Intellectual property (IP) exposures have for many years either been considered as a bolt-on to existing insurance policies (such as professional indemnity or commercial general liability) or as an uninsurable risk, especially when looking at patent or trade secret exposures.
But times are changing. A quiet revolution is taking place in the IP world where IP managers and patent teams are beginning to learn that IP risk can be seen through different lenses (not just a legal one) and that IP insurance can be a valuable tool in their armoury.
Lack of awareness
In fact, there have been stand-alone solutions for IP risk transfer for over 30 years, but interest and take up from larger businesses has been historically low. A mix of factors is behind this: from a belief that these solutions are aimed at SMEs only (often as a result of low indemnity limits) or because of a lack of awareness in the risk management field of patent and trade secret risk.
In addition, there is an apparent tendency for stonewalling from the IP legal community on the subject. We are regularly told that when in-house legal functions are consulted on IP risk, the routine response is "we have it under control".
One solution, perhaps, is for risk managers to learn more on the subject so they can test this position. This is a familiar pattern: similar responses were given by IT teams when cyber liability was first being discussed - and this barrier has now been well and truly dismantled.
IP has become business-critical
In-house IP teams are now recognising that, as the importance and profile of IP in the business world increases, so does their profile within their organisations. Add in the huge impact IP issues can have on a business as a whole, not just on budgets, and it is clear why this area is gaining more momentum.
Witness the recent decision (December 2018) by the German courts to grant an injunction against Apple preventing them from selling the iPhone 6S, 7 and 8 models in Germany. Apple may face not only substantial defence costs and liabilities, but also the cost of recalling phones from the distribution chain and the business interruption issues that accompany all of this. Qualcomm, the claimant in the action, has (as is required under German Law) posted a bond of €1.3bn. Costs like these go well beyond your typical legal budget!
There's an increased understanding and perception of IP risk too. We are seeing this shift manifest itself in the way businesses trade. Before, it was common to see IP indemnities drafted in supply and distribution agreements only for their existence or impact to be removed or substantially reduced as part of the commercial negotiation.
This has changed dramatically, especially in respect of patents and trade secrets, where customers are reporting that these indemnities are now non-negotiable. It is hardly surprising that, whilst there has been a reduction in the past three years, the number of law suits filed for patent infringement alone in the USA exceeds 10 per day.
The IP environment is also changing rapidly in China, where IP rights hold a greater status now than ever before. The need to understand business IP exposures has never been greater.
Insurers are responding
There are strong positive signs that the insurance intermediary chain of brokers and insurers is now getting much more involved in advising on IP exposures and risk transfer. Examples would be Aon's formation of its IP Solutions group with former Chief IP Counsel of companies such as Phillips, Geely (owners of Volvo) and the deputy general counsel for Microsoft joining their team. But they are not alone, with many of the larger broking houses increasing their IP capabilities, often through the Financial Lines teams.
What are insurers doing? They are learning to understand better the dynamics of IP risk. Many recognise that having a bolt-on in this class is not the way to go and that the business risk needs to be better understood. They are, however, responding and the number of carriers and MGAs involved with IP risk transfer has increased and the ability to create towers of capacity above £100m.
It is fair to say that with the enhanced resources and over £100 million of capacity available in the London market, IP risk transfer has definitely come in from the cold and has a nice warm seat at the table.
Ian Lewis is intellectual property underwriter at Tokio Marine Kiln.