IPO Guidance: Intellectual Property Insurance

Lloyd's Coffee House Source Wikipedia Insurance

Jane Lambert

The Intellectual Property Office ("IPO") has recently updated its guidance on IP insurance, It makes the point that such insurance may not be for every business but for some, it brings numerous benefits.  According to the guidance, those benefits are as follows:

• "It can protect cash-flow: IP insurance can ensure that your dispute and particularly litigation, does not tie up capital which you could use to grow the business

• it can provide a deterrent: LEI can give you the power to take action to enforce your rights where your financial position might not otherwise allow it. If a potential infringer knows that your insurance will cover making a claim, then it may be less likely to infringe or more likely they will stop when challenged. Some insurers are happy for you to confirm in marketing literature or on websites that your IP is insured, alerting competitors that insurance is in place

• it can improve your negotiating position: If this deterrent does not work then the knowledge that you can go to court (as a last resort) can encourage the alleged infringer to negotiate or mediate. Insurance can provide you with the means to take vital defensive action meaning there will be no need to settle on poor terms

• it might allow your IP to be used as collateral and can add value: Insurance can reassure lenders and investors that the value will not be lost because you cannot fight infringers/invalidity challenges. Potential licensees will also know that you can take legal action if necessary and will be indemnified if required."

Cover against the costs of litigation and other expenses is available both before and after an infringement has occurred.   Cover that is obtained before an infringement occurs is known as before-the-event ("BTE") insurance and cover after the infringement is known as after-the-event ("ATE") insurance.  As might be expected BTE insurance is considerably cheaper than ATE.  ATE policies were very popular before the Legal Aid, Sentencing and Punishment of Offenders Act 2012 came into force because a successful party could recover its premiums and its legal representatives' success fee from the losing party. That came to an end on 31 March 2013 (see Jane Lambert Intellectual Property Litigation - the Funding Options 10 April 2013 NIPC Law and Jane Lambert The Effect of the Legal Aid, Sentencing and Punishment of Offenders Bill on Intellectual Property Litigation 14 July 2011 NIPC Law). It is still possible to take out ATE insurance but the premiums must be paid by the insured. For that reason, such policies are much less common and the IPO guidance does not even bother to mention them.

The guidance lists the risks against which it is possible to insure.   These include:

• opinion only: covers legal costs of obtaining an opinion on the likelihood of successfully enforcing or defending an IP claim;
• enforcement and defence: covers legal costs of taking action to stop others infringing IP rights and defending allegations of infringement. Can cover enforcement and defence either separately or together
• damages: covers any damages payable in an infringement action
• validity: covers legal costs of defending challenges to the validity of the insured's IP rights
• lost revenue: covers revenue lost as a result of losing IP rights
• indemnity: covers liabilities arising under guarantees given to third parties, and
• cyber: covers losses from a variety of cyber incidents, including IPR breaches.

Premiums and excesses are also considered in the guidance.   By way of a rough indication, a typical premium for £100,000 (the cost of patent infringement proceedings in the Intellectual Property Enterprise Court) would be about £1,500.  The guidance adds that many insurers will accept premiums by instalments.

A link to a list of brokers, insurers and other providers is in the guidance. Advice is given on identifying a broker, selecting the optimum cover, making a claim and resolving disputes with insurers through the Financial Ombudsman.  The guidance discusses alternative methods of resolving IP disputes such as examiners' opinions on such matters as whether a patent is valid or whether it is infringed, and the IPO's mediation service.

Readers are referred to the IP insurance pages of the Chartered Institute of Patent Attorneys and the Chartered Institute of Trade Mark Attorneys.  I have also written a number of articles on IP insurance since 2005 which are listed in the table below.  Anyone wishing to discuss this article or IP insurance generally can call me on 020 7404 5252 or send me a message through my contact page. 

Further Reading

Date	Author	Title
1 May 2016	Jane Lambert	IP Insurance: CIPA’s Paper
13 Aor 2013	Jane Lambert	Intellectual Property Litigation: The Funding Options
23 Ocr 2010	Jane Lambert	IP Insurance Five Years On
5 Feb 2005	Jane Lambert	IP Insurance: Two More Insurers Identified
3 Sep 2005	Jane Lambert	IP Insurance
3 Seo 2005	Jane Lambert	IP Insurance: Does it work?
2 Seo 2005	Jane Lambert	Q. Why aren't there more British Patents? A. Because Enforcement is too Expensive!
2 Seo 2005	Jane Lambert	Patents: Why are there no British Names in the Patent Office’s Top Ten?

