At risk? Why intellectual property insurance is essential

With intellectual property arguably one of the most valuable assets a life science business possesses, Kathryn Moon, Life Science Risk & Insurance specialist at UK broker Gallagher, looks at why it can be essential for businesses in the industry to have a robust insurance policy in place to protect it.

Many companies in the life science industry typically stop short of taking out insurance for intellectual property (IP), despite its value as a business asset. This is because, historically, the insurance market made the application process unnecessarily complicated and drawn out. If and when quotations were provided, these were often expensive and restrictive in terms of cover.

The good news is that things have changed. New insurance companies have entered the market to bring much-needed competition and redefine the underwriting approach, offering enhanced policy coverage and lower prices that are more proportionate with the level of risk.

But in order to determine the value of investing in IP cover, a life science company first needs to consider the facts. So, what exactly does IP insurance protect and provide?

This type of policy is designed to enable a company to defend infringement allegations efficiently, whilst also protecting innovation by allowing the opportunity to pursue infringers of their own rights. An IP policy can provide protection for defence costs and for damages awarded where an action has been brought against a company for infringing or alleged infringement of third party’s IP. It can also provide cover for professional fees and expenses for pursuing infringement or theft of a company’s IP. Furthermore, the policy can cover costs incurred to avert or mitigate potential litigation, which may entail product recall expenses, pre-emptive and assertive actions or counter-claims.

Life science companies also face the threat of their own IP being stolen as a result of a cyber-attack or data breach and, with an increasing dependence on technology, the likelihood of this risk has increased. IP has been found to be one of the most vulnerable assets of a life science company¹and breaches can include a complex ransomware attack denying access to vital data or even a disgruntled employee stealing and passing on information to competitors.

Losing such data can obviously have reputational and commercially damaging consequences and whilst strengthened security procedures, good digital housekeeping and high user awareness will reduce the likelihood of a cyber-security breach, it does not guarantee a business will not be hit. That’s where a tailored cyber insurance policy can help protect a business against the multiple impacts of a cyber-attack. Especially as a standard IP policy may not cover the theft of information from such methods.

Nevertheless, there are a number of legitimate reasons for why life science companies should be considering IP insurance as a key protection for the business, regardless of their size. These include:

Business enabler:

Investors would rather deal with companies that can meet their indemnification obligations and which will not spend its research budget on expensive litigation. In addition, the policy will help to meet indemnities in third party contracts and will provide protection for licences and customers in terms of litigation associated with the IP.

Processes:

Cover is no longer limited to just products. Policy wordings can be tailored to cover claims arising from process patents, business method patents and trade secret misappropriation, to ensure protection across the entire business activities of the company.

Single contract protection:

Cover can be tailored to apply to a single contract, a specific division of a company or a specific product as insurers now offer the flexibility to meet a company’s specific requirements rather than a one size fits all approach.

80/20 rule:

Patent attorneys perform freedom to operate opinions to minimise the risk that products infringe third party patents. However, non-infringement can never be guaranteed and even if a search reveals 80% of the risk, there will be some outstanding. Real freedom to operate can be achieved by having the financial means to defend a claim, provided by an IP Insurance policy.

Patent cover where excluded elsewhere:

Claims arising out of IP, and specifically patents, are often excluded from many policies including Directors’ & Officers’ Liability and Professional Indemnity Insurance. This can be a key risk for the business yet remains uninsured relative to both the company and its individual directors where named as a joint defendant.

In the event that a company is forced to stop selling a product due to an alleged IP breach, such as a patent infringement, the policy can also cover potential loss of profit the company has suffered during the period it has been unable to sell its product.

The reality is that intellectual property is undeniably one of the most valuable assets a life science company owns. So, can any business really afford to ignore the protection that both IP and tailored cyber insurances could provide? Essentially, developing a robust strategy and ensuring you have suitable protection in place can be critical for safeguarding the future of your business.

Reference:

1. KPMG – Life sciences innovation and cyber security: Inseparable http://www.kpmg-institutes.com/content/dam/kpmg/healthcarelifesciencesinstitute/pdf/2017/cyber-report-life-sciences.pdf