IP Assets and Infringement Claims: Insurance Coverage Considerations What IP Counsel Must Know to Protect Assets and Defend Against Claims

Transcription

1 Presenting a live 90 minute webinar with interactive Q&A IP Assets and Infringement Claims: Insurance Coverage Considerations What IP Counsel Must Know to Protect Assets and Defend Against Claims TUESDAY, JANUARY 10, pm Eastern 12pm Central 11am Mountain 10am Pacific Td Today s faculty features: Robert D. Chesler, Member, Lowenstein Sandler PC, Roseland, N.J. Anthony Sandy Codding, Jr., Managing Director, Marsh USA Inc., Boston Carl E. Metzger, Partner, Goodwin Procter, Boston The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 10.

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4 DO I REALLY NEED IP/CYBER INSURANCE? Robert D. Chesler Lowenstein Sandler PC rchesler@lowenstein.com

5 Cyber Risk? No, not me Why do I need cyber risk insurance? Clients typically think only of web-related exposures and not in terms of their network and data files generally. Clients often believe that firewalls and other loss mitigation tools are sufficient protection. Most significantly, ifi clients often mistakenly believe that t their CGL, E&O and property policies protect them from common cyber risks. 5

6 What are Cyber Risks? Cyber risks include both first party losses (i.e., data loss, data breach notification costs, business interruption) and third party losses (i.e., lawsuits for invasion i of privacy or IP infringement) 6

7 Show me the coverage Over the years, insurers have chipped away at traditional insurance policies i in a way that t minimizes if not eliminates coverage for these types of losses. 7

8 IP Exposure 1976: ADVERTISING INJURY COVERAGE Infringement of copyright, title, slogan, trademark, service mark or trade name, and unfair competition or piracy. Advertisement undefined; some courts interpreted it to apply to almost any marketing activity. What is unfair competition or piracy Anti-Trust Patent Infringement 8

9 IP Exposure (continued) Over the years, there was significant litigation over the terms in this coverage grant and it was chipped away 9

10 IP Exposure (continued) 1986: ADVERTISING INJURY COVERAGE Copyright, slogan or title infringement misappropriation of advertising ideas or style of doing business. Advertising remains undefined What is misappropriation misappropriation Trademark Trade dress 10

11 IP Exposure (continued) 1998: ADVERTISING INJURY COVERAGE infringement of copyrighted advertising materials or infringement of trade-marked or service marked titles or slogans. Advertising i undefined. d 11

12 IP Exposure (continued) CURRENT ADVERTISING INJURY COVERAGE The use of another s advertising idea in your advertisement, or infringing upon another s copyright, trade dress or slogan in your advertisement. 12

13 IP Exposure (continued) Advertisement means a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters. 13

14 IP Exposure (continued) The current ISO form contains an exclusion for: Personal and advertising injury arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights. However, this exclusion does not apply to infringement, in your advertisement, of copyright, trade dress or slogan. 14

15 IP Exposure (continued) The ISO form also contains absolute advertising i injury exclusions: for insureds in internet/media businesses (advertising, i broadcasting or publishing; designing or determining content of websites for others; and ISPs; Injury arising out of chat rooms and bulletin boards hosted by the insured 15

16 IP Exposure (continued) Many insurers are also adding their own customized cyber-related related IP exclusions often eliminating any meaningful advertising injury coverage given the way most companies do business 16

17 FIRST PARTY LOSSES Loss of data (and attendant costs associated with breach notification laws and crisis management) Business interruption ti (network outages/power disruptions) 17

18 DATA LOSS Courts originally debated whether data loss was property damage. Some courts said it wasn t: State Auto Prop. & Cas. v. Midwest Computers & More (W.D. Okl. 2001) American Online v. St. Paul Mercury (4 th Cir. 2003) Eyeblaster v. Federal Insurance Company, Case 07-cv (Oct. 7, 2008) Software is not tangible property and therefore doesn t qualify as property damage under GL policy Insured intended to place spyware on Plaintiff s computer and therefore not an error/omission under E&O policy 18

19 DATA LOSS (continued) Other courts said it was: American Guarantee & Liability Ins. Co. v. Ingram Micro (D. Ariz. 2000) Loss of use and functionality held to be physical damage. Computer Corner, Inc. v. Fireman s Fund Ins. Co. (N.M. Ct.App. 2002) 19

