Increased attention on intellectual property creates new exposures
Patent and intellectual property insurance provides policyholders with technical and financial assistance.
The commercial upheaval caused by COVID-19 has prompted businesses in many sectors to analyze their existing revenue streams and explore how and where they might create new ones.
One area that has come under particular scrutiny is intellectual property (IP), with companies investigating whether there is scope for them to get more value from their existing IP portfolio.
In turn, this renewed focus on old IP is increasing the exposures attached to these intangible assets for all associated parties.
Strategic shift around old IP
Growing companies can quickly build up sizable IP portfolios as they evolve their products and services and develop their market offering.
In most cases, companies do not sell this IP and prefer to retain ownership, even if it is left unused and sits dormant. During the past 18 months, pressures created by the pandemic have prompted businesses to reassess this approach and actively seek to monetize more effectively the older IP assets in their locker.
This change has led them to identify other organizations that might be able to use the IP and to see if they can strike up licensing agreements.
To get the ball rolling, IP owners will send letters to prospective partners, offering a license for their IP and outlining the fee attached. This is not dissimilar behavior to patent trolls, whose business models center on proactively making IP infringement claims to generate revenue.
Whether or not there is an IP infringement to defend, or a deal to be struck, understanding and negotiating such approaches can be difficult and put companies under pressure — especially those at the smaller end of the commercial scale.
In recent months, streaming giant Netflix underscored its intention to make the most of its IP and launched a direct-to-consumer merchandise shop.
It also hit the headlines recently when it filed more than two dozen trademark applications to protect the IP associated with its hit series Squid Game.
In the technology sector, IBM has generated billions of dollars from its IP over the years. Recently, these revenues have dipped and some market commentators suggest IBM could double or even triple its IP revenue if it were to assert its rights more aggressively.
Real-life IP claim example
How might the increased focus on older IP manifest today?
The following example is based on a real situation.
A small company developed a new market solution. In its planning stage, the company checked that it was not infringing the IP of any other solutions.
As it was gaining traction, the company received a letter from a larger competitor offering it a license deal for the use of its IP. The smaller company declined, only to receive a second letter saying it was actually infringing the competitor’s IP.
Lengthy negotiations ensued, and a deal was struck. The larger firm secured revenue from its dormant IP, while the smaller company avoided a protracted and disruptive dispute, ensured its freedom to operate and got access to IP it could use going forward.
Out-of-court settlements are common in IP disputes, and smaller firms often prefer to come to a licensing agreement than contest the matter indefinitely.
As more companies look to increase the number of IP licensing deals they have and enforce their existing IP rights more aggressively, it increases the chance of organizations receiving cease and desist orders or notices of infringement.
Similarly, licensees need to protect their newly acquired right from infringement by others if they want to safeguard their investment. A licensee may also face claims of not keeping to the specific terms of their agreement, and this can lead to further wrangling.
It is in these situations that patent and IP insurance can help as it provides a level of technical and financial assistance that will support policyholders in finding the best way forward.
Patent and IP insurance
Whether organizations are developing their own IP or licensing the use of IP from others, there is a growing focus on how intangible assets can be monetized.
As the attention and value attached to these assets grows, so too will the vigor with which they are enforced. This makes it important to understand the commercial exposures tied to IP and how best they can be managed and mitigated.
Few companies have an established knowledge in this area and patent and IP insurance offers access to subject matter experts. Policies also provide financial support to minimize the monetary impact of bringing and defending claims.
The insurance market has worked hard to develop a suite of products specifically to cover the wide-ranging exposures around intangible assets. In the months and years ahead, these policies will form an increasingly important part of corporate risk programs for businesses of all sizes.
Maddi Brown (mbrown@cfcunderwriting.com) is the Intellectual Property Practice leader at CFC Underwriting.
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