business Insurance Article

Intellectual Property Insurance For Your Business

“Capital isn’t that important in business. Experience isn’t that important. You can get both of these things. What is important is ideas.” –Harvey S. Firestone Barbie_vs_Bratz_Large

Up until about the age of eight, my entire world was about Barbies. Well, Barbies and the Babysitter’s Club book series. I had an entire room dedicated to Barbie and friends, from a dance studio, to a shopping center, to a stage in “town square” (aka the center of the room).

And that’s literally all the room was about — Barbie.  That was really the only option. I never would have dreamed of any dolls other than ones with those little plastic tattoos of the copyright symbol and “Mattel.” But that was a simpler time, and childhood got a little more complicated. As the market for children’s toys grew, little girls were given more options. Decisions, decisions. Now, it’s Bratz vs. Barbie.

When Bratz were introduced, they were an instant success among the target audience, but conflict soon followed. Mattel, Inc., the maker of Barbie, alleged that Bratz creator Carter Bryant and MGA Entertainment Inc. had stolen Mattel’s intellectual property — the Bratz name and concept. At the time the Bratz concept was developed, Bryant was working for Mattel and consulting with MGA. The court ruled that since Bryant was on Mattel’s payroll, the Bratz concept was considered a trade secret and ruled in favor of Mattel. MGA was ordered to pay $100 million in damages.

Although Bratz dolls may not seem very “intellectual” to you and may seem as though they’re created by someone with less space in their head than a Bratz doll head, the entire issue is actually founded upon intellectual property laws. Stealing ideas and concepts is known as intellectual property theft, and can be an expensive crime. Some companies are now offering insurance products to help safeguard against this type of crime, but how do you claim and protect an idea?

What Is Intellectual Property?

The U.S. Patent and Trademark Office has a quite beautiful, poetic definition of intellectual property:

“It is imagination made real. It is the ownership of dream, an idea, an improvement, an emotion that we can touch, see, hear, and feel. It is an asset just like your home, your car, or your bank account.”

For those of you who aren’t into unicorns and rainbows, here it is more simply put: It’s an idea and intellectual property can be divided into two categories: industrial property and copyright.

Industrial property includes things like inventions and patents, trademarks, and industrial design. Copyright includes more artistic works like novels, musical scores, and photographs. Recordings such as radio and television as well as architectural designs are included in copyright. Stealing anything mentioned above is just like stealing a car or a boat — as the U.S. patent office said, ideas are like assets. That’s why it’s a serious crime to steal them, and it’s exactly why you may need insurance to protect against it.

Protecting Intellectual Property

In today’s world, almost all commerce has some type of digital component, and the U.S. government is taking steps to protect intellectual property. The White House recently announced a new effort that would “share more classified information about cyber threats with U.S. companies.”

White House spokeman Jay Carney said, “We know that trade secret theft can cripple a company’s competitive advantage in foreign markets, diminish export prospects around the globe, and put American jobs in jeopardy.”

Although the White House is specifically concerned with China’s tactics, it’s important for a company to take the first steps in protecting the ideas that run their business. In addition to obtaining patents, trademarks, copyrights, and trade secret status, companies can now invest in intellectual property insurance.

Do You Need Intellectual Property Insurance?

This type of insurance can be very beneficial for companies that are continually developing new products. There are more than 27 million small businesses in the U.S., and when you realize that only 44% survive the first four years, the idea that competition is fierce becomes a reality. Competitors, especially those who are bigger and have more financial resources, can quickly utilize your ideas and ruin you financially. Average litigation costs for intellectual property lawsuits can cost anywhere from $700K to more than $2 million dollars depending on the value of the idea being disputed. If you don’t have the financial resources to fight the battle, it could be the end of your business.

But intellectual property insurance isn’t just made to protect the little guys. Take the Napster v. Recording Industry Association of America (RIAA) case. Napster, a music file sharing site, was allowing users to download music for free although it didn’t own the rights to any of the available songs. RIAA sued Napster, forcing the business to close. In some cases, intellectual property insurance can protect you in case someone sues you for infringing upon an idea, but you must prove that you were not aware of any infringements at the time you apply for insurance coverage. For large businesses, some insurance companies are now offering coverage limits up to $5 million dollars.

The threat isn’t always on the outside though. Businesses of all sizes need to be aware that employees can also be an intellectual property threat. Remember Barbie v Bratz? Surprisingly, only 44% of companies see the prevention of employee theft as a security priority.

Limitations of IP Insurance

When trying to decide whether an IP insurance policy is right for your company, it’s a little different than shopping for car insurance. Because this insurance doesn’t cover your typical situation, it’s hard to get an average quote or coverage limit. IP insurance acts as a form of liability insurance and you may be able to add it to your current commercial insurance policy. Cost will vary based on the amount of intellectual property you’re trying to protect, but as usual,  a $500K policy is going to cost less than your $5 million policy.

Finding the right policy will require some research on your part. Not many carriers offer this type of policy currently and if you’re already embroiled in a lawsuit, you aren’t eligible for coverage. It’s usually the big guys that are looking for coverage and that should look for coverage, similarly to reputation insurance. Applying for IP insurance should be done as realistically possible — better safe than sorry.

All companies, regardless of size, need to have a solid risk management policy. Traditional insurance policies will cover a business up to a certain amount, but when the development of ideas and products is your main source of revenue, these typical policies will fall short. Getting a patent or copyright isn’t enough to protect your ideas anymore. Intellectual property insurance can ensure that you have the resources to fight against idea infringement and win. Ideas are not like opinions — not everyone has them. (Or good ones, anyways.)  That’s precisely why it’s crucial to protect yours.

Follow Desiree on Twitter @DesireeBaughman.

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