It is never enough to get a patent, trade mark or registered design.

Corporation of Lloyds

Author phogel, Licence: Creative Commons Attribution-Share Alike 2.0 GenericSource Wikipedia 

Jane Lambert

As a barrister, I am often shown a blatant act of piracy or a breathtakingly unjustified letter before claim and am asked for my opinion on the strength of the claim. More often than not, that is the last I ever hear of the matter.  Sometimes I run into the patent agent or solicitor who consulted me and ask what happened. "Oh! The client just could not afford to fight" is the usual answer. "So he let it go" or as the case may be, "He just caved in."

Now if you consult TaylorWessing's Patent Map, click the arrow beside "I have a question for all countries" in the left-hand box, click again on "Questions concerning First Instance" and choose the "Typical costs at first instance?" option, you will see why.  The figure for England and Wales is £200,000 to £1 million. Compare that to France (€200,000 to €800,000), Germany (infringement €100,000 to €200,000 and the same for validity), the Netherlands (€75,000 to €200,000_ and Switzerland (court fees: €830 - €125,000 attorney's fees: €1,700 - €250,000). It is not surprising that only 5,736 European patent applications were made from the UK in 2018 compared to 26,734 from Germany, 10,317 from France, 7,927 from Switzerland 7,140 from the Netherlands (source European patent applications by country of origin 2009 to 2018).

Of course, those figures don't tell the whole story. Patents for European countries can be granted by national intellectual property offices such as the IPO in Newport as well as by the European Patent Office. Intellectual property litigation can be conducted far more cheaply in the Intellectual Property Enterprise Court than the Patents Court or the rest of the Chancery Division.  But these figures tend to confirm the widely-held view that IP litigation in England and Wales is prohibitively expensive and that it is just not worth spending many thousands of pounds on a patent or other registered right which costs many thousands of pounds more to enforce. 

Now what, if anything, can be done about that? The Ministry of Justice has probably done as much as it could by streamlining the practice and procedure of the Intellectual Property Enterprise Court, introducing a small claims track for the simpler cases and requiring all courts to manage their cases at proportionate costs. The IPO offers a cost-effective mediation service and examiners' opinions on such issues as whether a patent is valid and whether it has been infringed. The Unified Patents Court would have created a level playing field for all European patent owners but that may well have been scuppered by brexit and litigation in the German Constitutional Court,

Probably the best way forward is for businesses to consider enforcement whenever they apply for a patent, trade mark or registered design or acquire some non-registrable right. In the case of a start-up or other small business that probably means taking out IP insurance.  I have been writing about this topic since 2005 (see IP Insurance: Does it Work? 3 Sept 2005 NIPC Law, IP Insurance 3 Sept 2005 NIPC Inventors' Club, 6 Feb 2006 IP Insurance: Two More Insurers Identified 6 Feb 2006 NIPC Inventors Club, IP Insurance Five Years On 26 Oct 2010 NIPC Inventors Club, Intellectual Property - The Funding Options 10 April 2013 NIPC Law, IP Insurance: CIPA's Paper and 1 May 2916 NIPC Inventors Club).

Back in 2005, there were not many brokers with experience of arranging IP insurance and many patent and trade mark attorneys were sceptical of the value of the policies. Because after-the-event premiums and success fees were then recoverable from unsuccessful paries, many rightsholders thought that it would always be possible to find solicitors and counsel who would accept instructions on a no-win-no-fee retainer should a dispute ever arise.  All that changed with the Legal Aid, Sentencing, Punishment and Management of Offenders Act 2012 and costs capping in the Intellectual Property Enterprise Court (see Success Fees and ATE Premiums in the Patents County Court: Henderson v All Around the World Recordings Ltd 14 July 2011 NIPC Law). The Chartered Institute of Patent Attorneys published IP Insurance and other IP litigation funding arrangements in 2016.  The Intellectual Property Office published its guidance on Intellectual Property Insurance on 22 Jan 2016 which it updated earlier this year.

