Transcript How to Overcome Your Intellectual Property “Fear Factor”

How to Overcome
Your Intellectual
Property
“Fear Factor”
Introductions
Moderator:
• Margaret Reetz, Esq., Partner, Kerns Frost Pearlman
Panelists:
• Kimberly Cauthorn, Esq., Director, Dispute and Legal
Management Consulting, Duff & Phelps, LLC
• Robert W. Fletcher, President, Intellectual Property
Insurance Services Corp
• Michael Headley, Principal, Fish & Richardson P.C.
• Garrett Koehn, President Northwest US, Crump Insurance
Services, Inc.
• Ian Lewis, Director, SAMIAN Underwriting Agency
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Agenda
• Types and Examples of Intellectual Property (IP)
• IP Risks, Claims Scenarios, and Insurance Coverage
• IP Insurance Application and Underwriting Processes
• IP Disputes and Insurance Claims
• Discussing IP Risk and Insurance with your Clients
• IP Insurance Case Studies
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Now, This Is Scary!
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TYPES AND EXAMPLES OF IP
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You Can’t Escape IP:
It’s Everywhere
“[Our law firm] helps us patent
our innovative products and
packaging. [They] think
outside the box (or bottle).”
Ocean Spray Cranberries, Inc.
[F&R client]
Intellectual property (IP) refers to creations
of the mind: inventions, literary and artistic
works, and symbols, names, images, and
designs used in commerce.
http://www.wipo.int/about-ip/en/
Intellectual property
protection is a crucial part
of each client’s business
strategy.
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You Can’t Escape IP:
It’s Everywhere
“It is imagination made real. It is the ownership of a dream, an idea,
an improvement, an emotion that we can touch, see, hear, and feel. It
is an asset just like your home, your car, or your bank account.”
[USPTO website]
PATENTS protect inventions and provide rights for up to 20 years; 3 broad
categories: utility (medications, computer hardware), design (the look of an
athletic shoe, Star Wars characters), plant (Hybrid tea roses). (Creative Idea)
Invention
TRADEMARKS protect words, names, symbols, sounds or colors that
distinguish goods and services (can be renewed). [The roar of the MGM, the
pink of Owens-Corning insulation]. (Origin/Reputation/Branding)
Branding
COPYRIGHTS protect works of authorship: writings, music, works of art
tangibly expressed. (Life of the author + 70 yrs.) (Message)
Message
TRADE SECRETS: information that companies keep confidential to give them
an advantage over their competitors. [Formula for Coca-Cola]. (Know-How)
Know-How
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You Can’t Escape IP:
It’s Everywhere
Packaging – Design Patent
Recipe - Trade Secret and/or Utility Patents
Advertisements,
Marketing –
Copyrighted ©
Ocean Spray® - Registered Trademark
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…and we mean everywhere.
Copyright
in Software
Registered
Designs
Trade
Secrets
Trade
Marks
USB
Standards
Patents
Licensed
Distributers
Licensed
Manufacturers
Domain
Names
Courtesy of SAMIAN Underwriting Agency 2010. All Rights Reserved.
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IP RISKS, CLAIM SCENARIOS, AND
INSURANCE COVERAGE
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Non-Patent IP Risks: What
Keeps Your Clients Up at Night?
Claim Scenarios
• Copyright
–Software
–Publisher
• Trademark
–Shockwave
–Yahoo
• Trade Secret
–Customer Lists
–Employee hiring issues
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Types of Non-Patent IP Insurance
to Help your Clients Sleep at Night
Type
Media Liability
Coverage
– Media company’s business activities (or any traditional company with
media exposures)
– Non-media company’s marketing and advertising of its products and
services
– Copyright infringement, trademark infringement, sometimes design
patent infringement, sometimes theft of trade secret, title, slogan, trade
name, trade dress, service mark, service name
E&O (often
technology
related)
– To cover claims arising out of the policy holder’s professional service
activities, including software development
– May cover certain aspects of hardware
– Depending on market, may include or negotiate IP protection, but
cover typically does not include trade secrets or patent
Cyber Liability
– To cover claims arising out of “cyber” activities; coverage may be
limited to activities on the Internet
– Copyright infringement, trademark infringement, piracy if related to
copyright or trademark infringement claim
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Types of Non-Patent IP Insurance
to Help your Clients Sleep at Night
Type
Package
Carriers
Coverage
–Typically exclude IP in their base forms (may cover some advertising
exposures) and tend to be conservative about offering it on a limited basis by
endorsement
Unauthorized –Trade secret theft protection and protection against unintentional revelation
Disclosure
of personal identifier information
IP StandAlone
–Usually offers the option of trademark, copyright, and/or patent infringement
liability coverage
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Patent Risks: What Gives your
Clients Nightmares?
