalyze 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 coverageg y , p g

• 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?

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Carl E. Metzger, Esq.g , qGoodwin Procter LLP

Exchange Place53 State Street

Boston, MA 02110Tel: (617) 570-1770

cmetzger@goodwinprocter.comd i twww.goodwinprocter.com

Kimberly Klein CauthornDuff & Phelps LLCDuff & Phelps, LLC

1111 Bagby Street, Suite 1900Houston, TX 77002Tel: (713) 237-5330Tel: (713) 237 5330

kimberly.cauthorn@duffandphelps.comwww.duffandphelps.com

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