20 DATA LOSS (continued) The current ISO CGL form ends the debate, specifically stating that electronic data is not covered tangible property for purposes of the property damage coverage grant (physical damage or loss of use). Moreover, electronic data is broadly defined to include information, facts or programs stored as or on, created or used on, or transmitted tted to or from computer software, including systems and applications software, hard or floppy disks, CD ROMS, tapes, drives, cells, data processing devices, or any other media which are used with electronically controlled equipment 20

21 DATA LOSS (continued) The current ISO commercial property form offers limited coverage (a $2,500 sublimit per policy year) to replace or restore electronic data destroyed by a virus or intrusion on the computer system. The policy excludes coverage for any other cause of loss to electronic data The policy expressly excludes loss or damage resulting from manipulation of the computer system by an employee. 21

22 DATA LOSS (continued) Disgruntled Employee of Architect s Firm Deleted 7 years worth of drawings Value - $2,500,000 22

23 Business Interruption ISO's business income form provides limited coverage for loss of or damage to electronic media and records due to direct physical loss or damage So the business interruption insurance most companies carry only protects against interruption caused by a physical event and wouldn t protect against a loss caused by a network disruption, hacker or software malfunction. 23

24 Business Interruption (continued) Wakefern Food Corp. v. Liberty Mutual Fire Ins. Co., 406 N.J. Super. 524 (2009). Appellate Division reversed lower court s grant of summary judgment to insurer and held that interruption of electrical ect ca power to supermarkets ets was caused by physical damage to electrical equipment and property within meaning of all-risk policy. 24

25 THIRD PARTY LOSSES Privacy Blast faxes Data mining Regulatory enforcement actions 25

26 PRIVACY How is privacy covered under the current CGL form? Oral or written publication of material that slanders or libels a person or organization or disparages a person or organization or disparages a person s or organization s oga ato sgoods, products or services; Oral or written publication of material that violates a person s right of privacy. 26

27 PRIVACY (continued) What constitutes publication? What is the right to privacy? Secrecy v. seclusion 27

28 PRIVACY (continued) BLAST FAXING Is Blast Faxing a publication of material that violates a person s right of privacy to constitute an Advertising Injury? Yes Look to the manner of publication. Publication is the communication of information generally which h undermines the recipient s i right to be left alone. The court embraced a broad construction of publication and privacy. Park University v. Am. Cas. Co. of Reading (10 th Cir. 2006) 28

29 PRIVACY (continued) BLAST FAXING (continued) No Look to the content t in the publication. Need publication of secret informational content. American States Ins. Co. v. Capital (7 th Cir. 2004); Lawsuit alleged a violation of seclusion privacy whereas policy only protected secrecy privacy. Unsolicited faxes don t contain private information harmful to a third party. Resource Bankshares Corp. v. St. Paul Mercury Ins. Co. (4 th Cir. 2005) 29

30 PRIVACY (continued) BLAST FAXING (continued) St Paul Fire and Marine Ins. Co. v. Brothers Intern. Corp., 2009 WL (3d Cir. 2009) General liability ypersonal injury section provided coverage for making known to any person or organization material that violates a person s right to privacy Court said the policy only covered secrecy (making material known) and blast fax was invasion of seclusion so no coverage. Court stated that if policy provides coverage for oral or written publication of material that violates a person s right to privacy then both seclusion and secrecy are covered. 30

31 Privacy (Continued) This is now a moot issue. Current general liability policies currently exclude blast-fax and related liabilities. 31

32 PRIVACY (continued) DATA MINING: ZURICH AMERICAN INS. CO. v. FIELDSTONE MORTGAGE CO. (Dist.Ct.MD 2007) Mortgage company improperly accessed and used individuals credit information in violation of the FCRA to provide pre-screened offers to them. Zurich policy contained the publication in any manner language. Duty to defend publication need not be to a third party, and need not contain the protected information. 32

33 PRIVACY (continued) DATA MINING II: NETSCAPE COMMUNICATIONS CORP. v. FEDERAL INS. CO., (N.D.Cal., 2007) Information downloaded from users and transmitted to persons at Netscape and AOL satisfies the personal injury offense of making known information to any person or organization. No need for widespread circulation 33