Average Patent Infringement Suit Costs - 2011 Survey:
Amount in
Controversy
< $1M
$1M-$25M
>$25M
End of Discovery:
Through Trial:
$490K
$916K
$1.6M
$2.8M
$3.6M
$6.0M
Costs above are litigation costs only and do not include awards for costs and damages.
*2011 survey, American Intellectual Property Law Association. Survey is conducted every two years.
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Patent Risks: What Else Gives
your Clients Nightmares?
• Contractual indemnification
• IP reps and warranties in M&A transactions
• Company rolling out a new product line or entering a new
geographic market or industry market sector
• NPE/“troll” suits
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Patent Risks: Sweet Dreams
Instead of Nightmares
Small player in electronic security industry sued by dominant player in the
industry for infringement of patents on electronic surveillance tags.
Patent insurance allowed the policy holder to pay defense costs without
diverting significant resources away from business operations. It also
allowed the policy holder to mount a defense and win at trial in a plaintifffriendly venue.
As the policy holder said: “You never know when you will need
insurance.”
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Patent Risks: Sweet Dreams
Instead of Nightmares
Small shoe manufacturer and distributor was accused of infringement by
a non-practicing-entity (NPE). The NPE had already successfully
enforced its patent against several smaller manufacturers unable to pay
defense costs.
The policy holder discussed the situation with IPISC’s Litigation
Management department, which was able to offer guidance on how to
respond to the NPE. Using the power of its defense policy, the policy
holder was able to convince the NPE to drop its frivolous claim.
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Types of Patent Insurance:
Ways to Get a Good Night’s Rest
Type
Patent Infringement Liability
(Defensive)
Coverage
– Defense costs
– Damages
– Infringement liability indemnification
obligations
Patent Enforcement/Abatement
(Offensive)
– Litigation costs to enforce patent rights
against infringer
Patent Asset Value & Protection
(Multi-Peril)
– Loss of patent asset and related product or
licensing revenue, and/or
– Consequential loss due to imposition of
injunction for infringing another’s patent
Reps & Warranties (M&A)
– Carved out of standard reps and warranties
policy
– Title, infringement, validity, enforceability
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IP INSURANCE APPLICATION AND
UNDERWRITING PROCESSES
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Don’t Be Left in the Dark:
the Non-Patent IP Insurance
Application and Underwriting Process
• Time – depends on marketing effort; one day to several weeks
• Submission material
• Financial statements
• Application (coverage specific: tech E&O versus Cyber versus Media,
etc.)
• Common hang-ups include:
• Social Media - take-down procedures, automated? line of business
• IP screening procedures, if using others’ content/IP
• To approach all markets, need to engage wholesaler and/or
London broker although, there is some market overlap between
the two
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No Monsters in the Closet:
The Patent Insurance Application
and Underwriting Process
•Which risk(s) is your client seeking to cover?
– Client is worried about being sued for infringing someone else’s patent = Patent infringement liability
coverage
– Client is worried about someone infringing its patent = Patent enforcement coverage
•Has your client told the underwriter everything, even those pesky “offer to
license” letters?
•Expect detailed questions about:
– Patents
– Products
– Financials
– Patent risk management policies and practices
– Patent dispute history, including cost
•How much risk is your client willing to retain?
