Article by latest.insure

How well are you protecting the creative, intangible assets of your business?

They’re the pandora’s box of inventions, designs, names and images, symbols, literary and artistic works that commerce uses for financial benefit.

IP insurance demystified

According to IP Australia, legally protecting the intellectual property (IP) of your business means covering:

• Copyright
• Patents
• Trademarks
• Industrial designs, such as circuit layouts or new plant varieties
• Trade secrets.

It’s all about intellectual property, which forms part of the goodwill and lifeblood of your business. In fact, you can use IP to expand your business and brand, such as through franchising, or licensing, making it more alluring for would-be investors.

Research has also shown that those with IP rights can demand excessive royalties from IP licences or insist on anti-competitive restrictions on knowledge dissemination. So, while IP aims to protect consumers, it can also adversely affect innovation and consumers down the line. It can be tricky for Australian companies keen to adopt and adapt innovations, piggybacking on others’ IP. However, Blackmagic Designs, a film equipment company, has seen its investment foray in building and protecting its intellectual property pay off with solid dividends to shareholders and its CEO on the Australian Financial Review Rich List.

Costs your business could face

Defending an IP claim against your business in court can be costly, but not doing so could see competitors negatively impact your business livelihood and sustainability.

Increasingly, Australian businesses are facing international legal battles. For example, a federal court in the US has awarded $450,000 costs against a small Australian business over using the name ‘ugg’ for its boot products. It sold just 12 pairs into the US. The US company, Deckers, successfully argued ‘ugg’ wasn’t generic because it had trademarked the name in the US. The case highlighted non-new IP; that is, Deckers had the first-mover advantage to own the descriptive term of ‘ugg’, despite it having a 60-year history in Australia.

Meanwhile, France has secured the IP rights to grape varieties, including champagne, chardonnay, cabernet sauvignon, and pinot gris. Those moves and the ugg case highlight a warning for all firms keen on expanding internationally.

So, what does a company typically pay to contest an IP case, either as a plaintiff or defendant? For a typical small case with potential damages below $1 million, expect to pay $250,000 for discovery and a further $700,000 in trial costs.

Consider these factors

To determine if IP is something you need to protect, consider:

• How likely litigation might be
• Your brand’s value
• The level of insurance coverage to suit
• If you’ve got the reserves to self-fund any claims.

A key principle in IP claims is ‘passing off’ one company’s merchandise as another’s to gain benefit. That may have been a driver for the 8% rise in trademark applications in Australia in 2020, compared to the previous year, according to the Australian Intellectual Property (IP) Report. As well, filings for plant breeders’ rights jumped 12% in the same period.

Who needs this cover?

If your business uses digital supply chains and online channels to find new customers, you’re more likely to be challenged about ownership rights. If you’re doing any of these, you’re vulnerable to IP claims:

• Distributing products to capture a market share while patents are pending
• Registering your trademarks in local languages in countries to secure IP registrations there
• Exporting through retailers and distributors
• Online sales with prominent digital trademarks
• Using multiple supply chain partners to design or manufacture some or all of your products overseas.

Reducing your risk through insurance

We can help customise IP coverage for your needs. You can select a policy with the best-fit level of cover for legal expenses incurred in Australia or worldwide. Most policies protect against infringement liability, infringement assertion, and counterclaims. They cover:

• Your legal costs of enforcing claims against those who infringe your IP to cover your loss of profits, reputation, and settlements
• Your legal costs of defending claims for infringements against your business, customers, or licensees, for example, plagiarism or other violation of copyright
• Protection for directors and officers if joined in an action
• Costs for business continuity and to comply with recall orders
• Defending your trademark before and after it’s registered, such as licensing and contractual obligations.

Most policies offer between $250,000 to $500,000 basic cover, but there are options to bump that up to $5 million to $10 million, covering damages and legal costs. You can even tailor a policy for a single contract, technology, country, patent, or a combination of these as well as the entire IP portfolio.

To work out the scope of the cover you need, an insurer will require you specifically identify your IP, look at your risk profile, previous ownership disputes, your due diligence, and whether you import or export IP. So, have a chat with us to weigh up the risks of IP’s value to your business.

McKenzie Ross Business Insurance Brokers can assist you with all of your insurance needs. Get in touch today.