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A Quick Guide to Trademark Infringement Insurance

We live in a litigious world. And even if you do everything right, your business runs the risk that someone may come along and claim that you committed trademark infringement.

As with most other types of risks, our friends in the insurance industry are here to help. But when does trademark infringement insurance actually come into play?

Are You Covered At All?

The first thing you’ll have to do is to determine whether your company’s Commercial General Liability (CGL) insurance policy covers trademarks at all. Sometimes this coverage is grouped under the term “Advertising Injury.” But it’s not always clear whether Advertising Injury coverage includes trademark infringement claims. For a bit more detail on this point, here’s a link to a brief white paper that lays out the issue.

When in doubt, consult with your insurance broker and be sure to get the answer in writing.

Curious about trademarks? Click here for a free Intellectual Property for Entrepreneurs Checklist

OK, You’re Covered for Trademark Infringement Liability; Now What?

dog eating - french bulldog puppy eating out of a bowl isolated on white background

Let’s set the scene. You’re happily doing business as Crazy Awesome Dog Treats. One day you receive a cease and desist letter from an attorney purporting to represent a competitor, Crazy Awesome Puppy Snacks. This attorney claims that you’re infringing on his client’s valuable intellectual property and gives you a period of time in which to cease and desist all use of the brand name.

Let’s say you’re convinced that you were in business before they were and your lawyer assures you that you have the rightful claim to the Crazy Awesome trademark. You can do one of three things:

  1. Nothing, and wait for them to sue you, or hope that they were just bluffing.
  2. Have your lawyer write them back and say, “Suck it, Puppy Snacks, we were here first, it’s you who must cease and desist.” (Possibly using slightly more professional verbiage.)
  3. This is the fun one: File a preemptive action for a declaratory judgment of noninfringement.

OK, #3 can use a bit of explanation. It’s pretty simple. This just means that, rather than waiting for your competitor to sue you, you can sue them first. You’re asking the court to declare that you’re not infringing and that any suit by your competitor would have no merit.

Going on the Offensive

Why would you want to do that? There are a few reasons:

  • You get to be the aggressor and force them to come up with the funds to enter into litigation—essentially, calling their bluff.
  • You’re the first to describe the situation to the court, so you have some advantages in terms of how the case and the issues are framed.
  • Perhaps most importantly, you can sue in a location that’s most convenient for you. This might mean a court that’s physically located in your city or state, or it might mean a court that tends to be more favorable to your side of this issue. This puts the burden on the Puppy Snacks folks to try to convince the court to move the case somewhere more convenient for them, which is a questionable and expensive proposition.

Click Here for a Free Intellectual Property for Entrepreneurs Checklist

Great, So What’s the Catch?

This is where the insurance question comes in. Even if you have an insurance policy that says the company will step in to pay your legal bills in the event of a trademark infringement claim, some insurers will refuse to pay your legal fees if you initiated the lawsuit.

In some cases, the insurance won’t kick in until the other side files a counterclaim (also known as “You’re suing me?! Well, I’m suing you, too!”) If our Puppy Snacks opponents are savvy, they may hold off on filing a counterclaim in order to run up your legal bill.

Does the insurance company have an obligation to pay for your lawsuit if you’re the one who initiated it? Well, unfortunately, some courts have said yes, others have said no. So the answer may depend on where you’re doing business.

The Bottom Line

Whether you’re obtaining CGL insurance for the first time or you’ve been with the same carrier for a while, it’s important to be aware of the details of your trademark liability coverage. And even if you do have coverage, don’t expect your insurance company to chip in if you need to initiate a defensive lawsuit; learn what your policy does and doesn’t cover beforehand, and (it’s worth saying again), get it in writing.

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