Intellectual property insurance

Intellectual property insurance refers to contracts under which an insurer covers, in return for a premium, all or part of the costs of an intellectual property dispute. It covers either the costs incurred by the right holder in enforcing its rights, or the costs of defence and, where applicable, the awards made against an insured party sued for infringing a third party’s rights. Where it takes the form of legal expenses insurance, it is governed by Articles L. 127-1 et seq. of the French Insurance Code, which in particular guarantee the insured the free choice of attorney. The market remains narrow in Europe and policies are often tailor-made.

Forms of cover

Enforcement insurance funds the right holder’s action, in particular attorneys’ fees, expert fees and saisie-contrefaçon costs, and may cover the defence against the counterclaim for invalidity that almost always accompanies it. Defence insurance covers the costs incurred by an insured party sued for infringement and, if the policy so provides, the damages and legal costs awarded against it. General liability policies frequently exclude intellectual property infringements, which makes it necessary to check their wording rather than assume cover. Finally, specific cover exists in acquisitions, to insure against inaccuracy in the seller’s representations concerning intangible assets.

Taking out cover and its conditions

The insurer generally makes its cover subject to a prior risk analysis, whether an audit of the portfolio for enforcement insurance or a freedom-to-operate analysis for defence insurance. The insured must accurately disclose the circumstances known to it, and intentional misrepresentation renders the contract void. Disputes that arose or were foreseeable before the policy was taken out are excluded, as, often, are intentional infringements. The premium, excess and limit depend on the number of countries covered and the sector, with highly litigious fields subject to stricter terms.

Claims handling

The policy governs notification of the dispute, conduct of the proceedings and the insurer’s consent to costly steps or to a settlement. These clauses may set the insured’s strategy against the insurer’s financial interest, a tension that should be anticipated when the policy is taken out. The free choice of attorney and professional secrecy limit the information the insurer may obtain about the case. Insurance can usefully be combined with third-party litigation funding or with contractual indemnities given by suppliers.

Key points

Insurance makes the cost of intellectual property litigation bearable, whether as claimant or defendant. It requires a prior risk analysis, honest disclosure and a careful reading of the exclusions and limits. Existing policies should be checked to see whether they genuinely cover these risks, cover taken out before any known difficulty arises and the clauses on conduct of proceedings and settlement negotiated.

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This glossary entry is general in scope and does not constitute legal advice.

Dhenne Avocats is a patent litigation firm. Matters outside that field, such as trade marks, designs, copyright and IT contracts, are handled by practitioners the firm works with regularly, and by the firm itself when they arise in a patent dispute.

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