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Updated Mar 14, 2024

What Is Intellectual Property Insurance?

Intellectual property insurance is vital for businesses that face the risk of infringement, as it guards against costly litigation and protects intellectual assets.

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Kimberlee Leonard, Senior Analyst & Expert on Business Operations
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Intellectual property, whether Apple’s proprietary operating system or the recipe for Coca-Cola, is highly valuable — sometimes worth millions of dollars. Using intellectual property without express consent can lead to expensive legal battles for both sides. 

Intellectual property insurance covers the costs of these lawsuits, so it can be particularly helpful for small businesses that lack the legal and financial resources of larger companies. Here’s everything you need to know about intellectual property insurance.

Editor’s note: Looking for the right liability insurance for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.

Do small companies need intellectual property insurance?

Small businesses should assess their need for intellectual property insurance. Without coverage, a smaller business may not be able to bear the costs of a larger firm violating its rights. Larger firms may try to litigate your business out of the market as a tactic of dealing with competition. 

That means small companies that are heavily reliant on patent work, trademarks and copyrights need to consider acquiring coverage. 

What is intellectual property insurance?

Infringement claims for major corporations can quickly exceed millions of dollars. This is why intellectual property insurance is so important. Intellectual property insurance pays for the legal costs in case of infringement or theft of the property. There are two types of coverage: infringement defense and abatement enforcement. 

  • Infringement defense: This coverage pays for the costs associated with the legal defense of an infringement claim against you. An example of this would be if you used another company’s logo in your advertising and were sued for the use. 
  • Abatement enforcement: This coverage protects intellectual property owners and helps pay for litigation against someone else who is using your intellectual property without your authorization.

Intellectual property insurance vs. general liability insurance

If you have a general liability insurance policy, you may already have limited coverage if your advertising infringes on another party’s copyright or trademark. This is important coverage for business owners. 

However, the scope of general liability insurance is limited, and claim limits are based on the general liability limits. The general liability policy protects a business only for claims resulting from advertising activities. Many businesses are engaged in activities with intellectual property that go beyond the scope of advertising and need further protection. 

Intellectual property insurance covers you for a wider range, including abatement enforcement, and generally maintains higher limits. It’s a specialized policy for companies that are concerned with the risk of major intellectual property battles. [Read more about professional liability insurance.]

Who needs intellectual property insurance?

Intellectual property infringement is becoming more common in the digital age, which is why it’s important to get intellectual property insurance if you are at risk. 

Any business that holds patents or trademarks needs intellectual property insurance. A company with patents could be vulnerable to time-consuming and expensive patent litigation. If competitors use your intellectual property, often a trademark, without consent, it could damage your brand and harm your company’s reputation. 

A small business that is at risk for violating intellectual property laws only through advertising will need coverage, but this is often part of a general liability insurance policy. It will not provide coverage to fund legal counsel if you are infringed upon. It only covers defense, so you’ll want additional coverage if that’s a concern.

Did You Know?Did you know
A general liability policy often protects a business that is at risk of violating intellectual property laws in its advertising.

Do small companies need intellectual property insurance?

Small businesses should assess their need for intellectual property insurance. Without coverage, a smaller business may not be able to bear the costs of a rights violation. This is especially true of a violation by a larger firm, which may try to litigate your business out of the market as a tactic of dealing with competition. 

That means small companies that are heavily reliant on patent work, trademarks and copyrights need to consider acquiring coverage. 

>> Learn more: Business Insurance Guide

What does intellectual property insurance cover?

Intellectual property insurance provides financial coverage up to the policy limits. Depending on your policy, the limits may include the legal fees associated with an intellectual property claim. 

The intellectual property insurance policy covers the following expenses:

  • Litigation, settlement and damages for third-party infringement
  • Post-grant review (a proceeding in front of the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board) of the intellectual property’s patentability
  • Invalidity, cancellation or revocation proceedings to reaffirm your intellectual property grounds

You can schedule coverage for specific products, processes and services to ensure you are protected. Coverage applies both to cases where a competitor is infringing on your intellectual property and cases brought by so-called trolls, or nonpracticing entities. The coverage includes appeals and counterclaims that you may want to file. 

