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Protecting Start-up IP

Cyber Data Risk Ma...

Jul 13, 2020
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Business Insurance General Insurance Legal Services Insurance

For start-ups, it is the ideas behind their unique offers are the most valuable part of their businesses. Start-ups in the initial years spend a lot of time and effort in attracting customers and investors, hiring the right people to grow their businesses, building professional websites to finding office space. With so many competing priorities, intellectual property (IP) protection is often neglected when it’s equally, or more important than anything else on the to do lists.

Start-ups frequently share their ideas with partners, investors and competitors, which carries the risk of ideas being stolen if they aren’t protected. With the rise in IP-related lawsuits, patent trolls and constantly evolving laws, start-ups also need protection against IP infringement claims from third parties. The services of expert IP lawyers combined with IP insurance is the best way to protect start-ups against IP claims and infringements by third parties.

This article outlines the principles of IP protection for start-ups, and why IP insurance should be considered as part of their overall plan.

Identifying and Protecting IP

There are two broad stages in intellectual property management for start-ups: identification and protection. The first stage involves identifying the unique aspects that constitute intellectual property and the second stage is protecting that IP with appropriate registrations, nondisclosure agreements and insurance.

Intellectual property law is complicated, so it is important for start-ups to seek advice of an IP lawyer or attorney who is experienced in protecting and enforcing IP rights.

Identifying Intellectual Property

The first stage involves identifying every proprietary idea that’s unique and potentially valuable to a business, including products or services, concepts and inventions, product names, logos, slogans and more. The items on this list should then be researched – ideally with advice from an IP lawyer – to determine if they qualify as potential patents, trademarks or copyrights.

Protecting IP

After IP has been identified, it can be protected with patent, copyright or trademark registration. This makes the claims public, which discourages use without permission, and provides an avenue for legal action against infringers. Nondisclosure agreements (NDAs) can also provide protection against IP theft by potential partners, investors and employees.

The next important consideration for IP protection for start-ups is insurance. IP insurance can cover startups from the costs of defending infringement claims by third parties and pursuing those who infringe on their own IP. With the increasing number of IP-related lawsuits, patent trolls and trademark cluttering, insurance is essential for IP protection for start-ups.

The Benefits of IP Insurance to Startups

Cases relating to IP infringement have increased significantly in the last decade. IP litigation may cost up to $40,000 per day in Australia and even more in other jurisdictions. IP litigation can bankrupt a business, forfeit its right to sell products, harm its reputation or cause other significant damages from an adverse outcome in court. The consequences in costs and other damages from IP lawsuits highlight the importance of an effective insurance policy.

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When selecting an IP insurance policy, there are several important aspects for startups to consider:

Category of IP insurance

IP insurance comes in two basic forms: infringement defence which covers the policy holder for infringement claims against them; and abatement enforcement coverage which gives IP owners the resources to enforce their rights and pursue infringement claims. Infringement defence is usually more important for start-ups, as it protects them against potentially costly litigation by third parties. Some insurance providers offer policies with both infringement defence and abatement enforcement.

IP insurance coverage

Instead of covering against all IP-related cases, insurance policies often cover specific areas. This can include certain regions or jurisdictions, and can extend scope to include third parties such as distributors and other partners in the supply chain.

Conditions for IP insurance

The decision to pay for legal expenses in defence of a claim or to incur expenses to pursue a claim is made by the insurance provider. The decision is based on these principles:

The insurer needs to be satisfied that a case has a good chance of success before incurring expenses, particularly when pursuing a claim by the policy holder
They may have the right to withdraw payment in some cases, such as the policy holder not accepting reasonable settlement offers
There is a limit to the amount of funding the insurer will provide, which is determined by the policy limit.

Cost of IP insurance

IP insurance premiums vary considerably depending on the type of coverage and other conditions. The costs were previously based on a percentage of the total insured amount, for example a premium for a $10 million patent policy could be 1% of the total or $10,000. However with policies targeted at start-up comprehensive protection for up to $1 million from a trusted provider is available for less than $6000 per year which represents excellent value for startups seeking to mitigate their risk, Start ups may choose to insure their IP for a $500K limit for $3800/- to have basic protection in the initial years.

Overall, it is extremely important for start-ups to understand the specific terms and conditions of policies when choosing the best one for the business. The terms and conditions are usually complex, so it is best to seek advice from an IP lawyer or insurance broker before deciding on a policy.

In Conclusion

Start-up’s intellectual property is the foundation of their business and should be protected from the earliest stages of operations. This begins with identifying the unique aspects that make up their IP and protecting it by registering patents, trademarks and copyrights, and other protections such as NDAs. As start-ups develop and their exposure to IP-related risks increase, IP insurance can offer the best protection against costly litigation.

intellectual property

General Advice Warning: This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is appropriate for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.

All information above has been provided by the author.

Meena Wahi, Cyber Data Risk Managers, ABN 34 161 961 422