1.

• Identifying and Controlling

Intellectual Property Loss Exposures with Risk Management Principles

Presented by:

Maureen L. Veterano

Associate General Counsel

Intellectual Property Insurance Services Corp.

www.patentinsurance.com

Tuesday, June 8th, 2010 2. Why Risk Management

Risk Management- Management of the pure risks to which a company might be subject. It involves analyzing all exposures to the possibility of loss and determining how to handle these exposures.

3. Better yet, Risk Management for Dummies

1.What can go wrong? (risk identification)

2.What can we do so it doesnt go wrong? (risk control)

3.How do we pay for it if it does go wrong? (risk financing)

4. What is a Loss Exposure?

In insurance, areas in which the risk of loss exists. Four loss risk areas are: (1) property; (2) income; (3) legal vulnerability; and (4) key personnel in an organization.

5. Loss Exposures Relating to IP:

Protecting against others using the IP of your organization(Income)

Avoiding the use of others IP (Legal Vulnerability)

6. Potential Risk Treatments

Once risks have been identified and assessed, all techniques to manage the risk fall into one or more of these four major categories:

7. Four Techniques:

Avoidance(eliminate, withdraw from or not become involved)

Reduction(optimize - mitigate)

Sharing(transfer - outsource or insure)

Retention(accept and budget)

8. Avoidance

Used when the likelihood and severity of potential litigation outweigh potential for gain.

Simple Examples:

Importer receives a cease and desist letter from competitor.Importer holds no IP on the product and manufacturer will not indemnify for losses.Profit margin is low, inventory is low, and noninfringing alternate products are readily available.

Prior to going to market, manufacturer obtains freedom to operate opinions.Opinions rely primarily on arguments of invalidity of competitors patents, rather than noninfringement.Competitor has a history of litigation.

9. Reduction

Risk reduction or "optimization" involves reducing the severity of the loss or the likelihood of the loss from occurring.

Examples:

Established protocol to safeguard against infringing upon IP

Nondisclosure agreement and noncompetes used regularly

Trusted advisor relationships- attorneys, accountants, insurance agents

everyday due diligence- trade shows, vendors

10. Sharing/Transfer

Shifting risk from one party to another

Examples:

Indemnification and hold harmless agreements

Alternate fee agreements for litigation

Insurance

11. Insurance as a means for risk transfer

IPISC

Available CGL coverage's

Other specialty markets

12. About IPISC

Incorporated in 1990

Program Managers for:

• Gotham Insurance Co.

• Lloyds of London

Specialize in Intellectual Property (IP) insurance policies to manage the costs associated with litigating IP cases.

13. Policies Offered

Abatement Insurance (Enforcement)

Defense Insurance

Unauthorized Disclosure Insurance

Multi-Peril Insurance

• Available as a rider to the above policies or stand alone

14. What Kinds of Intellectual Property Risks Can Be Insured?

• Infringement Abatement(Enforcement) of:

• • Patents

• • Trademarks

• • Copyrights

• • Trade Secrets/Confidential Information

15. About the Abatement Policy

Reimburses Litigation Expenses toenforceintellectual property against alleged infringers.

16. Abatement Insurance

Sample Policy Terms:

• Claims Made and Reported Policy

• Limits: $250K to $5MM

• Self Insured Retention

• • Minimum 2% of claim limits

• Co-Pay

• • 20% [can buy down co-pay to 10%]

17. What Kinds of Intellectual Property Risks Can Be Insured?

• Defense of Infringement Assertions:

• • Patents

• • Trademarks

• • Copyrights

• • Trade Secret / Confidential Information

18. About the Defense Policy

Reimburses Litigation Expenses todefendagainst charges of intellectual property infringement and paydamages or settlement.

19. Defense Insurance

Sample Policy Terms:

• Claims Made and Reported Policy

• Limits: $250K to $10MM

• • Higher Limits May be Available

• Self Insured Retention

• • Minimum 2% of claim limits, higher limits may be required to offset risk and/or premium.

