Julie Page explains how the insurance sector can help businesses bridge the IP protection gap
In the last 30-40 years, many big businesses have experienced a major value shift from tangible assets like property, plant and equipment, towards intangible assets such as intellectual property (IP) and goodwill. To underline the point, the majority (85%) of the value in the S&P 500 index is today made up of intangible assets – a complete reversal from the 1980s.
As with any physical asset, intangible assets need to be protected – a 2019 survey by law firm Morrison & Foerster revealed that the annual spend on IP litigation increased year on year to reach more than $3.3bn (£2.4bn) in 2019, almost doubling in 15 years. And while encouraging steps have been taken by our profession to help clients recognise the value of their IP, there is still a growing protection gap that we can – and must – help them fill.
A problem for many businesses is that their IP risk is becoming more complex as they grow their operations across an expanding network of multijurisdictional and multicultural environments. And in many cases, their legal protections are written into local laws. If you consider patent, copyright and trade mark laws, the protection around those is national in structure but the overall risk itself is global.
Microsoft’s SkyDrive, for example, had to be renamed One Drive following trade mark-infringement litigation from BskyB, which resulted in legal, rebrand and marketing costs. Apple, meanwhile, was stopped from selling some iPhone models in Germany in 2018 because of an alleged infringement of chipmaker Qualcomm’s patent rights.
Patents, copyrights and trade marks transcend borders as well as traditional concepts of risk, so we must, as a profession, start to understand how we can help our clients understand these risks and support them in building appropriate protections. We know that businesses can buy insurance cover for protection and infringement of copyright – which includes legal expenses and liability if your business is the infringer – but for many organisations, these covers may not have transitioned adequately to the new hyperconnected and digitalised world.
If you think about a liability protection in the traditional sense, there are policies available that provide global protection. There is an opportunity to learn from this and extend cover for IP risks like copyright quickly to support firms that are ostensibly reliant on intangible assets.
It is not just about protection either. A big advancement is the ability to measure and value IP. And, when valued, it creates a different asset class that, in turn, enables a firm to make different financial decisions. Most organisations borrow against their tangible physical assets like property. But if you can value your IP, you can also borrow against it, creating a value chain in which insurance plays a key part – no one will lend against an uninsured asset – taking us well beyond the traditional realms of insurance.
The good news is that, unlike other emerged risks like cyber, IP is not so scarily complex to underwrite. Yes, the historical datasets might not be there yet, but there is legislation around the world to help us define the degree of protection that patents and copyright get, for example, helping us to assess the degree of risk. And there is also a growing body of evidential statistics on losses, starting to reveal the cost of exposure.
The change in the global economy from tangible to intangible has gone far enough to make IP worth our while, both as an important source of new premium and, just as importantly, for our clients looking to us to help satisfy a largely unmet need in their exposures.
Julie Page is president of the CII