Wednesday, 30 November 2011 19:01

How third-party intellectual property claims work

There are two things business owners need to know about the risk they face from third-party intellectual property lawsuits.

“First and foremost, companies need to realize the exposure exists; it’s real and affects all industries,” says Shane Moran, a vice president with ECBM Insurance Brokers and Consultants. “Many companies just shrug and believe they don’t have that exposure, they don’t deal with patent information, but it’s out there in every industry. Second, the cost to pursue or defend the allegation is extremely high.”

The growth of the Internet has raised a significant number of copyright and patent issues, such as implied licensing, linking, catching, framing and well as third-party content. Social media sites have created an unexpected exposure for companies, as well.

Smart Business spoke with Moran about how companies can protect themselves from third-party exposure.

What are the differences between first-party and third-party IP?

Generally, first-party IP is defined as the intangible assets of a company and its employees: patents, goodwill, knowledge, trade secrets, etc. Third-party IP is when you have infringed upon someone else’s IP and need to defend yourself. First-party is an offensive action, and third-party is a defensive action.

What can companies do to protect themselves from third-party copyright or patent exposure?

The first step is realizing you have the exposure. Next, companies must develop processes and internal procedures to minimize that risk.

Companies should utilize a strong risk management practice to help minimize IP risk. They should develop an IP compliance program that all of their employees are aware of, and are trained in. The program constantly needs to be reviewed and updated, because technology is always changing. Within their program, there needs to be procedures to evaluate this ongoing exposure, steps to verify that any information companies are utilizing is ‘out of copyright,’ or that they are taking steps to get permission to use the information they will be utilizing.

For it to work properly, the process and procedure should draw from many resources within the company. Legal, financial, product marketing — each department has to be involved in this program so that each department knows what is going on and to make sure you are not exposing the company. Once you’ve explored that process or procedure, the next step is to look at transferring the risk via an insurance policy.

There are several policies companies can look into, including infringement abatement coverage, patent defense-only policies, patent infringement cost reimbursements and standalone IP policies. It’s a rapidly growing section of the insurance marketplace. The terms and conditions of these policies are constantly evolving to adapt to the changes.

Why is it important to involve each department in the process, and how should they work together?

If you want to utilize third-party information, you are going to need to have your legal department vet that information. Typically, it is going to verify whether that information is still copyrighted or still patented.

Then you have your marketing department, which is creating whatever marketing strategy and platform it is going to implement. It will utilize the information the researchers found. And the financial department should be involved, because of the cost associated with everything.

Without those departments talking to one another, you could have the marketing department utilizing information that the legal department has found out is still copyrighted — information that the company hasn’t received permission to use. If you find out you have to pull an entire marketing program because you didn’t do a proper background check at stage one to find out if that information was protected, it becomes a pretty costly endeavor.

What types of information need to be checked to avoid third-party infringement lawsuits?

The easiest example scenario to consider would be an image or symbol that is patented. If you want to use the Nike Swoosh, for example, in your marketing materials, but you didn’t receive permission from Nike, you would be slapped with an infringement claim immediately.

Obviously everyone knows that symbol is copyrighted, but there are tons of symbols and acronyms out there that people have patented and utilized in their own materials. If someone else sees one of those patented items and just says, ‘I like that idea,’ and uses it without doing the research to find out that it is a protected symbol, you have a lawsuit on your hands.

What can companies do to ensure they aren’t liable for third-party IP lawsuits?

If you consider social media exposure, you want to make sure you have strong policies in place to limit or discourage the use of social media websites from company computers. The Facebook issue is a perfect example. Employees are posting information all the time on that site: images, links, etc. It’s a huge third-party exposure, but you can avoid it by creating a policy or procedure that doesn’t allow people to log on to social media sites from a company computer.

Most people now have phones with Internet capabilities, so they can use their phone rather than using the company’s property. A strong Internet policy certainly helps a company reduce its exposure.

Companies need to train their employees about this exposure and constantly recertify that training. Someone could publish information without realizing that information is copyrighted and still within its protective period, so there needs to be research done to make sure that the data being published have been properly vetted.

Shane Moran is a vice president with ECBM Insurance Brokers and Consultants. Reach him at (610) 668-7100, ext. 1237, or

Published in Philadelphia