Written by: Jameson Pasek

The Duality of “The Hidden Shield”

Intellectual property insurance is a specialized form of coverage designed to protect businesses from the risks associated with IP infringement, theft, or legal challenges. It typically covers two main areas:

  • The Cost of Litigation – This covers legal costs and potential damages associated with allegations that a company’s products, services, or operations infringe upon another entity’s intellectual property rights. This offers financial protection in case a company is accused of infringing someone else’s intellectual property. The cost of defending against infringement claims can be significant, especially if the case proceeds to court. IP defense insurance can cover legal expenses, settlement fees, and other associated costs, helping to mitigate financial strain.[1]
  • Lost Profits from Patent Invalidation – Patent invalidation insurance provides coverage for financial losses if a patent is declared invalid. In other words, if a company’s patent is challenged and eventually invalidated, this insurance helps to cover the lost profits a business would have otherwise earned from its patent.[2]

While both types of insurance serve roles in managing intellectual property risks, they address different types of financial impacts. Litigation insurance ensures that a business can afford the legal costs associated with defending or asserting its IP rights. On the other hand, patent invalidation insurance is designed to protect businesses from the financial consequences of losing their rights. Both forms of insurance are valuable for assessing business strategy and risk.

Companies Are Shifting from Physical to Intellectual Capital

In 1975, tangible assets made up 83% of the market value of S&P 500 companies.[3] According to merchant bank Ocean Tomo, by 2015, those figures had reversed, with intangible assets making up 84% of the S&P 500’s market value.[4] Accordingly, more businesses are starting to consider standalone policies for intellectual property, along with their standard general liability coverage. In addition to litigation costs and lost profits, there are several other reasons why companies should consider IP coverage:

  • Provide Peace of Mind for Innovation: Companies often need to be confident that they can innovate without the fear of infringement allegations. Intellectual property insurance gives businesses the peace of mind to move forward with research, development, and product launches, knowing that they have a safety net in place covering IP-related issues.[5]
  • Enhance Business Value and Attract Investment: For startups and growing businesses, having IP insurance can be an attractive factor for investors. It signals that the company is serious about protecting its innovations and is prepared to manage potential risks. In addition, well-managed IP assets with proper insurance coverage can increase a company’s value, making it a more appealing prospect for acquisition or partnerships.[6]
  • Support Global Operations: Intellectual property law can vary significantly from one country to another. As businesses expand globally, they should carefully navigate different legal systems and regulations regarding intellectual property. Certain insurers may offer coverage across multiple jurisdictions.[7]

Conclusion

In an increasingly competitive and litigious business environment, intellectual property insurance is more than just an added precaution—it is significant to a company’s overall risk profile and business strategy. By safeguarding intellectual property, businesses can protect their innovations, minimize risks, and maintain (or enforce) their market positions.

This publication is distributed with the understanding that the author, publisher, and distributor of this publication and/or any linked publication are not rendering legal, accounting, or other professional advice or opinions on specific facts or matters and, accordingly, assume no liability whatsoever in connection with its use. Pursuant to applicable rules of professional conduct, portions of this publication may constitute Attorney Advertising. The choice of a lawyer is an important decision and should not be based solely upon advertisements.

[1] IP Protect Brochure, Marsh & McLennan Companies, IP Protect: Insurance for Your Most Vital Assets, https://www.marsh.com/content/dam/marsh/Documents/PDF/US-en/ip-protect-fact-sheet.pdf.

[2] Intellectual Property Insurance, CFC Underwriting Ltd, https://www.cfc.com/en-us/products/class/intellectual-property/ (last visited Mar. 12, 2025).

[3] See supra, note 1.

[4] Id.

[5] Your Business Partner Navigating The IP Insurance Landscape, Intellectual Property Insurance Services Corporation, https://ipisc.com/ (last visited Mar. 12, 2025).

[6] Turning IP into Capital: The Investment Power of Intellectual Property Insurance, Axis Insurance (Feb. 6, 2025), https://axisinsurance.ca/turning-ip-into-capital-the-investment-power-of-intellectual-property-insurance/.

[7] IP Capabilities Brochure, Aon plc, Intellectual Property Solutions: Redefining the Business of IP™, https://www.aon.com/getmedia/ad5d3654-4634-411c-930d-529ccccd2367/IP-Capabilities-Brochure_EMEA0risk

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