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IP Insurance Demand & Covid

by Aoife Woulfe, Underwriter on

The economic shock wave of Covid19 has hit businesses hard and been particularly hurtful to middle market, small and start-up businesses. As a result, TMK has seen an increased flow of enquiries to transfer the additional and rising intellectual property risk, particularly among life sciences business and manufacturers.

Life science businesses who have long valued intellectual property protection, are quickly developing vaccines, some already in the final stages of clinical trials following regulatory flexibility for Covid19 emergencies. Ancillary businesses such as manufacturers of cleaning products have sought the same. As numerous manufacturers saw demand for their products plummet, many switched to producing masks, gloves or sterilizing products. These companies are innovating for their survival and it’s fair to say that 90% of those making masks today were not six months ago. One low-cost gift manufacturer, for example, is now making trigger bottles for cleaning products after seeing a gap in the market. With manufacturing processes already set up, this switch was not such a leap given both goods are plastic, manufactured, high volume and low-cost products.

Our main product, which assists clients in defending against allegations of third-party IP infringement, is in demand from life sciences organisations and businesses that are innovating so rapidly there is little time to file their own patents, which can be a long process. Such businesses are concerned they might inadvertently infringe another company’s IP. Even for products as simple as spray bottles, hundreds of patents exist for trigger mechanisms, diffusers and suction straws. Quickly switching to manufacture a different product heightens the risk of infringement.

In a classic response to economic downturn, patent and intellectual property asset holders are also being innovative and strategically utilising their IP. Bloomberg Law data has provided that even though the coronavirus outbreak disrupted U.S. courts, patent lawsuits increased 9% year-over-year in the first five months of 2020. These numbers are expected to increase again by year-end. We have seen this type of activity playout in the past. Companies that aggressively litigate and licence on behalf of their patent portfolios – non-practising entities or patent trolls – originated from the dot.com bubble, when multiple technology firms went bust and cheap surplus patents flooded the market. Acquirers of these patents didn’t necessarily set up tech firms but used them to extort money in what is essentially modern-day piracy.

Competitor litigation is also on the rise, with patent holders looking to monetise their assets now, pushing the alleged infringers to settle the disputes early or abandon the disputed products or services to avoid the additional financial burden of litigation.

Where there is an allegation of infringement, a demand to pay a licence or the prospect of facing litigation, a company invariably loses money whatever happens. The costs of defending a case are often high and, even where the defendant is found not to be infringing, courts, especially in the US, seldom order the plaintiff to pay the other sides costs. As such, there is little preventing the patent trolls or competitors from pursuing who they may.

There are also now more assets in play. Patent filings too were up 27% in the second quarter of 2020 compared with the first, with those minded to do so having more time to file them during lockdown and further expanding their portfolios. Clients nervous about being targeted or caught in the crossfire of patent litigation are seeking protection that specialty insurers offer via risk transfer.

To indemnify a business (and the clients to whom they may have a contractual obligation) against accidental infringement and cover the associated legal costs, each company is assessed on its risk management processes, its position within the industry, its history of litigation and a host of other metrics to underwrite each case on its own merits. As such, rates remain stable because the premium is tailored for each individual risk.

Demand for IP insurance looks set to continue to rise for the foreseeable future, with life sciences racing to cure Covid and manufacturing clients facing increased litigation as they innovate and adapt to survive.

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