Why your SME client needs intellectual property ‘pursuit’ coverage

Your small and medium-sized enterprise (SME) clients need to consider intellectual property (IP) ‘pursuit’ coverage to allow them to take on large corporations to protect their products and market share, a specialist insurance provider told Canadian Underwriter.

A business’s ability to defend itself against claims of infringement accounts for a majority of IP claims, CFC Underwriting said. But SMEs often feel they don’t have the clout to pursue a legal action against a Silicon Valley giant or another large company,

Pursuit coverage is designed so SMEs can confidently pursue legal action against third parties infringing on their product, no matter what the size of the infringing company.

“A key value part of the insurance for a SME is that they are able to not just defend themselves from an incoming claim, but also be able to pursue and enforce those rights to continue developing their market,” said Maddi Brown, CFC’s IP team leader, in an interview with Canadian Underwriter. “You’ll use lots of different strategies as part of that action, but you will pursue that third party to remove them from the market and to seize the product.”

That could include legal action, for example, a settlement or licence deal, or a cross-sell deal.

Standard insurance solutions (such as tech E&O) in the market will exclude things like patent and trade secrets, and will not cover pursuit, Brown said.

“This is bridging that gap for those covers,” she said. “I think the conversation needs to be talked about more where you have intellectual property solutions within other policies, but they’re a defence-only solution. They’re not offering that enforcement, that further protection to an SME. That’s where we can help bridge that gap and ensure they’ve got that stronger position for IP.”

iStock.com/putilich

Pursuit covers the costs associated with enforcing rights. It also covers breach of contract. “We’ve seen that before, where [a SME will] talk about design concepts or ideas and how their new innovative solution will be incorporated into the third party’s product,” Brown said. “And then the third party goes, ‘Well, that was very interesting. We could do it ourselves.’”

Brown acknowledges pursuit coverage is costly, and CFC does not offer it as a standalone solution. “We manage it through offering lower limits, co-insurance and deductibles,” she said, adding that pursuit can actually cost less than a defence claim.

Buy-in is high, particularly in the SME space, Brown reported. At the early concept stage, SMEs have often done their due diligence and assessed the market space properly. “SMEs are really looking for this type of protection because [IP] is all they’re thinking about in those early stages of the business.”

There can be a “moral hazard” when it comes to pursuing a third party, particularly a larger corporate, Brown said. Larger companies may not think a small company will be able to protect and enforce their rights. This is why it’s important to have coverage for legal advice and assistance.

Brown used the example of a small Canadian SME, a blading company, that developed a blade “completely unique to the market, [and] made the boot lighter… but he came up against this very large corporate.”

The small business owner reviewed the space, including the scope of the corporation’s IP, and identified a gap in the market for the product. However, the larger corporation copied his idea and quickly took over market share, Brown reported.

“I don’t think they were prepared for a very strong legal letter coming from him to them… And it enabled him to find a settlement deal, which was made in his favour, where they’ve stopped that infringing product completely,” Brown said. “And now he’s able to operate in the space, but also sell his product into them.

“What’s he actually created is a complete freedom to operate,” she said. “He’s got a lot more comfort as he grows his business.”

Feature image by iStock.com/Warchi