Underwriting the Risks of Innovation

• Author: Todd M. Rowe
• Position: Attorney, Tressler LLP in the United States
• Pages: 21-23

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21

In the Information Age, the risk of high litigation

costs related to protecting IP assets is increas-

ingly the prime challenge facing the vast major-

ity of smaller and mid-sized innovators. Surveys

conducted by the World Intellectual Property

Organization (WIPO) estimate that the average

cost of patent litigation in U.S. courts is in the

region of US$4 million, while litigation in other

nations can easily reach tens of thousands of dol-

lars. Like the merchants and industrialists before

them, a number of innovators in the Information

Age have started to see that spreading these

costs and risks through insurance increases their

competitive advantage.

Insurance policies for IP

assets

In general, insurance for IP assets can be oen-

sive, insofar as it provides protection when a third

party infringes the policyholder’s IP, or defensive,

by oering protection in the case of infringement

claims against the policyholder. The insurance

policies available for IP assets spread the risks as-

sociated with innovation in three main ways: by

paying solely for the policyholder’s defense

costs;

reimbursing business costs and losses incurred

by a policyholder during litigation; and

providing coverage to pursue infringers of the

policyholder’s IP assets.

Defense cost & damages

reimbursement coverage

The insurance industry has developed products

that provide coverage if a policyholder is sued for

infringement. These products reimburse defense

costs incurred by a policyholder in infringement

A long time coming

The modern insurance industry traces its ori-

gins back to 2000 B.C., in Babylonia, when ship-

ping merchants entered into agreements with

traders to use their ships as collateral for loans

to fund voyages. The fundamental elements of

these agreements continued to govern trade in

ancient Greece and Rome and throughout the

Middle Ages. Merchants and traders quickly re-

alized they could gain a competitive edge by

spreading risk among a number of individuals

rather than assuming it entirely on their own.

During the 16th and 17th centuries, merchants

began securing insurance for their vessels from a

syndicate of other merchants which gathered at

Lloyd’s Coee House in London. In the Industrial

Age, industrialists recognized a similar competi-

tive advantage in spreading the risk of damage to

their factories among themselves.

UNDERWRITING

THE RISKS OF

INNOVATION

The expense and labor invested in the development and subsequent protection of valuable intellectual

property (IP) can be and usually is, significant. Given the high cost of protecting IP assets, what can be

done when outside factors, such as a party’s ability to pay or geographical location, create unfair advan-

tages over competitors? As many smaller innovators will attest, there is a real fear of losing ownership

of IP when they lack the resources to protect their rights. The insurance industry may offer a solution

that eliminates unfair advantages created by financial resources, geography or the sophistication of an

innovator. Todd M. Rowe, Attorney, Tressler LLP in the United States, looks at how, in addition to pro-

viding additional resources for establishing rights to IP, insurance can offer the means for innovators to

focus on developing their IP assets rather than the distraction of finding the resources to protect them.

1. A Cost-Eective

Alternative, WIPO

Magazine, February

2010 (www.wipo.

int/wipo_magazine/

en/2010/01/

article_0008.html)

Photo: iStockphoto © Pekka Nikonen

Innovators are realizing

that using insurance to

spread the costs and

risks associated with

litigation increases their

competitive edge.