If your business is run out of an office, a shop, or any other physical location, then you already have property insurance to protect yourself against the unexpected, right? Fire or theft are very real threats and you would never want to leave your business exposed. But what about the business assets you can’t see: your ideas? If you have patents, trademarks, copyrighted designs, or trade secrets that you want to protect, then you should look into getting intellectual property (IP) insurance. This type of policy can also protect you from an unexpected and very expensive lawsuit.
What Is Intellectual Property?
Simply put, intellectual property is any work of your own invention or creativity that you own the rights to. Unfortunately, you can’t simply jot something down and claim ownership of it. Your idea usually needs to fall under one of these four legally protected categories:
- Patent – used to protect inventive ideas and processes
- Copyright – protects “original works of authorship,” usually things like writing, music, art, or even software
- Trademark – protects words, phrases, symbols, sounds, even smells and color schemes
- Trade Secret – defined as “proprietary procedures, systems, devices, formulas, strategies or other information that is confidential and exclusive to the company using them.” This classification is less formal: the only way to protect trade secrets is to actually treat them like secrets.
What Are the Types of IP Insurance and Why Have Them?
There are two main types of IP insurance, and they each protect your business against different threats or risks:
- Enforcement Insurance – some of the most valuable property you have is your own ideas, and you should protect them like a shop owner would protect their stock. In fact, it is estimated that your company’s intellectual property is 80% of its value. If another company steals some of your valuable ideas, this type of coverage will help you fight them with a lawsuit.
- Defense Insurance – you should also remember that other companies want to protect their ideas, and they very well may have trademarked, copyrighted, or patented them. They will fight you if they feel you have used any of their intellectual property without permission. This type of policy will help you in case you are faced with a very expensive infringement lawsuit. According to the International Risk Management Institute (IRMI): “The cost of IP litigation can be astronomical, and continues to increase each year. In certain cases, the high stakes of IP litigation can pose a very real threat to the company itself.” When you consider that the cost of an intellectual property lawsuit can run from around $650,000 to more than $5 million, it seems like a good idea to have the peace of mind IP insurance can give you.
If you are interested in protecting your business against both types of risk, there is also a third type of policy, a defense and enforcement policy, which would provide both types of coverage.
Are There Limits to IP Insurance?
As with any type of insurance policy, you will need to find out how much coverage you will get. Some IP insurance carriers will only cover legal fees up to a certain amount. Some policies will only cover you in certain geographical areas.
In addition, if you have an enforcement policy, you will need to be very specific about the patents, copyrights, trademarks, or trade secrets you want to cover. These policies are not blanket insurance for the contents of your head, but will need to have every protected idea you want covered listed. If your intellectual property changes, your policy will also need to change.
If your business is all about ideas, inventiveness or creativity, or if you feel like you’ve got the secrets to success in your field, you may be selling yourself short if you don’t have IP insurance. Also, if you think that your general liability insurance will cover intellectual property infringement because it includes coverage for “personal and advertising injury,” you could find yourself with a very expensive mistake on your hands: these policies only cover infringement if it’s part of your advertising materials. In order to protect both your ideas and your business itself, intellectual property insurance may be the way to go.