• Co-Pay

• • 10%

20. Average Policy Premiums Based Upon Applicants Quoted

Policy Limits $2MM/$2MM-Average Risk

Abatement

Coverage for:1 (one) Patent:$15,200

2 (two) Patents:$22,400

Defense- with Damages

Coverage for:1 (one) Product:$20,300

2(two) Products:$30,400

21. Additional Products Offered by IPISC

Multi-Peril

• First-party coverage to cover the unexpected loss of an intellectual investment.Can cover loss of commercial advantage, business interruption and/or redesign, remediation and reparation activities.

Unauthorized Disclosure of ConfidentialInformation

• Provides the legal expenses associated with accusations that the insured has committed an unauthorized disclosure of another partys confidential information, such as:

• • Trade Secrets Privacy Policy Violations Personal Information Break-Ins Software Programs

22. Coverage's available in standard commercial policies

Some limited coverage does exist in commercial general liability policies.

Most likely as part of Advertising Injury

If CGL coverage, insurer has a duty to defend

Currently:2007 ISO CGL; Travelers; St. Paul; Chubb

23. Generalizations:

CGL coverage for personal and advertising injury

Caused by an offense arising out of your business

Infringing upon anothers copyright, trade dress or slogan in your advertisement.

The use of anothers advertising idea in your advertisement.

24. Specifics:

Recent cases- trademark infringement lawsuit was covered under advertising injury:

-Super Duper, Inc. v. Pennsylvania Natl Mut. Ins. Co.,683 S.E.2d 792 (S.C. 2009)

-General Cas. Co. of Wisconsin v. Wozniak Travel, Inc.,762 N.W.2d 572 (Minn. 2009)

25. 2007 ISO CGL Form

Exclusion:

Infringement of Copyright, Patent, Trademark Or Trade Secret

Personal and advertising injury arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights .Under this exclusion, such other intellectual property rights do not include the use of anothers advertising idea in your advertisement.

26. Travelers Policy Forms

Web Xtend liability

By endorsement

Splits up personal injury and advertising injury into separate offenses

No longer includes use of anothers advertising idea in your advertisement

27. St. Paul Policy Forms

Advertising injury offense covers libel, slander, and unauthorized use of any advertising material, or any slogan or title, of others in your advertising.

Exclusions:intellectual property infringement

Nor will we cover any other injury or damage or medical expenses alleged in a claim or suit that also alleges any such infringement or violation

28. St. Paul continued

But Nor will we apply this exclusion to advertising injury that results from the unauthorized use of any:

Copyrighted advertising material;

Trademarked slogan; or

Trademarked title; of others in your

advertising

29. nor will we cover exclusion

-upheld inMolecular Bioproducts, Inc. v. St. Paul Mercury Ins. Co.,2003 WL 23198852 (S.D. Cal. July 9, 2003) because it was clear and explicit

-but seeAlign Tech., v. Federal Ins. Co.,2009 WL 4282098 (N.D. Cal. 2009).Language did not put an insured reasonably on notice

30. Chubb policy

Similar language to the St. Paul except:

This exclusion applies, unless such injury:

Is caused by an offense described in the definition of advertising injury; and

does not arise out of, give rise to or in any way relate to any actual or alleged assertion, infringement or violation of any intellectual property law or right, other than one described in the definition of advertising injury.

31. Other Specialty Markets

Usually stand alone policies

Generally accepted definitions- IP insurance versus Media Insurance

The term Media Insurance is used to describe liability coverage against allegations arising out of communications activities of the organization.

Media insurance generally covers all infringement claims except patent, however terms vary greatly.

32. Companies offering some form of patent infringement coverage:

Chartis

Glencairn

IPISC

Kiln

Samian

SeeThe Betterley ReportApril 2010 www.betterley.com

33. recap

Avoidance(eliminate, withdraw from or not become involved)

Reduction(optimize - mitigate)

Sharing(transfer - outsource or insure)

Retention(accept and budget)

34. Retention

Can be a self insurance plan, but often the inadvertent result of failure to plan

Must be used for current or preexisting losses

Advantages: no premiums

Disadvantages: usually cannot spread the cost over a fixed period of time; company may not have sufficient funds or credit to survive the loss.

35. QUESTIONS? www.patentinsurance.com