Ecommerce Sellers’ Intellectual Property Risk

 

When online marketplaces such as Amazon and eBay are confronted with an accusation of patent, trademark or copyright infringement emanating from a product on their site the marketplace will take two actions:

·        Remove the accused product from their site until the dispute is settled.

·        Look to the ecommerce seller for indemnification (all online marketplaces require this). 

The marketplace will not defend the product! One thing is certain, the marketplace is going to do whatever it can to avoid the cost and entanglement of an intellectual property dispute. The accuser knows this and uses the infringement allegation notification to the marketplace as leverage against the ecommerce seller.

The above scenario occurs hundreds of times each year.

According to a large intellectual property law firm and my own personal experience with my clients the legal cost to defend an infringement claim will run into the hundreds of thousands of dollars.

So, what can an ecommerce seller do? Investigate the purchase of intellectual property insurance. (This risk is not covered by your current business insurance).

Highlights of insurance:

·        Reimburses the ecommerce seller for legal and settlement expenses

·        Ecommerce seller chooses their legal counsel and controls the dispute strategy (insurer has the right to approve legal counsel)

·        Available in the US and worldwide

In many cases the accuser is looking for a licensing fee from the accused seller. If a seller does not have the financial wherewithal to sustain their negotiating position they are at a distinctive disadvantage. Insurance allows the seller to “hang in there” through the negotiation.

The premium cost will run 1-2% of the limit purchased. (2% of a $300,000 limit equals a premium of $6,000 per year). Cost depends upon the industry, revenue size of the ecommerce seller and the limit of insurance purchased.

It costs nothing to receive a quote so why not explore it?

For more information, visit my website at: http://www.OnlineSellersIPRisk.com

Intellectual Property Insurance Cost

Intellectual Property Insurance Cost

What does intellectual property insurance cost? This is one of the first questions I hear from prospective purchasers of this kind of insurance. The short answer is....it depends on the type of insurance, the industry in which your product or IP is operating and the number of products or IP properties to be insured.

Let's take a closer look by specific type of insurance:

Patent Infringement Defense Insurance:
This is protection in the event your product is accused of infringing someone's patent(s). The cost depends on many factors but the most relevant are:

• the number of products insured
• the industry in which the products are sold
• the coverage territory (US only or world-wide)
• the coverage limit of liability

The cost is typically 2% of the limit of liability. For example, if the limit of liability is $1,000,000 then the annual premium will be $20,000.
(Under certain circumstances the rate can be as high as 3%).

Patent Enforcement Insurance:
This provides the money to a patent holder to enforce their patent(s) rights. Like defense insurance there are a number of factors which determine the cost but most relevant are:

• the number of patents to be insured
• the coverage territory (US or world-wide)
• the coverage limit of liability

 Usually the cost is 1-2% of the limit of liability. For example, if the limit of liability is $1,000,000 then the annual premium will range from $10,000 to $20,000.

Trademark Infringement Defense Insurance:
Trademark disputes are typically less expensive in terms of litigation costs than patent disputes therefore the cost of insurance is less. The cost is between 1/2 and 1% of the limit of liability. The cost factors are similar to the patent coverage.

Trademark Enforcement Insurance:
Again, trademark disputes are less expensive than patent disputes. The cost is between 1/2 and 1% of the limit of liability.

Note: There is not a large price difference between the insurers that write this insurance. While from a cost standpoint it can be beneficial to "shop around" for insurance on property and automobile because they are, in essence, commodities with almost identical coverage this is not true with IP insurance. When comparing quotes the major difference will be found in the coverage provided not the price.

For additional information please visit my website at Patent Infringement Risk

IP Insurance for Contractual Obligations

An important use of intellectual property insurance is to provide financial stability and protection for a company's indemnification of intellectual property obligations found in contracts.

License agreements: To provide financial protection to licensee and/or licensor when the licensor agrees to defend the product being licensed and/or agrees to enforce the intellectual property rights.

Example: A university agrees to license their technology, product or patent to a company. In the license agreement the university agrees to take the necessary steps including litigation to protect and defend the product or patents. The insurance provides the university with the ability to budget future unknown litigation costs into the license agreement.

