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Guide to Intellectual Property insurance for start-ups and small businesses

July 21, 2015

As much as 80% of business value is now made up of intangible assets such as Intellectual Property. In fact, we are in the epicentre of an IP revolution – with more start ups emerging, creating and innovating in ways only once dreamed of.

Best practice dictates that businesses need to protect their innovation – typically done by applying for patents, trademarks or designs. However, the battle to protect their most valuable asset unfortunately does not stop there.

The bad news is that thousands of UK businesses every year are involved in disputes relating to their intellectual property – and this number is rising.

The threats come from both near and far, and often when businesses least expect them. However it’s identifying all the possible risks from the get-go that keeps businesses ahead of both current and future competition.

Here’s a guide to the importance of IP and IP insurance, specifically for those who own a small business, or those looking to start a business in the near future.

What is Intellectual Property insurance?

Most, if not all, small business owners will be well versed in what IP actually is, with many holding their own patents or trademarks, or at least being aware of the ones their competitors hold.

But a common mistake made is thinking that simply owning a patent or trademark is enough to fully protect them from any claims that may be filed against them, or that they may wish to file.

The reality is that, whilst copyright, patents and trademarks provide the legal right to take action against copycats, it is up to the right-holder to instruct lawyers to enforce these rights. If you cannot afford these costs, the infringement is likely to continue.

IP insurance can save businesses hundreds of thousands in legal fees by paying for the high costs of litigation. Policies will typically cover;

  • The legal costs of enforcing your IP against copycats
  • The legal costs of defending claims that you have infringed others rights
  • Damages awarded against you if you are found to infringe
  • The costs of recalling your infringing products from the market
  • Contractual obligations. Satisfies contractual requirements to hold insurance to cover indemnities relating to IP.

When am I at risk?

As a small business, there are two main scenarios in which you can find yourself involved in litigation regarding intellectual property:

1. Another company will file a claim against you

Recently there has been a start-up boom in the UK, and inevitably there will be some crossover of similar names, products or services. Most of the time these are purely coincidental, with so many new businesses it’s impossible to keep tabs on all rivals and what they have, or haven’t protected.

However, coincidence doesn’t protect you in court, and even if you weren’t aware of your opponents rights, you can end up in the middle of an expensive legal battle.

2. You want to file a claim against another company

Of course the other side of the coin is equally as likely. If you believe another company has infringed on your IP, you are entitled to file a claim against them.

However, fighting to protect your intellectual property is expensive and few start-ups and small business are equipped to pay the fees necessary to see a case through court.

Do I need IP insurance?

This is a question that’s commonly asked by startups. The truth is that while you don’t need IP insurance, it is the best way to protect your business from the high cost of stopping someone else from copying your products or services and undermining your business.

By having IP insurance you don’t need to worry about the fees of court as they are paid for, leaving you free to fight your case on a level playing field. It also adds value to a business as investors, lenders, and licensees know that, if necessary, funds are available to protect these key business assets.

Getting IP insurance is often thought to be an expensive procedure, however, this is not the case. On average the cost of IP insurance is around 1-3% of the amount of cover you want. So £100k of cover could cost as little as £1k.

What can happen to a small business that doesn’t have IP insurance?

At best, fighting an intellectual property case in court is stressful and expensive, even if you win. At worst, it can damage your reputation, suck up your time and money, and spell the end of your business.

In particular businesses in the technology, media, and healthcare sectors need to be aware of IP insurance, as often, the major value of their business depends on intellectual property.

How do I get protected?

It’s best to ensure that you are protected from the beginning. However, it’s never too late to start, providing you’re not currently in, or are soon to be, embroiled in an IP case. The best thing to do is to speak to your IP lawyer and ask them about insurance and what happens in the event of going to court.

Alternatively you could speak directly to a company that specialises in IP insurance and enquire about what they could do to protect you.

About the author

This guide has been written for ByteStart by David Bloom, CEO of Safeguard iP, the UK’s only dedicated IP broker. David is an IP lawyer with more than 15 years experience in helping businesses to protect themselves.

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