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What Is Intellectual Property Insurance?

Kimberlee Leonard
Kimberlee Leonard
business.com Contributing Writer
Updated Feb 16, 2022

Without this coverage, your business could risk paying millions of dollars in legal battles.

Intellectual property can be worth millions of dollars. Think about the recipe for Coca-Cola or Apple’s iOS operating system. Both are critical to each company’s success. Using intellectual property without express consent can cost companies millions and lead to expensive legal battles. Intellectual property insurance covers the costs of these battles. 

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 coverage. 

Infringement defense pays for the defense costs associated with the legal defense of an infringement claim against you. An example of this would be where you use another company’s logo in your advertising and are sued for the use. 

Abatement enforcement coverage protects intellectual property owners and helps pay for litigation against someone else who is using your intellectual property without your authorization.

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Who needs intellectual property insurance?

Intellectual property infringement is becoming more common in the digital age. It’s easier for harmful actions to take place. That 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 the reputation of your company. 

A small business that is only at risk for violating intellectual property laws 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 by 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 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 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:

  • 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 as well as to cases brought by so-called “trolls,” or non-practicing 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 the case out. 

What are the types of intellectual property insurance?

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

TypeDefinition
Infringement defense The foundation of all policies, this 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 coverageOften an additional coverage for an additional cost, this gives you the resources to legally pursue action against those violating your intellectual property rights.

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, but it is limited in scope, and claim limits are based on the general liability limits. The general liability policy will only protect a business 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 concerned with the risk of major intellectual property battles. 

How much is intellectual property insurance?

The cost of intellectual property insurance varies. The underwriter bases the premium on your industry risk, 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. 

FYIFYI: A small business could pay as little as $500 or as much as tens of thousand of dollars annually for intellectual property coverage.

How to avoid intellectual property risk

Even with insurance, your best course of action is to always prevent a loss in the first place. To mitigate intellectual property risk, develop company protocols that protect your property through the course of business. These strategies include the following:

  • 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 are able to transfer that savings to clients. 

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. 

TipTip: If you need business insurance, check out our reviews of the top insurance providers for small businesses.

Assess your company’s need for abatement enforcement coverage. Remember that this isn’t always automatically included, so you’ll need to ask what the quote is with and without it. 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. 

Image Credit:

andrei_r / Getty Images

Kimberlee Leonard
Kimberlee Leonard
business.com Contributing Writer
Kimberlee has spent the past 20 years either directly involved in insurance and financial services or writing about it. She’s a former Series 7 and 65 license holder and former State Farm agency owner. As a small business insurance expert, her work can be found on Fit Small Business and Thimble.