What keeps you awake? Is it business risk?

Sleeping well at night?

I am often counseling clients about risk. Much of the real risk in our business lives is not insurable. That is, the risk that a customer will buy our goods or services, is not insurable. Risks presented by a competitive marketplace however, can be insurable.

Today, I am talking to those of you who have:
* brands you care about
* web sites that promote your business, your products and your services
* customized, branded software you license


As we march off towards summer vacation, let me leave you with some thoughts that might help you sleep better:

1) "Advertising injury" coverage: Is it there at all? Unless your business is literally your surname, you should get out your Commercial General Liability policy and confirm that your policy includes coverage for "advertising injury." You should demand the whole policy from your insurance broker. The declarations page will not tell you this information. After you have discussed your coverage with counsel, come back when you have the definitions section of the policy that defines "advertising injury."

** If you do not have a policy or your policy does not have "advertising injury" coverage, you might consider asking your broker specifically for such a policy OR inquiring about a Cyberliability or Media Liability Policy.

2) Do you have at least five figures to fund your defense? No matter how "in the right you may be" defending against infringement will be costly. While insurance is no panacea, here are some sleep at night type benefits: Insurance may pay cost of defense, helps you protects your 'crown jewels', protects cash flow, reduces your initial pressure to settle.

3) Running naked Is it a sound business practice to build a brand and not insure it? If your insurance policy has coverage for "advertising injury" and you have confirmed the meaning of this coverage with counsel, coverage may mean the difference between defending yourself and giving up your brand without a fight. Without the insurance paying the lawyer to defend a claim of infringement of another's brand, most businesses simply cannot afford the six figures it may cost and will chose the path of least resistance.

4) Insurance is better than nothing Insurance, no matter how good, will not cover you if you use someone else's brand and lose a suit for infringement. No insurance policy will give you money for lost business, interruption from the law suit and most importantly DOES NOT compensate you if you lose and the other side attempts to get the profits you derived from using 'their' brand. You are on your own.

5) Counterclaims not usually covered If you bring suit, you may not be covered. Before brining suit, even if you are faced with a cease and desist letter from opposing counsel, find out when your coverage begins. If you file a counterclaim, most policies are 'defense' policies do not provide coverage (i.e. most do not pay attorneys' fees). Some patent insurance policies however cover counterclaims but impose a sublimit on attorneys' fees.

5) The devil is in the details You MUST know the answers to the following questions about your insurance regardless of the type of coverage. (a) What is included in "advertising injury" coverage? (b) Who is the 'named insured' on your policy? (c) Find out if territory exclusions mean that if you sell your product outside the territory and are sued for a sale occuring outside, you are not covered? (d) Do your agreements with customers/partners indemnify them for patent infringement? If so, do you have coverage? Might your customer/partner agree to limit your indemnity to insurance coverage? I do not know why this tact is not tried more often or why it would be an unreasonable position. (e) Right to appoint counsel?

6) Do you use independent contractors to do software development or design? You should confirm whether there is coverage in your policy for independent contractors and temp workers. An amendment to who is covered may be required.

7) What happens if you win> If you successful defend against an injunction, you should find what your policy says in terms of winning/losing. Most policies require the insured -- you hopefully -- to consent to settlement. If you win an award, many policies clearly require the insurance company to get back its defense costs first before you see any money.

I know many of these issues will make you anxious because you do not know the answers to these questions off the top of your head. If you've read this far though, hopefully you've at least pulled out your insurance policy or sent off an email to find out. Afterall, if your paying for insurance so you can manage risk, it makes sense to confirm your coverage. It may be too late if you wait until after you get a cease and desist letter.


Caveat : "Terms of policies vary. Please check your individual policies for these provisions and terms. The take away here is to see these issues. This is not meant to be legal advice but for your information only.