Policies also include coverage in cases where you have contractual indemnity and are indemnified by party defense, which pays for damages or losses sustained by a third party as the result of future occurrences. Your policy will also pay for any needed expert witness testimony, technical analysis and design-arounds needed to prove your case.

Your coverage allows you to choose legal counsel so that you are confident in the legal actions taken. Counsel coverage doesn’t end when the trial is over; you also receive post-incident responses written and filed on your behalf to close out the case. 

What are the types of intellectual property insurance?

A policy may offer one or both types of intellectual property coverage. 

Type

Definition

Infringement defense 

The foundation of all policies, this coverage protects you if you are accused of using another company’s intellectual property without authorization. It pays for the legal defense, settlement or damages to another party for the violation of their patent, copyright or trademark rights.

Abatement enforcement coverage

Often an add-on, this coverage gives you the resources to legally pursue action against those violating your intellectual property rights.

How much is intellectual property insurance?

The cost of intellectual property insurance varies. The underwriter bases the premium on your industry risk, your revenue and the types of intellectual property you are insuring. For limited coverage through a general liability insurance policy, a small business could expect to pay as little as $500 per year. However, for a specialized policy designed to protect you from specific risk, you could pay tens of thousands of dollars annually. 

FYIDid you know
A small business could pay anywhere from $500 to tens of thousands of dollars annually for intellectual property coverage.

Shopping for intellectual property coverage

Intellectual property coverage is considered a specialty insurance policy. This means you may have trouble finding a carrier that offers the coverage and even more difficulty finding competitive rates. 

Assess your company’s need for abatement enforcement coverage. Remember that this isn’t always included automatically, so you’ll need to ask for a quote with and without this coverage. Every insurance carrier has its own appetite for certain industries, meaning it is more likely to insure certain types of companies than others. You may have to shop around to find an insurance carrier that meets your company’s needs. 

How to avoid intellectual property risk

Even with insurance, your best course of action is to prevent a loss in the first place. To mitigate intellectual property risk, develop company protocols that protect your property through the course of business. For example, follow these best practices:

  • Use nondisclosure agreements with employees and strategic partners.
  • File for a trademark of your company or product name.
  • File for a provisional patent on new research and development projects.
  • Create a paper trail of who has access to intellectual property within the company and what correspondence is being used.

Taking measures to protect intellectual property can reduce claims and keep insurance premiums down. With a reduction in claims and risk-mitigation strategies in place, insurance carriers take on less risk and can transfer those savings to clients. 

Intellectual property insurance FAQs

Below, we've answered some frequently asked questions about intellectual property insurance.
Intellectual property rights cover a range of assets spawned from human creativity, including (but not limited to) original artwork and literary works, inventions and proprietary technology. Anything that falls outside that realm is not protected by intellectual property rights.
In some cases, general liability insurance covers at least a portion of intellectual property. If yours does, you may see an “advertising injury” provision covering specific inadvertent copyright claims. However, intentional intellectual property infringement is not typically covered. Consult with your insurance provider or a legal professional to determine your specific coverage.
There are three primary methods for valuing your intellectual property assets:
  • Income method: This method values each asset based on the amount of income it is expected to create (adjusted to present-day value). This is the most common valuation method.
  • Market method: This method calculates an asset’s value by comparing the actual price for the transfer of rights to that of a similar asset under similar circumstances.
  • Cost method: This method uses the price of a similar, existing asset to determine the value of the asset in question.
Businesses must understand the value of their intellectual property — and then calculate and recalculate as time progresses or as new assets are added. They should also understand the terms of their intellectual property insurance and purchase additional coverage, such as cyber liability insurance, to further protect their digital assets as needed.

Sean Peek contributed to this article. 

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Kimberlee Leonard, Senior Analyst & Expert on Business Operations
Kimberlee Leonard is an insurance expert who guides business owners through the complicated world of business insurance. A former State Farm agency owner herself, Leonard started her decades-long career as a financial consultant advising on investment strategies before switching her focus to insurance and risk mitigation for businesses. Leonard has developed insurance primers on everything from small business insurance costs to specific policies, such as excess liability insurance. She has also reviewed business software tools, analyzed employee retirement plan providers and continues to share insights on financial topics as they relate to business. Leonard's work has been published in Forbes, U.S. News and World Report, Fortune, Newsweek and other respected outlets.
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