Supplier and vendor agreements: To provide financial protection to the dealer and/or vendor under the contractual intellectual property indemnity clause.

Example: A major retailer requires a vendor to indemnify them in the event they are a party to patent litigation as a result of selling vendor's product.

Mergers and acquisitions: To provide financial protection to the buyer and/or seller of a business in the event the seller's product(s) ends up in an IP dispute.

Example: Company A is buying Company B. As protection for Company A's investment and to protect the shareholders of Company B intellectual property insurance is purchased to place a "financial collar" or certainty around the transaction. 

Funds to enforce your patent rights

You have a product in the marketplace protected by one or more patents that have cost you thousands of dollars to obtain but in reality this is only the start of protecting your product from competitors.

"Patents are not worth anything if they are infringed but unenforced. Unfortunately, most investors are not in the position to do anything about it. A patent is the right to sue-a pretty empty threat if an inventor or company does not have sufficient resources to back it up"
-says Alexander Poltorak, founder of General Patent Corporation, in the book "Making Innovation Pay".

Now the time has come. This is when "the rubber meets the road",  someone is infringing on your patent rights. They are in the market with a infringing, competing product. You have two choices, ignore the infringement thereby losing your patent rights and market share or enforce your rights.

If you choose to enforce your rights the question is, do you have about $2 million to pay for the possible litigation costs? If not, where do you get the money? Here are the least attractive choices:

• Get a bank loan. Unlikely since banks don't like to fund lawsuits. Also, it will limit your ability to finance company growth.
• Find a law firm to take the case on a contingent fee basis and pay about 40% of the award plus expenses.

There is a better way, you had the foresight to purchase Enforcement Insurance. This insurance coverage is available to provide the funds when it is necessary to enforce your IP rights. It is less expensive than a bank loan typically costing 1-2% of the amount of coverage purchased.

Patent Liability Defense Insurance

One of the most traumatic and potentially financially crippling events for a company is when it is accused of patent infringement.

There are between 20,000 and 30,000 patent infringement disputes every year in the United States. Most of these disputes are resolved prior to formal litigation usually through negotiated license agreements in which the accused company pays. Many of these disputes are settled in this way because the accused company does not have the capital available to spend in litigation even if they believe their product is not infringing. The industry pejorative term for this scenario is "a holdup". Of course in just as many cases the accused company's product does infringe but almost always the company was unaware of the infringement.

About 10% of patent disputes end up in litigation. There were 3,504 patent infringement suits filed in 2010. The average litigation expense per side (not including damage awards) is $3.1 million when between $1 million and $25 million of value is at risk. The median damage award over the past 15 years has been $5.2 million.

One way for a company to protect itself is by purchasing patent liability defense insurance. A defense policy can provide up to $10 million of liability coverage. The cost (premium) of the coverage runs between 1-2% of the limit purchased. For example, a $1 million limit at 1% would be $10,000.

  

Insuring Your Intangible Assets

A commonly overlooked risk management area for most companies is their intellectual property rights (IPR). Companies purchase insurance for their tangible assets such as buildings and equipment, but what about a company's intangible assets-the right to protect their creative efforts and the freedom to sell their product in the marketplace? According to some reports intellectual property can be a company's most important asset, accounting for as much as 80% of a company's valuation. Yet it is rare for companies to address IPR as a risk management issue. Virtually all general liability insurance policies now exclude coverage for intellectual property.

Fortunately, another kind of insurance coverage is available-IP insurance. There are four types of IP insurance that can help companies better manage risks associated with intellectual property. They are:

• Defensive IP insurance: Provides protection in the event your product is accused of patent, trademark or copyright infringement.
• Enforcement (Abatement) IP insurance: Provides capital in the event another entity is infringing on your intellectual property rights.
• First Party Riders: Provides coverage to pay you for loss of income, design around costs, etc. in the event your product is found to be infringing. 
• Representations and Warranty insurance: Provides satisfaction for indemnity agreements in contracts such as supplier agreements.