Lawsuit highlights IP risks

Outdoor pursuits clothing manufacturer The North Face – whose clothing is worn by mountaineers and polar explorers – has become embroiled in a legal dispute with an American teenager who has launched his own tongue-in-cheek clothes range for American schoolkids.

Jimmy Winkelmann’s firm – named South Butt – parodies its rival. It has a logo that is an upside down version of North Face’s and its slogan “Never stop relaxing” is a conscious take-off of North Face’s “Never stop exploring”.

Winkelmann’s inspiration was that many of the kids at his school were buying North Face clothes – “a brand they didn’t really relate to, but were buying because ‘everyone else was’,” he says on the company’s website.  His response was to launch a range of clothing that tried to capture better the slacker culture of the X Box generation.

North Face has failed to see the funny side, however; it has sued Winkelmann and his firm alleging they have infringed its trademarks. A federal judge has ordered the two sides to enter into mediation in late March to try to end the dispute. If that fails they will meet in court in what could be a bruising and expensive legal battle for the young man from Missouri.

But, perhaps unknown to Winkelmann, there is insurance cover available against this kind of litigation that could protect the young entrepreneur better than …well, one of his rival’s famous parkas.

Companies can get some limited coverage for legal actions arising out of intellectual property disputes under their D&O or Professional Indemnity policies, but there is growing interest in buying standalone intellectual property insurance. That’s because in a global economy where innovation can be the difference between success and failure there are an increasing number of bitter wrangles between firms over who came up with a money-spinning idea.

These disputes can be eye-wateringly expensive, with costs spiralling to millions of dollars before the case has even reached a courtroom.Firms worried they may be accused of infringing a rival’s patents or trademarks can buy an insurance policy that would pay their legal costs and any damages awarded against them. Even companies like The North Face can get insurance to protect their intellectual property. These pay the policyholder’s legal fees if they feel obliged to sue another company it feels has stolen one of its ideas or tarnished one of its brands.

Companies as diverse as software firms, pharmaceutical companies, medical device manufacturers and toy makers have approached this niche insurance market – in which Lloyd’s is a leading player – for cover. They come from many different sectors, but they have one thing in common – “their intellectual property is their lifeblood,” David Rees, Vice President in the Financial and Professional risks practice at Marsh, tells lloyds.com.

Underwriters have been inundated with enquiries from companies. “There’s huge demand out there from customers. In fact, there’s more demand than there is market capacity at the moment,” says Rees.

Although many companies are now thinking of IP insurance, many more should think seriously whether this cover might benefit them. “Every firm insures their physical property, but not everyone insures their intellectual property,” says Rees. “But for many firms their intellectual property is their unique selling point – it’s what they make their money from.”