– SIR
– Co-insurance
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No Magic Spells:
Patent Insurance Policy Forms
•The form
–Typically claims-made and reported, rather than occurrence (claim must be made during the policy
period)
– Typically written as an aggregate limit of indemnity ($1-10 million LOL)
•Conditions
– Geographic and temporal scope
– Scheduled products, IP, contracts
– Choice of counsel and duty to defend: varies by carrier
– Definitions: “Prior Acts”, “Claim”, “Litigation Costs” or “Defense Costs”
– SIR and co-insurance
•Exclusions
– Willfulness
– Consequential damages
– Certain counterclaims and declaratory judgment actions
– Specific exclusions (i.e., claims brought by certain entities or certain patents)
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No Scary Stories:
Available IP Insurance Markets
Available
Contracts
Insurance Markets
Ace Westchester, AWAC, Axis Pro, Beazley,
Media Liability
CFC/Lloyd’s, Chartis, Hiscox/Lloyd’s, One Beacon,
Market
ThinkRisk
Ace Westchester, Aspen, AWAC, Axis
Pro, Ace/Lloyd’s,
Technology /
Barbican/Lloyd’s, Beazley, CFC/Lloyd’s, Chartis, CN
Cyber Markets
A, Corona, Euclid Managers/ Hudson,
Hiscox/Lloyd’s, Kiln, NAS/Lloyd’s, ThinkRisk, XL
Patent
IPISC, Liberty, RPX, Samian
(Europe offers additional carriers)
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IP DISPUTES AND
INSURANCE CLAIMS
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Falling off the Cliff: IP Litigation
• Typical Allegations:
– Patent: Plaintiff alleges it owns and has standing to sue for infringement
of a U.S. patent [specifically named]; defendant has infringed patent by
conducting commerce on its website, which is covered by at least
several claims of the named patent; plaintiff seeks judgment, injunctive
relief, damages, attorneys’ fees/costs.
– Copyright: Plaintiff (owner of various works) alleges copyright
infringement, contributory copyright infringement, and vicarious
copyright infringement. Plaintiff seeks equitable relief to prevent or
restrain infringement of Plaintiffs’ copyrights, including a permanent
injunction requiring that Defendant ceases infringing Plaintiff’s
copyrights, an award of either actual damages and profits derived by
Defendant as a result of the infringing activities or statutory damages,
attorneys’ fees and costs.
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Falling off the Cliff: IP Litigation
(cont’d)
• Typical Allegations:
– Trademark: Plaintiff alleges defendant has conducted business under a
specific designation virtually identical to Plaintiff’s registered mark.
Plaintiff seeks damages for infringement in violation of the Lanham Act
and false and deceptive trade practices in violation of state law. Plaintiff
seeks permanent injunctive relief, monetary damages, Defendant’s
profits, attorneys’ fees and costs.
– Trade Secrets: Plaintiff alleges Defendant, founded by former
employees of Plaintiff, stole Plaintiff’s trade secrets, customer lists, and
other proprietary information. Plaintiff seeks damages for trade secret
misappropriation and unfair competition, including injunctive relief,
damages, recovery of all profits attributable to Defendant’s alleged
wrongful acts, and attorneys’ fees and costs.
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Falling off the Cliff: IP Litigation
(cont’d)
• Critical Phases:
• Patent – Markman Hearing
• Discovery
• Copyright – Beyond Motion to Dismiss
• Trademark – Pre-suit/pending suit
• TTAB proceedings
• Trade Secrets – Identification of Trade
Secrets
• Discovery Essential
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Breaking the Fall:
the Claims Process
•Enforcement policies: may first be required to submit evaluation and claims chart before
claim accepted and lawsuit initiated
•Other first party policies: may require a financial valuation
•Infringement liability policies: may need to obtain a legal opinion of non-infringement or
invalidity before claim will be accepted
•Claims handling will depend on whether the insurer has a duty to defend
•Assuming no duty to defend, counsel selection is usually flexible but may be subject to
different retentions and co-insurance percentages, and counsel will be expected to
adhere to insurer-mandated billing, budgeting, and reporting procedures
•Notify the carrier early and often: notice of circumstance provisions
•Carrier settlement approval usually required
•No surprises
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Making the Pain Go Away:
Claim Resolution Strategies
• The O’Hare Exit: Meet at a neutral site and reveal you have
insurance = early settlement
• Initiate a re-exam of the asserted patent(s) and move for a stay
• Agree to early mediation
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Reality Games: Discussing IP Risk
and Insurance with your Clients
Opportunities to review intellectual property exposure:
In reviewing other insurance coverage:
Package Placement -- review implications of Advertising Related losses
Errors and Omissions -- may or may not include some IP in base form
Directors and Officers -- not part of coverage offering, but right audience, especially GC
As part of general risk audit. Intellectual property should be
specifically discussed in four parts:
Patents (if any)
Trade Secrets (everyone has them -- ask about employees)
Copyrights relating to technology (in particular software companies)
Trademark and Media related topics and Web publishing exposures
Do they simply use their web page as a brochure, or do they publish content?