34 PRIVACY (continued) This too is a moot issue. The current CGL form eliminates coverage for personal and advertising injury arising out of violation of a statute, ordinance or regulation limiting the sending, transmitting, communicating or distribution of material or information. Therefore, there is no coverage available for regulatory suits or expenses related to compliance with privacy breach notification laws a cost that can be catastrophic for a company doing business in multiple states 34

35 Hence the Need for Cyber Policies!! Cyber risk and IP policies can help bridge the gap left behind by CGL, Property and E&O policies for first party and third party cyber/ip losses but policy language varies tremendously 35

36 One Last Thought Sidenote for clients at risk due to a reduction in coverage: Duty of Insurer to advise of reduction in coverage at renewal Duty of Broker to inform client of reduction in coverage 36

37 INSURANCE FOR IP EXPOSURES Specialty Products JANUARY 10, 2012 Anthony "Sandy" Codding, Jr. Managing Director Boston, MA

38 Specialty Insurance Products Insurance for Copyright, Trademark, Trade Dress Media Liability Policies Designed for Publishers & Broadcasters Also available for digital content Corporate Expression Policies Designed for non-media companies Limited market Intellectual Property Policies Can include copyright and trademark in addition to patent Technology E&O Policies Copyright infringement of software Insurance for Trade Secrets Errors & Omissions Policies Limit trade secret exclusion to the insured s misappropriation of another s trade secret MARSH January 9,

39 Media Liability Policies: The Coverage infringement of copyright, title, slogan, trademark, trade name, trade dress, mark, service mark, service name, infringement of domain name, deep-linking or framing, including, without limitation, unfair competition in connection with such conduct; plagiarism, piracy or misappropriation or theft of ideas under implied contract or other misappropriation or theft of ideas or information; including, without limitation, unfair competition in connection with such conduct; invasion, infringement or interference with rights of privacy or publicity, false light, public disclosure of private facts, intrusion and commercial appropriation of name, persona or likeness; including, without limitation, emotional distress or mental anguish in connection with such conduct; ct defamation, libel, slander, product disparagement or trade libel or other tort related to disparagement or harm to character or reputation); including, without limitation, unfair competition, emotional distress or mental anguish in connection with such conduct; wrongful entry or eviction, trespass, eavesdropping or other invasion of the right to private occupancy, or false arrest, detention or imprisonment or malicious prosecution; including, without limitation, any emotional distress or mental anguish in connection with such conduct; negligent or intentional infliction of emotional distress, outrage or prima facie tort in connection with Material; breach of agreement, implied or otherwise, arising from the failure to maintain the confidentiality of an external source that supplies information or Material to an Insured in confidence; and Loss because a third party, which has no ownership relationship with the Insured, acts upon or makes a decision or decisions based on the content of the material disseminated by the Insured or with the Insured s s permission. (Based on the Chartis SRP Form (2/09). Terms and conditions vary by insurer and for each applicant.) MARSH January 9,

40 Media Liability Policies: Standard Exclusions Fraud, dishonesty & criminal Bodily injury & property damage Unfair or deceptive business practices Recall and reproduction False advertising ASCAP, SESAC, BMI, RIAA or other music licensing organizations Disputes with a related party over the ownership of material Trade secret & patent Software copyright (Not a complete list. Terms and conditions vary with each insurer and for each applicant.) MARSH January 9,

41 Media Liability Policies: General Conditions Usually available on either a claims made or an occurrence form Covers defense costs, compensatory damages, judgments & settlements The limit is per claim and in the aggregate Usually a duty to defend (insurer must assume control of claim, including selection of defense counsel) rather than a duty to indemnify (insurer must reimburse insured for funds expended to defend claim) policy form choice of counsel option may be available Usually available with worldwide scope (Terms and conditions vary with each insurer and for each applicant) MARSH January 9,

42 Sandy Codding Marsh 99 High St. Boston, MA

43 Patent Infringement Insurance Coverage Carl E. Metzger Goodwin Procter LLP January 10, Goodwin Procter LLP

44 The History of the Patent Infringement Insurance Landscape Clients ask, What history? What coverage? Patent litigation risks have always been present, but the landscape has become substantially more treacherous in recent decades The insurance industry s relationship with providing coverage for such risks has been mixed Typical companies have had limited IP coverage through policies principally designed for other risks The Commercial General Liability (CGL) insurance coverage battleground for IP claims Goodwin Procter LLP 44

