Core Insights

Protecting Your Secret Sauce

Author: Robert Whelan

Searching for Intellectual Property (IP) coverage can be like looking for your shadow on a cloudy day. It has to be there somewhere. Right?

Our organization places a variety of insurance coverages for our clients. And with federal and state governments loosing up restrictions around social gatherings, the new executive happy hour topic of discussion has been “How do I protect my company’s IP?”

From what we’re reading and seeing with our clients, intangible assets can account for up to 80% of a company’s value…80%!! These same organizations are insuring their brick-and-mortar assets with relatively small deductibles but completely ignoring the rest of the balance sheet.

Depending on the type and circumstances of the IP loss, there may be some defense coverage available under a commercial general liability (CGL), directors and officers (D&O), errors and omissions (E&O) or cyber policy. However, standard Insurance Service Office (ISO) versions of these coverages provide a variety of exclusions and sublimits. You’ll have to read each policy to understand what is and isn’t covered. However, in my experience, the intent of these programs is not to provide IP coverage. Like a well-worn suit, you’re much better off finding a policy that is tailored to your IP.

Typical IP coverage falls into the “Big Three”; Patents, Trademarks and Copyrights. All three are filed within the public domain, meaning that in exchange for publicly disclosing your asset, the government will exclude others from making, using or selling your claimed invention. However, once your patent is expired, your coveted IP is now fair game for knockoffs and copycats as the blueprint of your asset has been publicly disclosed.

When looking for ways to protect your more close-to-the-chest secrets, you want to look into coverage known as “Trade Secrets”. A trade secret is any non-public information that either has actual or potential value by virtue of not being generally known. These can be processes, procedures and other unique qualities that make your asset different and give you a competitive advantage. Unlike the Big Three mentioned previously, Trade Secrets are not registered with the government, thus making their existence that more vulnerable.

Most available IP coverage is focused around litigation expense; defense and prosecution, but mostly defense (i.e. someone comes after you asserting you infringed on their IP). This coverage is designed to cover litigation expense and resulting settlements or judgments. Coverage is placed through a variety of specialty markets with relatively low available limits and the associated premium is astronomical. First-party coverage also exists, however various conditions must be met for coverage to apply.

It is fair to say that the insurance industry is slowly warming up to the idea of providing IP coverage. Various limited programs, that could benefit your organization, do exist. In speaking with the underwriters of these various programs, more premium on the books is needed before wording can be amended and coverage broadened. A discerning risk manager should start looking into these coverages and begin to think about how their company’s various IP can be addressed.