How Trademark Insurance Works: Key Considerations

Your clients’ trademarks are critical to their specific brand, products, and services, differentiating them from the competition. Although trademark laws protect companies and their intellectual property, these intangible business assets are vulnerable when intellectual property (IP) and trademark similarities are alleged. As a result, you might consider offering trademark insurance to help protect your clients from trademark or trade secret challenges. Let’s explore the essentials of trademark insurance, key considerations for offering this coverage to your clients, and how to source it.

How Does Trademark Protection Work?

Trademark protection varies widely and can be applied to several different recognizable elements of a brand, including:

• Words and phrases
• Logos
• Images
• Sounds
• Fragrances
• Distinct shapes
• Colors

Trademarks often rely on the brand recognition they have acquired, and protection is limited based on the state in which the trademark is registered. As a result, trademarks must be monitored and renewed to ensure the company can protect its marks when challenged.

It can be difficult to determine if a trademark has been infringed upon. In court cases regarding trademark infringement, outcomes are largely based on the marks' inherent distinctiveness, how well they are known, the brands the public associates with them, how long they’ve been in use, and how closely the challenger resembles the trademark holder.

Common methods businesses use to protect their trademarks include registering their company name, their website domain name, their logos, and their intellectual property.

What is Intellectual Property Insurance?

IP insurance protects your clients and provides a defense for lawsuits related to allegedly stealing or copying ideas, products, services, etc. belonging to or originating with another business. In most cases, IP insurance covers the legal fees related to claims as well as the damages and settlement costs. Although your clients might have general liability insurance, it only covers bodily injury, property damage, and personal and advertising injuries. IP claims related to trademarks, intellectual property copyright, patent infringement, etc. are not covered under general liability insurance and, therefore, require a specific IP policy.

Is IP Infringement Covered by Insurance?

Damages paid when your clients have allegedly infringed on another company’s IP, as well as costs defending trademarks and copyrights, are expensive. IP insurance helps limit those costs, covering the following:

• Defense of patent infringement claims
• Other litigation claims of intellectual property infringement against them cover legal costs, damages awarded, counterclaims, and settlements
• Contractual indemnity obligations

Additional coverage can include the following:

• Pursuit Of Infringers: to cover time and money to develop IP assets and legal costs to enforce IP rights when they are infringed upon
• Loss Of Profit: coverage should a client lose an infringement lawsuit or if injunctions are made against them that stop them from selling products or services
• Loss Of IP Right: to cover investments made in IP when a client loses the right to use them through litigation

Types of IP Protection Insurance

There are two types of IP protection insurance:

1. Infringement Defense

Infringement defense coverage relates to products your clients use that have a trademark, service mark, or copyright related to materials for commerce. It covers anything that is not a pre-existing infringement and includes damages related to the date the infringement began.

This includes losses related to redesigning or recalling products, required remediation, business interruption, and/or loss of profits related to the patent infringement. Infringement defense provides advantages to businesses, including:

• Avoiding lost market share
• Preventing unexpected operational costs
• Avoiding frivolous infringement lawsuits
• Covering litigation funds to help ensure favorable outcomes
• Avoiding having to stop selling certain products and services

2. Abatement Enforcement Coverage

Abatement enforcement coverage reimburses your client’s litigation expenses when enforcing their IP against infringers. It also covers costs related to invalid countersuits related to their IP. If an IP lawsuit is lost, the enforcement policy is a pure insurance policy but acts as blended coverage should your clients be awarded damages or a settlement.

The policy is reset following a lawsuit, and your clients retain the full amount of the money awarded instead of having to pay their lawyer a percentage. The advantages of abatement enforcement coverage are similar to infringement defense insurance but also reduce pressure to settle lawsuits because the legal costs are out of pocket. In some industries, customers prefer to use companies with abatement enforcement coverage, especially when it involves investment or licensing of products or services, as it shows your clients own the rights to the IP, protecting investors’ and licensees’ interests should a dispute arise.

Sourcing Trademark Insurance for Clients

You need to review your client's IP insurance options when creating effective policies and understand common claims that require coverage. You also want to be wary of specific exclusions or limitations, as this will vary from one provider to the next. Working with an experienced insurance provider who understands the following threats will work in your client's favor:

• Patent Infringement Claims by third parties that require costly legal defense and can lead to damages
• Trademark Infringement lawsuits regarding similarities in registered trademarks, including domain name disputes
• Copyright Infringement is related to accusations of unauthorized use of copyrighted material, including images/text, music, software, etc.
• Plagiarism and content infringement for published content
• Trade Secret Misappropriation Claims related to stealing or disclosing trade secrets without authorization
• Counterclaims and legal defense related to IP infringement lawsuits when your client’s IP rights are challenged
• Product liability claims related to IP infringement in products your client manufactures or sells that infringe on another company’s IP rights

Key Considerations for Offering Trademark Insurance

When recommending trademark insurance to clients, your strongest selling point lies in the importance of companies taking steps to protect their rights and company assets. Insurance is part of trademark vigilance and allows companies to act quickly when they recognize potential infringements. It also enables businesses to protect themselves when accused of infringements alleged by other parties.

You also must understand the specific needs of each industry to ensure you tailor coverage for your client’s unique needs. Pointing out the potential financial and legal implications of inadequate trademark protection and the scenarios that might arise as a result of infringements will also help your clients understand the risks and take the steps required to protect themselves.

As an insurance agent, you can expand your client’s protection by providing comprehensive trademark protection. Finding the right partner to help create adequate coverage should focus on industry experience and customization to serve your client’s needs.

Click here to learn how Novatae can help you develop effective trademark and IP policies for your clients.

This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.