Have they had any trademark or service mark fights?
Are they launching any new products that may have naming exposures?
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Traps for the Unwary
Problems to Avoid:
Failure to notify of claim:
Client purchased media liability coverage. The treasurer (insurance contact) failed to tell
general counsel they had coverage. The company then wound up in significant trademark
litigation. The GC quickly settled suit for $2 million. No coverage applied!
Events that would trigger a claim that are not noticed. For example, a takedown notice may
trigger the definition of claim, but may not be noticed.
Duty to defend or consent to counsel:
Too many times to explain a single incident! Here is what happens:
Duty to defend policy is purchased. The insured is sued, quickly engages counsel, then
notifies the carrier. The carrier does not want to use insured’s (expensive) counsel.
Fight begins over counsel, rates, etc.
Not Understanding the coverage purchased:
Beyond obvious limitations of what type of IP cover you want or purchase (e.g., Patent v
Copyright), failure is in to what the coverage applies -- Internet only? Advertising only?
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Facing Reality: A Few Takeaways
Clearing up common misconceptions:
1.“We don’t need insurance for IP risk because we don’t have any IP.”
2.When asked about patent exposures, responds “Don’t we already have IP insurance?”
3.“Isn’t it too expensive?”
4.“Won’t the carrier make us use inexperienced, inexpensive legal counsel?”
5.“I don’t want to share the company’s confidential information with the carrier.”
6.“My lawyer says we don’t have any risk because we have a freedom to operate opinion.”
7.“We’re indemnified by our suppliers.”
8.“My IP lawyer carries malpractice insurance.”
9.“What’s IP?”
10.“Didn’t the America Invents Act fix everything?”
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Facing Fears: Unauthorized
Disclosure Coverage for
Frozen Food Manufacturer
•
•
•
•
•
•
Term - 1 Year
Premium - $60,852.00
Limits - $3M per claim/aggregate
SIR - $100K
Co-pay - none
Endorsements: Damages, Additional Insureds, Schedule of
Insured Confidential Information
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Facing Fears:
Cyber Liability/Tech E&O
Software Company with $10 million in Revenue
Premium - $10,000, $25,000, $35,000
Limits - $1, $3, $5 million respectively per claim/aggregate
SIR - $25 to $50,000
Co-pay - none
Key IP Coverage - Copyright, Trademark, Trade name, some
Trade Secret coverage
• Excluded: Patent
•
•
•
•
•
•
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Facing Fears: Patent Enforcement
Coverage for 5 Seed Production
Patents + Applications
•
•
•
•
•
•
Term - 1 Year
Premium - $28,038
Limits - $1M per claim/ $2M per aggregate
SIR - $0
Co-pay - 20%
Endorsements: Territory, Renewal, Schedule of Insured
Intellectual Property
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Facing Fears: Patent Infringement
Liability Coverage of
Liquid for Use in Septic Systems
•
•
•
•
•
•
•
Term - 1 Year
Premium - $12,192
Limits - $1M per claim/aggregate
SIR - $100K
Co-pay - 10%
Damages Covered
Endorsements: Additional Insured, Renewal, Schedule of
Insured Manufactured Products
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Facing Fears: Multi-Peril Coverage of
Medical/Healthcare Products
•
•
•
•
•
•
Term - 2 Year
Premium - $44,438
Limits - $2M per claim/aggregate
SIR - $150K
Co-pay - 10%
Perils: Business Interruption, Cost of Redesign, Remediation and
Reparations
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Questions
&
Answers
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Many thanks to …
•
•
•
•
•
•
Peggy Reetz
Kimberly Cauthorn
Robert Fletcher
Michael Headley
Garrett Koehn
Ian Lewis
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