With the value of non-tangible ideas and products increasing, James Moorhouse explains the importance of intellectual property cover
When it comes to purchasing insurance, people tend to think of cover for their property, health or travel plans. But what if you want to insure an idea?
In a competitive market, it is important for individuals and businesses to protect their intangible assets. While a product or service might be more recognisable, it is often the non-tangible idea that has the true value.
Many focus on insuring their physical property, which can be repaired or restored. However, it is not as simple as that regarding intellectual property (IP).
The Intellectual Property Office (IPO) defines IP as “something that you create using your mind – for example, a story, an invention, an artistic work or a symbol”.
Types of intellectual property include:
- Copyright
- Patents
- Designs
- Produced materials
- Trade secrets.
However, intellectual property is not necessarily owned by its creator. It can also be bought through a contract or decided during a court case. This means that determining who owns intellectual property can be complicated. The IPO clarifies the owner as being the person or organisation that either:
- Created it (and it meets the requirements for copyright, a patent or a design).
- Bought IP rights from the creator or a previous owner.
- Has a brand that could be a trademark, for example, a well-known product name.
In addition, it should be noted that IP can: have more than one owner; belong to people or businesses; and be sold or transferred.
IP cover
Concerning insurance, IP can be considered as either a first-party risk (creator or owner of intellectual property), or third-party risk (individual or organisation experiencing an infringement).
IP insurance can provide protection against the following:
- Legal costs
- Loss of earnings
- Company value
- Third-party claims
- Reputational damage
- Infringement.
During the process of registering IP rights, there should also be a conversation with a lawyer about what to do if these rights are infringed.
An IP infringement is not covered by a standard business insurance policy. Therefore, specialty insurance that specifically covers this risk would be required.
When applying for cover, an insurance broker should consider the following:
- Value of the IP
- Registration of the IP
- Risk assessment of an infringement occurring
- Historic data (if available)
- Type and level of cover required
- Territorial scope of protection.
If there is a suspected IP infringement, such as an imitated idea or violation of rights, a discussion should take place with a lawyer. This is to determine the nature of the infringement, how it impacts any previously registered
IP and if an assessment is required to take initial action.The insurer should be made aware of any potential disputes, even if it does not result in a claim. This is because any costs incurred before alerting the insurer, or without their express agreement, may not be recoverable if not notified beforehand.
Rising importance
With the rapid growth of online businesses, digital products and selling of non-fungible tokens, known as NFTs, protecting IP is more important than ever. Regarding intellectual capital, any competitive advantage should be protected as a business asset.
When someone has a unique idea, especially individuals and small businesses, they may find themselves open to imitation or even theft. As well as reputational damage, this could also result in a loss of profits if someone else is offering an identical proposition at a lower cost. Staying ahead of the competition is not just about having a better idea but about protecting that idea too. Without proper insurance, many will find they do not have the funds or resources to dispute an infringement.
With the increased use of data and technology, the greater the potential of litigation. Clearer contractual terms and conditions are also needed to better define ownership of intangible ideas. IP insurance is a growing market, demanding greater underwriting and claims expertise.
Providing actual advice, rather than just selling products to customers, is a key part of identifying unmet needs that could improve public trust in the insurance sector, as new CII president Peter Blanc explains: “We would have a much better society if everyone who needed insurance was advised and assured they were buying the policy that was absolutely right for them.
It is not about price or fees; it is about making sure the customer has a product in place that responds how they need it to.”
Identifying unmet needs and providing better quality advice on products will be a key part of delivering a quality service to insurance customers.
Read the full good practice guide on IP here: www.cii.co.uk/102559
James Moorhouse is content manager of the CII
