Important Facts About Intellectual Property Insurance For Small Business
Dan Levenson June 02, 2016
Imagine that another company falsely claims your company stole a new program it developed and threatens legal action. The catch is, someone working for you had already developed and implemented a program similar to the one at the other company before that competitor started to use this program.
What can you do?
If you have intellectual property insurance, you will be able to fight against a false claim that you stole the intellectual property of another company; something that, without this insurance, might cost millions of dollars to defend. You can also afford to consider legal action against another company if you believe a company stole something from you.
What Counts As Intellectual Property?
When someone steals your property or idea, considered the intellectual property of your company, or you are wrongly accused of stealing from someone else, it could cost you millions of dollars in legal fees. These fees could come from defending charges of infringement involving:
- Trade secrets, which include information that is not typically known or is a secret in a particular industry and gives a company owner an advantage over competitors. Such secrets could include methods, formulas, patents, techniques, programs, and processes.
- Copyrights, which include not only traditional literary works, but also pictorial and graphic works, computer programs, audiovisual works, and motion pictures. This applies to original works of authorship.
- Service marks and trademarks.
- Patents, including the making, selling, and using of a patented process or product.
Who Needs Intellectual Property Insurance?
Intellectual property is important to small companies, as well as large ones. Smaller companies must provide services or make products without attacks on their intellectual property. Such attacks often come from bigger, better-financed competitors.
Such competitors usually attempt to drive them out of business, and small companies may learn quickly that protecting their intellectual property is their most important responsibility. This is the difference between success and failure.
In fact, because smaller companies are nimble, they often develop cutting-edge technologies before larger companies. That’s when the larger companies often notice them and sometimes they will just copy their new technologies. They will often assert patents against the smaller companies. Larger companies know such actions will often stop smaller companies altogether and at other times impede them as the smaller companies can’t afford multi-million-dollar intellectual property litigation.
Large companies can afford to wait out litigation for several months. Usually, the smaller company will accept an unfavorable settlement to get out of litigation.
The Cost Of An Intellectual Property Claim
When a company is alleged to have infringed on a competitor’s intellectual property, even if it did not actually do so, defending against a lawsuit is expensive. Even for larger companies, these suits are expensive. It’s no wonder the smaller companies seek to avoid litigation.
Cases claiming copyright infringement are also expensive. A successful defense of alleged copyright infringement can cost at least $150,000 in legal fees. Fees can cost $1.5 million or more in places like New York, San Francisco, and Boston to defend against allegations of patent infringement.
Some of the choices a company without Intellectual Property Insurance might face are:
- Be forced to pay a burdensome royalty payment.
- Defend against an expensive lawsuit without having the benefit of the insurance.
- Abandon the products in question or intellectual property rights.
- Enter into a license agreement with a competitor from a weaker financial position.
- Sue the other company, possibly depleting any financial reserves you may have.
If you believe your company is immune to lawsuits involving intellectual property because you don’t own any patents or copyrights, you might be wrong. Distributors, retailers, and others are often sued in cases involving the issue of intellectual property.
With the right intellectual property insurance policy in place, you can avoid the stress that comes with the treat of legal action, regardless of whether it comes from a competitor or someone merely trying to claim that something successful is theirs.