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Legal Review: A New Way to Pay for Intellectual Property Infringement Litigation … and Peace of Mind

19 Oct, 2010 By: Gregory J. Sater Response

Everyone is familiar with defensive insurance, which pays for your legal defense and, if you are found liable, for your liability, if someone sues you for an offense you allegedly committed that is covered by your policy. For instance, we all have, or should have, car insurance just in case we are alleged to be at fault for a car accident. Some insurance policies cover you for your alleged infringement of someone’s patent, trademark or copyright. All of these policies are defensive: they cover you as a defendant.

But did you know that new insurance policies have come out that can cover you, on certain terms and conditions of course, as a plaintiff in an intellectual property infringement case? That is, they cover your legal fees incurred in suing somebody else for their infringement of your intellectual property and pay for offense, not defense.

Imagine that you’re a small company with a successful product. Now, imagine that another company —a much bigger company with much greater financial resources than you — comes along with a similar product or a similar advertising campaign. Indeed, their product and/or campaign are so similar to yours that, when you have an attorney review the case, the attorney tells you that you’ve got a strong patent, trademark or copyright infringement case.

Nine times out of 10, the harsh reality is that you probably won’t be able to afford to litigate such a case if it’s against a bigger and better-financed opponent. Subpoenas, interrogatories, document demands, depositions, motions, oppositions to motions, expert witnesses, and pretrial preparations can cost a small fortune (not to mention going to trial and then going through appeals if any) so the pressure to settle for less than you deserve can become unbearable.

Everything changes, however, if you’ve got insurance that pays for your legal fees, or for a substantial portion thereof, in your IP infringement case. Your adversary, in analyzing its settlement versus litigation options, will know you can go the distance and that will make all the difference. These policies are called “intellectual property abatement/enforcement” policies.

How do these policies work? First, you need to have some form of registered intellectual property which is insured under the express language of the policy: a registered trademark, patent or copyright. Second, you must pay an annual premium. Third, when you are confronted with someone who is infringing your registered IP, you need to file a claim with the carrier. Fourth, the carrier needs to obtain a favorable opinion by a neutral intellectual property litigation attorney (which means an attorney who is not the one who will be litigating your IP case, and who is approved by the carrier).

After that, the carrier authorizes your case for insurance, and you’re off to the races. In most of these policies there is a co-pay, a self-insured retention amount that you need to spend, and a policy limit.

What if you win the case? There is a unique aspect to these policies: if you win the case, you need to pay the insurance carrier back whatever sum it paid in legal fees and costs on your behalf during the course of the lawsuit.

Usually, the way these policies are written, the obligation to repay the carrier is triggered not only if you win damages or other monetary relief, whether by settlement or at trial, but also if you get any benefit of any kind as a result of the case. For example, if you brought the infringement case and the carrier paid for your legal fees and costs and you got an injunction out of the case, stopping the infringer, but didn’t recover money, then you did obtain a benefit and you will be obliged to repay the carrier. It is only if you bring the IP infringement case and lose the case that you don’t need to repay the carrier.

These policies can help prevent the loss of market share by letting IP owners quickly and forcefully sue infringers as and when they appear. They can greatly reduce the cash drain on operations. And, in a big case, they can finance the often complex and time-consuming activities that are required, like extensive discovery, depositions, expert witness reports, preliminary injunction hearings, motions, and trials. n

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