IPO Guidance: Intellectual Property Insurance

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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.

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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.