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Business Protection Bulletin


By October 1, 2010No Comments

As the United States continues to transform from a manufacturing-based economy to one based on information and ideas, protecting those ideas has become increasingly important to businesses. The U.S. Patent Office reported that it received more than 440,000 applications and more than 188,000 trademark registrations in 2006. Both numbers were substantial increases from the previous year. That same year, U.S. district courts saw more than 30 intellectual property lawsuits filed every day. The cost of those lawsuits is steep: The American Intellectual Property Law Association reported in 2009 that the average costs of litigation were $2 million for patents, $700,000 for trademarks, and $600,000 for copyrights. The high and rising frequency and cost of these lawsuits make avoiding and minimizing intellectual property lawsuits a major issue for American business.

As a business owner, how can you steer clear of IP lawsuits? Here are a variety of strategies:

  • Research your marketplace. Know what your competitors have done and what they have in the works. Pay close attention to competitors’ press releases, website updates, SEC filings, and advertisements. Be aware of industry practices and literature. Continuously monitor competitors’ activities for potential threats to your own protected intellectual property.
  • To protect the business, have employees who contribute to IP sign contracts giving the company ownership of the IP. Restrict employees’ and contractors’ ability to externally share confidential information. Develop procedures for identifying and documenting any concepts that might eventually require legal protection.
  • If you have suffered an infringement of your IP rights, investigate alternatives to litigation. For example, you might offer the offending party a licensing agreement or proposing a joint venture. Another possibility is to pursue mediation. Mediation is less costly, potentially offers a faster resolution to the dispute, reduces the impact on management’s time and resources, and allows for finding creative business-driven solutions.

Despite a business owner’s best efforts, however, some IP litigation might be inevitable. A third party might, with or without grounds, accuse the business of violating its IP rights, or the business might find that someone has violated its rights; in either case, the opposing party could refuse to cooperate. When this happens, the important thing is for the business to minimize its out-of-pocket costs. In this case business owners should consider their goals for the litigation. Do they want monetary damages, or do they simply want the other party to cease and desist from the offending act? Seeking an injunction might be less expensive than pursuing a lengthy trial for damages. It is also suggested that litigants remain open at every stage of the litigation to possible settlements. A settlement early in the process will be far less expensive than one that happens later.

Although standard Commercial General Liability insurance policies provide limited protection against claims that a business infringed a copyright or patent, some insurance companies now offer specialized policies that provide broader coverage. Some policies will pay for both a company’s legal liability for IP infringement and its defense; others cover defense costs only. A third type of policy reimburses a company for its legal costs when it must pursue an IP infringement claim against another party. These policies cover defense costs such as injunctions, appeals costs, and declaratory actions. Legal Liability coverage applies to judgments, settlements, lost royalties and income, and interest costs.

IP infringement problems might be a reality of business today. However, with the proper risk management, they need not harm your business.