45 A Checkered Landscape In contrast to other insurance coverage areas, the patent infringement coverage options for business insureds have historically been limited What makes this risk different from other major risks that insurers routinely cover? A landscape of danger and opportunity In the past, insurers who have tried to take advantage of this opportunity in the patent infringement context have encountered difficulties and losses A cycle of advances and retreats Goodwin Procter LLP 45

46 A New Coverage Landscape is Evolving (Slowly) Although coverage has been restricted under some traditional coverages, the options for specialized coverages have improved For business transactions where IP reps and warranties are at issue, R&W coverage for the IP rep may be available Patent t infringement i coverage the evolving frontier Goodwin Procter LLP 46

47 Why Buy Patent Infringement Liability Insurance? Companies typically protect against significant liability risks through insurance and other risk management protocols Patent infringement risks stand out for many companies as substantial threats to the company s well-being and future success For technology or life sciences companies, it can often be bet the company litigation If good insurance coverage options exist at a bearable cost, then this type of insurance makes sense Goodwin Procter LLP 47

48 IP Infringement Liability Risk Specialty Line, Stand-alone Insurance Will Cover: Defense Costs Settlement or Damages Costs For Past Infringement Some Contractual Liabilities Goodwin Procter LLP 5 48

49 Patent Infringement Liability Insurance Is Useful When... Company is negotiating a contract where infringement liability indemnification is an issue: License Distributor agreement Supplier or vendor agreement OEM agreement Joint development agreement In an M&A Transaction: Company is purchaser looking for protection from potential patent exposures Company is seller looking for relief from burdensome reps & warranties, escrow, indemnification, delay Goodwin Procter LLP 49

50 How to Explore Purchasing Patent Insurance Coverage Begin the process with a knowledgeable insurance brokerage Not all insurance brokers are equal when it comes to knowledge of IP insurance products The insurance applicant should: select an insurance broker with specific experience in this area, or suggest the retail broker use a knowledgeable wholesale broker Keep counsel involved in the process Goodwin Procter LLP 50

51 Submission Process Applicant Submits application Insurer Offers terms and conditions Insurer Provides indication of interest Insurer & Applicant Negotiate Applicant Detailed submission Underwriting fee Legal opinion or patent search Applicant Accepts terms and conditions and pays premium Insurer Conducts underwriting analysis Insurer Places the coverage Varies by carrier and by risk(s) being covered Goodwin Procter LLP 51

52 Underwriting Process Varies by carrier and risk being covered Expect detailed questions about: Products/services to be insured against infringement liability risk IP covering products/services to be insured Financials IP risk management policies and practices IP dispute history, including cost Pricing Based on risk profile Ranges anywhere from 1-10% rate-on-line (for example, 5% premium rate on line for $1M limit of indemnity policy = $50,000) Price deflators/inflators = deductible, co-insurance percentage, industry, claims history, market dynamics, strength of IP Goodwin Procter LLP 52

53 Conditions and Exclusions Terms and conditions vary with the carrier and with each applicant, but be aware of the following... The policy form Typically claims-made, rather than occurrence Typically y written as an aggregate g limit of indemnity Typically a duty to indemnify (insurer must reimburse insured for funds expended to defend claim) rather than duty to defend (insurer must assume control of claim, including selection of defense counsel) policy form Goodwin Procter LLP 53

54 Conditions and Exclusions (cont d) Terms and conditions vary with the carrier and with each applicant, but be aware of the following... Conditions Geographic scope Scheduled products, IP, contracts Choice of counsel: varies by carrier Prior Acts definition Claim definition Litigation Costs or Defense Costs definition SIR and co-insurance Goodwin Procter LLP 54

55 Conditions and Exclusions (cont d) Terms and conditions vary with the carrier and with each applicant, but be aware of the following... Exclusions Willfulness Consequential damages Certain counterclaims and declaratory judgment actions Specific exclusions (i.e., claims brought by certain entities) Goodwin Procter LLP 55

56 Additional Litigation Considerations Analyze all insurance coverages that could be applicable Litigations and claims evolve over time, and your insurance coverage may as well, so continue to consider possible coverage IP litigation buy-out coverage -- specialty coverage options may exist If you are intending to be a plaintiff in an IP litigation, consider the defendant s possible insurance coverages -- to trigger or not to trigger? Goodwin Procter LLP 56

57 Carl E. Metzger, Esq. Goodwin Procter LLP Exchange Place 53 State Street Boston, MA Tel: (617)