The IPO's guidance covers the types of before-the-event IP insurance policies that are available, the types of litigation, jurisdiction and risks that can be covered, the costs and benefits, the criteria for setting premiums, the claiming process and alternatives to litigation such as IPO examiners' opinions and mediation.  There is also a list of specialist brokers on the CIPA and IPO's websites.  Provision for IP insurance premiums or some other funding should appear in every business plan.  Angels, private equity investors, bankers and other lenders should insist on it.  It is as important as rent, equipment hire and employees' wages.

Anyone wishing to discuss this article or IP insurance generally should call me on 020 7404 5252 during office hours or send me a message through my contact form. 

Top 10 Tips for Resolving IP Disputes

1. Be careful what you say and do.
If you threaten to sue someone for patent infringement you can be sued yourself under s.70 of the Patents Act 1977 unless you can justify those threats. You can be injuncted (ordered to refrain from making those threats on pain of imprisonment or fine for disobedience) and made to pay substantial damages and costs. So leave the accusations to your lawyers or patent attorneys who can take care of themselves.

2. Consider Before-the-Event Insurance
It is not a crime to infringe a patent in this country. You and only you are responsible for enforcing your monopoly. You must do that through the courts which can be expensive. There is no longer legal aid for IP or other business disputes. Because most IP litigation proceeds in 2 phases it is difficult for most lawyers to accept "no win no fee" retainers, especially now that it is no longer possible to recover success fees and after-the-event insurance premiums from the losing party. You must also make provision for the costs of the other side if you are unsuccessful.  Unless you can raise at least £100,000 from your own resources you should consider before-the-event IP insurance before a dispute arises because the premiums for after-the-event insurance are astronomical (see IP Insurance Five Years On  23 Oct 2014).

3. Follow the Practice Direction - Pre-Action  Conduct
This is very important because the court has power under paragraph 4 to penalize parties who fail to comply with the Practice Direction.  Remember that the purpose of the Practice Direction is to enable parties to settle their dispute without the need to start proceedings and that litigation should be the very last resort. Make sure that your letter before claim complies with Annex A of the Practice Direction and that you supply all the information and enclose all the documents that the other side will need to decide whether you have a valid claim. Although it was published some years ago you may also find the Code of Practice for Pre-Action Conduct in Intellectual Property Disputes useful.

4.  Consider ADR (Alternative Methods of Dispute Resolution)
As a general rule the sooner you resolve your dispute the better it will be for all concerned. True, you may be able to force a settlement if the other side runs out of money before you do but then you will also have incurred costs which your opponent may not be able to pay. As I have said above, one of the aims of the Pre-Action Conduct Practice Direction is to help you settle your dispute without recourse to litigation. You can do that through direct negotiations with the other side or you can ask an intermediary known as a "mediator" to help you. He or she will collect information in confidence from each of the parties and look for common ground upon which a settlement can be based. Often the settlement is a solution that would never have occurred to either of the parties (see Mediating Disputes from the Trade Marks Registry 1 Sept 2005 NIPC Law). The Intellectual Property Office runs a good mediation service (see The IPO's New Improved Mediation Service - will it make a difference? 7 April 2013 NIPC Law) as does the World Intellectual Property Office (see ADR of Intellectual Property Disputes 22 Aug 2006 NIPC Law). If there is a bona fide dispute that only a determination by a trusted third party will resolve you may be able to obtain an opinion on the issue from an examiner of the Intellectual Property Office for as little as £200 (see Intellectual Property Act 2014: The New Law on Opinions 29 Oct 2014 NIPC Law).

5.  Budget for Litigation as you would any other Expenditure
Since April 2013 the parties to a dispute have had a duty to help the court to deal with cases justly and at proportionate cost. In order to comply with that obligation most parties that are legally represented have to draw up, file and exchange budgets for conducing the litigation before the first case management conference under CPR 3.13 and the court may impose limits to the parties' expenditure if it thinks fit. There are a number of exceptions to this rule but it is a good discipline to follow even if you are not bound by it. Just as war is conducting policy by other means litigation can be said to be conducting business by other means. Just as you would plan and review any other type of expenditure with defined objectives so you should with dispute resolution. Circumstances can change in litigation just as they can in other transactions and you have to be sufficiently flexible and astute to adjust quickly to changing circumstances which may require settlement, some other form of dispute resolution or even discontinuance in certain circumstances.

