Innovative Strategies for Managing Intellectual Property Risk

If data is the new oil, intellectual property (IP) is the new gold. IP is extremely valuable in today’s global economy where innovation is critical and intellectual property is the only way to convert innovation into an asset. The mantra, “innovate or die” is real and enterprises must create to survive. Accelerating innovation means more IP assets—the US is issuing approximately one million new patents every three years and China’s issuance rate is faster still—are being owned by others in constantly evolving markets. Understanding your risks in this ever-shifting IP landscape is critical. Like gold, you either own the IP assets that cover your innovative products, or you don’t—others may not let you use theirs.

Historically Under-Valued, Under-Appreciated, and Under-Protected 

Unfortunately, IP has been an uncommonly difficult asset class to assess and value. IP risks, such as those associated with infringement or trade secret theft, have historically proven problematic to measure. As a result, large limit IP liability insurance for patent infringement and other liabilities was absent from the market for nearly twenty years. IP-based risks were not well understood even by IP professionals, let alone business and insurance professionals. As a result, when IP-based risks were covered, they were often added as part of general corporate liability policies. These policies were typically bound without rigorous assessment of underlying IP risks to the product and business mix of the insured.

During this absence of meaningful IP insurance, the importance and value of IP assets continued to grow. Today, roughly 85% of the value of companies in the S&P 500 is attributable to intangible assets, marking a decades-long historic value rotation from tangible to intangible assets. With so much enterprise value at stake, the need for comprehensive IP liability insurance has never been greater.

Technology-Driven Insight for More Comprehensive Coverage

The 2018 launch of Aon’s award-winning IP liability insurance addresses that need by offering catastrophic coverage with high limits for such risks as patent infringement, which guards against significant downside risk to enterprise value. The policy addresses accusations made by any third party, including operating companies, non-practicing entities, and patent assertion entities. Aon also launched an IP-focused MGA with the world’s largest capacity to underwrite these special risks.

What made this insurance possible, in part, was the development of a new industry-defining IP analysis platform to assess and value IP assets. This big data, AI-technology platform provides a deeper understanding of IP risks and an improved view of frequency and severity. It is now possible to understand how a company’s products and activities in a market can impact another party’s IP rights. This clarity has helped insurance carriers gain comfort in backing Aon’s IP liability policies.

In addition to covering the insured, another key feature in Aon’s IP liability insurance is coverage for contractual indemnities extended by the insured to business partners and customers. A contractual indemnity is made by the seller of a product to protect the buyer of that product from any liabilities arising from IP infringement that might occur due to use of that product. Thus, Aon’s IP liability insurance covers both the insured and its indemnified partners and customers. The trend in most industries is toward uncapped indemnities as customers (buyers) are increasingly unwilling to accept any IP liability of its suppliers (sellers).

Holistically Track IP Risk in Your Supply Chain 

Aon’s IP liability policy with indemnity coverage may also be used proactively to guard against IP risks introduced by your vendors. A meaningful percentage of patent infringement suits can be traced to vendor provided components. To mitigate vendor-originated IP risks, vendors should be asked to buy the IP liability policies to ensure that they can financially stand beyond their contractual indemnities.

For large organizations with many vendors, Aon has developed Vendor Risk Management, a SaaS platform that enables risk managers, attorneys, and purchasing agents to holistically manage vendor risks. Aon’s VRM platform tracks vendor compliance with insurance requirements and monitors vendors for any IP risks that might arise. The combination of Aon’s IP liability insurance and its Vendor Risk Management platform provides a revolutionary way to combat significant and growing IP risks in today’s innovation economy.