Delta offers new IP insurance policy

Amphibious craft manufacturer Sealegs won a High Court decision in July which found former...
Amphibious craft manufacturer Sealegs won a High Court decision in July which found former employees had breached design copyright — costing it about $1million. Pictured, the Duke and Duchess of Cambridge in a Sealegs craft, while visiting Auckland in 2014. Photo: Supplied
Legal disputes over intellectual property — trademarks and patents — is on the rise and costing New Zealand companies dearly in some instances.

A new policy by Delta Insurance may go some way to offering protection against spiralling litigation costs.

One of the most high profile cases of late has been Fisher & Paykel Healthcare’s dispute with rival ResMed over patent allegations, fought in the US, UK, Europe, New Zealand and Australia, which has cost it more than $36 million during the past two financial years and prompted a recent profit downgrade.

New Zealand examples of IP are the trademarks of Marmite and Whittaker’s, while patents cover inventions such as Gallagher’s electric fence systems and Sealegs’ amphibious watercraft.

In July, Sealegs won a High Court decision which found former employees had breached copyright over the design and manufacture of its amphibious boats — costing it about $1 million.

Auckland-based Delta Insurance said while there were elements of IP coverage within some policies, there was no single IP insurance policy in New Zealand which adequately covered IP. Such policies are available overseas.

Delta Insurance general manager Craig Kirk said having an insurance policy which covered legal expenses allowed businesses to respond swiftly to difficult situations.

"An IP policy helps you unlock the potential of your IP while you commercialise your ideas with confidence and will reassure investors and other stakeholders that your business is well equipped to face infringement disputes," he said.

Sally Peart, partner at Marks and Worth, a Dunedin law firm specialising in IP, welcomed the new Delta policy, but said the biggest issue would be the cost for small to medium enterprises.

In an interview, Mr Kirk said cover started at $2500, giving up to $250,000 coverage, and rose to up to $100,000 per policy, which would offer cover of $1 million.

Mr Kirk said excesses could be as low as $5000, but were more typically about $10,000.

Mrs Peart said any insurance would have to protect a business’ own IP, but also cover it  if it inadvertently infringed another company’s trademark or patent.

"Given the number of start-up companies which are focused on IP, it’s their biggest asset, but they risk being unable to cover it," she said.

Mr Kirk said policy holders would be covered in both scenarios: to either enforce their own rights, or to defend them if they unintentionally breached another company’s trademark or patent.

Mrs Peart said the scenario of inadvertent trademark breaches was one of the most common problems companies faced.

To both defend a breach and possibly have to rebrand, small businesses could be looking at costs starting at $25,000 to $50,000, she said.

A patent firm "freedom to operate" search on behalf of a company, with costs starting at $2000, was likely to find only 80% of relevant patents.

"So that means its likely there’s an unknown 20% out there," Mrs Peart said.

Delta Insurance senior underwriter Avani Vyas said dedicated IP coverage had long been out of reach for most Kiwi businesses.

Intangible assets such as patents and trademarks made up almost 87% of the corporate value of the Standard and Poor’s 500 companies in 2015, and are a key source of competitive advantage for many companies in New Zealand, she said.

"Until now, this lack of simple, affordable IP cover has made it difficult for Kiwi companies to deal with infringement and enforcement-related issues," Ms Vyas said.

Delta’s Mr Kirk said in export markets, New Zealand luxury consumables like manuka honey, chocolate and wine were commonly devalued by knock-off products and trademark theft.

The estimated value of counterfeited goods rise to $US1.7trillion (NZ2.54trillion) in 2015, he said.Ms Vyas said research and development expenditure by New Zealand companies rose by 29% since 2014 to reach $1.6 billion in 2016.

"Kiwi companies have realised that innovation will keep them ahead of the competition," she said.

Mr Kirk said many New Zealand companies have also found themselves extorted or litigated at crippling expense by "patent trolls".

He said software company Zeacom, formerly based in New Zealand, was stung by patent trolls twice.

"In the first instance, it opted to pay a $350,000 settlement instead of forking out millions to fight the baseless allegations."

The second time, the company settled for an undisclosed amount, Mr Kirk said.

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