6.  Choose the Right Forum for the Resolution of your Dispute
There are many forums for the resolution of IP disputes. There are the courts of England and Wales, those of other parts of the UK and the courts and tribunals of other countries. There are also Intellectual Property Office tribunals for some patent, trade mark and registered and unregistered designs disputes, the Boards of Appeal of OHIM (the EU design and trade mark registry) and the EPO (European Patent Office). There are the domain dispute resolution panels for the determination of generic and national top level domain name disputes. There are the IPO examiners' opinions which I have mentioned above for certain patent disputes and there will soon be an opinions service for registered and unregistered design disputes. There is also old fashioned arbitration and mediation. Each of those forums has its advantages and disadvantages and you should seek specialist advice or at the very least carry out extensive research before launching proceedings.

7.  Choose the Right Legal Adviser
For most cases two sets of skills are needed:

• advocacy, and
• the ability to conduct litigation.

Advocacy includes presenting cases to a judge or arbitrator, examining witnesses, drafting statements of case, application notices, witness statements and skeleton arguments. Until the Courts and Legal Services Act 1990 higher court advocacy was the preserve of barristers but now other professionals have rights of audience. Conducting litigation means corresponding with the court and other side, filing and serving statements of case and other documents, interviewing witnesses, drawing up lists of, and exchanging, documents (including emails, texts and other electronic messages) and generally preparing the case for adjudication. Traditionally this work was done by solicitors but now barristers and patent and trade mark attorneys as well as other professionals can apply for the right to conduct litigation. Look beyond law firms' websites and brochures to discover expertise. Try to research their decided cases and publications and choose the advocate and litigator whose expertise most closely matches your needs.

8.  Do not fight Unnecessary Battles

If you are a claimant and you think the other side will not be able to compensate you in damages if you win your case you may get an order from the court known as an "interim injunction" forbidding the defendant from doing something that would infringe your IP rights until trial or further order. These are in the discretion of the court and they don't come cheap. You have to apply quickly and promise to compensate the other side for any loss or damage it may sustain if it transpires that you should never have got the order. Conversely, if you are a defendant and fear the other side can't pay your costs if you win you can get an order for the claimant to pay funds into court as security for a costs order against you. There are many other interim applications that you can make - summary judgment on the basis that the other side is unlikely to prevail at trial, specific disclosure of a document, striking out parts of the other side's statement of case and sanctions for non-compliance with a rule or order. Such applications are very expensive and can delay the progress of a case. Sometimes they are necessary but as often as not they are not and every effort should be made to avoid them. If you are a defendant do not resist reasonable requests just for the sake of it. Work out ways of meeting the other side's legitimate needs while safeguarding your interests.

9.  Comply with the Rules and Directions of the Court

This may sound like stating the obvious but it is amazing how many litigants fail to do this. The courts have extensive powers to penalize some of which are quite drastic. For instance if you fail to file a costs budget in time you will be deemed to have filed a budget requesting reimbursement only of your court fees and you will be precluded from recovering your counsel and solicitors' fees which could amount to tens or even hundreds of thousands of pounds.

10. Keep Talking

Even if settlement negotiations fail you are still likely to have much to discuss with the other side. It is in your interest to agree facts, define and limit issues and other procedural matters because it simplifies the process and reduces the bills you may well have to pay. One of the reasons for instructing solicitors and counsel is to keep open a channel of communication between the parties. As I said above, circumstances can change for both sides and you are more likely to learn of those changes if you keep in touch with your opponents.

If you want to discuss this or any other matter connected with enforcement give me a ring on 020 7404 5252 during office hours or message me through my contact form. You can also contact me through Facebook, G+. Linkedin, twitter or Xing.

The New IPO Mediation Service

The Intellectual Property Office has recently re-launched its mediation service with fees related to the value of the dispute and the duration of the mediation.  An hour's mediation before a specialist mediator in Newport for a claim of £10,000 or less is £55.  The IPO also provides telephone mediation and will travel outside London or Newport.

For further information see my article "The IPO's New Improved Mediation Service - will it make a difference?" in my NIPC Law blog,