April 1, 2013

Infringement Insurance Policy for Infringement of Intellectual Property Rights

Dr. Ilan Cohn, Senior Partner
Dr. Ilan Cohn

Senior Partner

Reinhold Cohn & Partners
Eran Bareket, Partner, Head of Legal Practice
Eran Bareket

Partner, Head of Legal Practice

Gilat, Bareket & Co.

Managing Partner

Reinhold Cohn Group

Infringement of third party intellectual property rights (IPRs) is one of the serious risks facing the modern enterprise. In recent years insurance companies throughout the world started to issue advanced insurance policies against IPR infringement risks but those were, until recently, unavailable in Israel. Such an insurance policy is now made available, for the first time, also in Israel.

Intellectual property (IP) is a key value driver in the modern economy and with the mushrooming of IPRs, including non-registered rights such as copyrights and non-registered design rights as well as registered rights such as patents, designs and trademarks, the risk of infringement of such rights in the ordinary course of conducting a business has risen considerably. At times such risks may be somewhat mitigated by clearance or so called “freedom-to-operate” (“FTO”) studies, which are usually complex and costly. Moreover, as good as such studies are, and for various reasons it is practically impossible to fully ensure that no IPRs are or will be being infringed. Until recently, in distinction of other risks, no insurance against IPR infringement risks was hitherto available. 

Litigation of IPR infringement is an expensive process, damages awarded by courts may skyrocket and even settlements may be very costly. Attorney fees required to successfully defend against IPR infringement actions may sometimes be even more costly than a settlement. It is very often not within the means available to many corporations, particularly emerging ones1. Thus, being faced with charges of infringement of a third party IPR may require an accused entity to devote very large funds for this matter, funds that should otherwise have been spent in a more productive manner. Also, the huge expenditure, particularly in the case of small-to-medium enterprises, may have devastating consequences.

In recent years some insurance companies have begun to offer insurance policies providing coverage for infringement risks of third party IPRs, including patents, trademarks, copyright, trade secrets, misappropriation, etc. This insurance coverage includes litigation costs, court-awarded damages and settlement-related costs2. Until very recently, such insurance policies were not offered by Israeli insurance companies, a situation that had now changed with the new insurance scheme that is provided by Ayalon Insurance Company, Ltd. (“Ayalon“)3. This insurance policy provides global coverage; namely, coverage for IPR infringement suits filed anywhere in the world. 

The scope of coverage depends, of course, on the insurance premium. We were advised that the minimum annual insurance premium is US$15,000 and policies may be purchased providing insurance coverage of up to US$10 million. 

A brochure describing this insurance product may be obtained directly from Ayalon4.

All those seeking IPR infringement coverage should be wise to seek advice from qualified IP professionals on the scope of coverage and other matters prior to purchasing such an insurance policy.

Costs of patent infringement litigation, for example, may often exceed US$1 million and court-awarded damages or a settlement may also be in the millions of dollars (and at times even in the multi-million dollar range).

2 Of course up to the maximum coverage of the specific insurance policy.

3 The Reinhold Cohn Group (RCG) is not associated with Ayalon in manner so as to gain in any way from such insurance policies to be purchased from this insurance company. The sole purpose of this newsletter is to disseminate this important information to our clients and other interested parties as we believe that many intellectual property-based businesses may benefit from this new insurance instrument. It is to be noted, however, that this newsletter is not intended as an opinion on the value of this insurance instrument, scope of its coverage, and/or its suitability for a specific business.

Adv. Aynat Cestenbaum; Tel: 03-7569704; Email: aynatc@ayalon-ins.co.il

This newsletter is provided for general information only. It is not intended as legal advice or opinion and cannot be relied upon as such.

This article is provided for general information only. It is not intended as legal advice or opinion and cannot be relied upon as such. Advice on specific matters may be provided by our group’s attorneys.

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