There is a growing risk of an intellectual property dispute ending up as a D&O claim – and personal exposure for directors and officers – meaning organisations should be taking proactive steps to manage and mitigate their intellectual property risks.

Key takeaways:

  • IP litigation is on the rise.
  • For companies that are less mature and perhaps in the growth stage or seeking to go public, IP litigation can have a disproportionate impact on their financial position.
  • For company boards, the connection between IP risk and a claim on their D&O policy – and their own personal exposure – must alert them to the urgent need to mitigate any potential IP risk.

What is the problem?

As business value transitions from tangible to intangible assets, the threat of litigation in the intellectual property (IP) space continues to grow for organisations of all sizes. And, as the potential financial impact from this litigation spreads, with the chance of not only damaging a balance sheet but pushing a business into insolvency, so does the possibility that uninsured IP risks could translate into a material risk for an organisation’s directors and officers.

There is an Increase in IP litigation

IP litigation relating to infringement of patents, copyright, trademarks and/or theft of trade secrets continues to surface. A recent patent infringement lawsuit filed against a NASDAQ-listed US biotech, for example, briefly barred the company from selling some of its products in 17 EU member states while the plaintiff – was awarded over USD$01million in damages. With the US biotech filing for bankruptcy soon after the judgement, it’s an example of how an IP litigation event can lead to a financial fallout so significant it puts the future of the business at peril.

How does an IP Problem Become a D&O Problem?

For companies that are less mature and perhaps in the growth stage or seeking to go public, IP litigation can have a disproportionate impact on their financial position where the legal costs and any potential settlement can be so severe it forces them in to bankruptcy. For examples such as the above, it is not difficult to imagine that, having seen its share price tumble, shareholders might consider a class action lawsuit against the business and its management for a breach of their fiduciary duties, with a resulting D&O claim against the entity itself and its board members.

Failing to sufficiently protect the balance sheet with appropriate IP insurance could enhance the claims of any would-be D&O plaintiff. A legal case in the Netherlands in 2020 saw how inadequate insurance can lead to a D&O liability when a director of a construction company failed to have liability cover in place for employees.

This is not just an issue for small or mid-sized companies either with bigger organisations also seeing increasingly frequent examples of IP litigation.

A Failure to Manage IP Risk

The problem for many organisations is that the possibility of a D&O claim from IP litigation is the consequence of a failure to manage their IP risk at the outset. If there is no financial mitigation in place following an IP claim, such as an IP liability insurance policy, then there is nothing to stop the issue from becoming a financial statement issue and subsequently, a D&O claim.

Take Steps to Protect the Organisation and the Directors

Any board that has been through an IP infringement issue, however, will know how important IP risk is and will recognise the ultimate D&O risk to both themselves as individuals and their organisation if that risk is not managed. It is critical that boards take steps to fully understand the scope of their IP risk, and how best they can manage and mitigate the risk, using insurance if necessary to protect their balance sheet from an IP event.

How Aon Can Help

Aon can help your business identify and understand its IP exposure and how best to manage and mitigate any associated risks to prevent an IP litigation turning into a potential D&O claim. To find out more about how IP liability insurance can protect your business, speak to your usual Aon contact.


Contact Us

Will Kier
Head of IP Solutions EMEA
will.kier@aon.co.uk


Jayne Minihane
Financial Lines and Professions Leader EMEA
jayne.minihane@aon.co.uk