Almost every business owns intellectual property but breaching the intellectual property rights of another can cost a fortune, even if it’s accidental. Infringement is often misunderstood or underestimated.
Intellectual property (IP) is all those intangible assets that a company owns, from client data and trade secrets to registered IP such as patents and copyright. The value of these assets often far exceeds the value of tangible assets on company balance sheets, and it’s easy to see why. At the top of the market, the likes of Amazon or Coca-Cola’s IP value will be comparable to the entire GDP of a small country.
It is said that a modern smartphone contains over 200,000 patents, all of which have been registered for a very specific function. There will inevitably be overlaps in these patents, which is where disputes often arise, and why Apple and Samsung are seemingly in a never-ending legal battle with one another.
Many believe that if they own the rights to a patent, design right, trademark, or copyright, they are protected from breaching a third party’s rights. However, that is not true. Owning the rights to IP is not a defence to a claim, as it doesn’t stop you from infringing the rights of another. Similarly, not holding any registered IP does not mean you can’t infringe other’s IP.
Although it is high-profile disputes between large companies that make the headlines, small businesses carry a considerable risk too, and the risk isn’t restricted to those operating in the technology sector or those retailing suspiciously familiar caterpillar-shaped cakes.
Most companies have a very good understanding of their competitors, their products and services, and who they sell to. This can create a false sense of security, as they see these as the only source of where an IP infringement could arise. The reality is that IP infringement claims often emanate from parties that operate in different circles.
An electronics retailer may claim that a marketing agency has breached its trademark by having a similar name or logo, a plastic bottle manufacturer may claim breach of design rights is particularly rife. Software, for example, will often have numerous different functions and mechanisms incorporated within it that are already patented by a third party. Even if a licence fee has been paid to use the patented technology, there will usually be limitations of how and where it can be used.
A big problem for the more entrepreneurial business is the threat of Patent Trolls. These are non-practicing entities that register a patent right to a product or service, then sit back and wait for someone to breach it. Small and medium-sized enterprises are the most common target for Patent Trolls, and those selling a product or service to the USA are particularly vulnerable, where it is believed that over 80% of patent claims are a result of patent trolling.
The cost of IP infringement can be so big that it would threaten the existence of most companies. Legal fees and the payment of court-ordered awards are just the tip of the iceberg. For many, an IP breach will mean they have to completely re-design their product, service, or brand. Contractual indemnities may have to be paid to customers if a supplier has warranted that their product does not infringe any IP rights. And there will of course be lost revenue, as continuing to sell the same product or service would be illegal.
Some insurance policies contain restrictive elements of cover for unintentional breach of IP, although it isn’t always immediately clear to policyholders what cover, if any, is actually provided. A dedicated IP insurance policy is the best solution, but your account executive or account handler will be able to assist in arranging the level of cover which best suits you.