Insuring Corporate Trade Secrets

Secrets — A company cannot ensure its valuable trade secrets until they have been identified and properly analyzed. As more companies implement trade secret protection regimes, the desirability of insuring these valuable corporate assets will increase.

Trade secret asset management has historically been neglected by many companies, but as we have previously discussed, a unique confluence of recent events has significantly raised the profile of corporate trade secret assets. In short, trade secrets cannot be ignored going forward.

Trade secrets and know-how can be some of the most important assets in a company’s intellectual property portfolio. They are at least on a par with other forms of intellectual property such as patents and trademarks. Some would argue that trade secrets and know-how are the crown jewels of any intellectual property portfolio. However, they are fragile are only valuable if kept secret.

IP Insurance

All businesses possess intangible assets and intellectual property of one sort or another, and such assets may be the most valuable assets they possess. Just like other business assets, companies can obtain insurance to protect against risks associated with their IP assets.

Some IP insurance products are aimed at businesses who have already secured IP rights from a governmental authority, although it is possible to obtain a policy on a trade secret if it can be shown to be appropriately secured by the company. Other policies allow companies to protect themselves against inadvertently infringing the rights of others.

IP Insurance for Trade Secrets

A number of IP Insurance Providers now offer insurance products related to trade secrets. Such insurance products typically break down into three categories, namely:

• Defensive coverage if the company is pursued for unlawfully disclosing or using a trade secret.
• Coverage for pursuit or enforcement exposures, including around contractual liabilities and/or disputes related to trade secrets.
• Potential business interruption type cover for the loss of profits should a trade secret be lost and/or damaged.

Typical Terms and Conditions

Just as with most insurance products, there are limits of indemnity and excesses, and probably some co-insurance applicability.

There are also certain conditions that the policyholder adds to its trade secret management policies, plus ongoing obligations that the policyholder keeps the IP Insurance Provider updated of all material facts and notifies any circumstances that could give rise to a claim. When a claim arises, there are obligations on the company to cooperate with the IP Insurance Provider.

There may be other conditions dependent on the individual risk. Typical exclusions would be around deliberate or reckless acts and pre-existing circumstances/matters.

What information would a company need to divulge to its IP insurance provider?

The IP Insurance Provider would need to know what the trade secrets actually are to review and assess. They would also require information on what employees and third parties (including ex-employees) have knowledge of the trade secrets. Copies of relevant agreements and contracts such as employment contracts would also need to be provided.

Confidentiality typically arises in law when a client or prospective client provides the IP Insurance Provider with information, but almost all IP Insurance Providers are also happy to sign non-disclosure agreements as well. The IP Insurance Broker would have to have permission to discuss with the IP Insurance Underwriters of course.

Trade Secret Asset Management

The IP Insurance Provider will ask the company about its trade secret policy, its trade secret asset management processes, and what systems they use to help manage this process, access and access control, protection mechanisms, as well as other questions.

An IP Insurance Provider will typically adjust the premium for a company who is clearly managing its trade secrets versus a company who is not. The premium takes into consideration the risk, and this is therefore extremely important. If there is little or no formalized risk management system in place then insurers would be unlikely to quote, or would insist upon the implementation of formalized systems before a policy could be written.

With trade secret exposures, IP insurance providers really expect quite robust risk management systems, and that these are adhered to, as well as existing in the first place.

Hazel Helps Companies Identify Rank & Protect Their Trade Secrets

The Hazel Trade Secret Asset Management System helps companies manage their trade secrets and trade secret processes. Hazel can keep track of corporate trade secrets and help you determine an appropriate level of protection for each trade secret recorded. Hazel can record who in an organization is responsible for a given trade secret, who is responsible for protecting the trade secret, and who has access to the trade secret, among other things. Hazel can also help with tax issues by noting where a trade secret asset is legally held and what agreements pertain to it. Contact the Hazel Team today to learn more.

For Secrets, I’m Donal O’Connell.

Credits:

Cover: Insurance poster by Phenix Mutual Fire Insurance Company of Brooklyn – Phenix Mutual Fire Insurance Company of Brooklyn, Public Domain, Link

Coat of Arms of the Chartered Insurance Institute by Christine Matthews, CC BY-SA 2.0, Link

Insurance poster by Unknown – U.S. National Archives and Records Administration, Public Domain, Link