Despite global trends pointing toward an increase in frequency and severity around intellectual property (IP) litigation, multinational companies today are falling short in managing the financial impact of their IP risks, according to Willis Towers Watson’s Intellectual Property Litigation Risk Report.
The report, based on a combination of IP litigation cost survey results and globally sourced litigation data, captures existing perceptions of IP litigation risk and encourages organizations to adopt an enterprise-level understanding of IP litigation’s potential financial impact.
The report points to several macro-factors driving IP litigation frequency and severity including a sharp spike globally in grants of IP rights, the growing use of trade secrets to protect innovation, an increase in technology-related mergers and acquisitions, greater mobility of IP and the evolution of traditional sectors evolving into hybrid technology sectors such as health tech and fintech. The report also noted geographic shifts underway influencing where litigation is filed.
Key findings include:
IP litigation in the U.S. is driven by patent infringement (5,200 cases annually), trademark infringement (3,900 cases annually) and copyright infringement (2,200 cases annually).
The top three countries for IP litigation are China, the U.S. and Germany. China’s frequency is steadily increasing with the number of IP cases filed doubling between 2013 and 2017.
In evaluating severity, U.S. IP litigation remains the most expensive both in terms of litigation expenses and damages/settlement. For example, average damage awards in the U.S. can easily reach the eight-figure range; the highest damage awards in Germany are in the seven figures, and one of the busiest IP courts in China has reported average damage awards in the six figures.
While 50% of respondents were most concerned about being sued in the U.S. for IP infringement, over 40% do business in China where the number of IP cases eclipses that of the U.S.
In trying to quantify the impact of IP litigation, just over half of the survey respondents track what IP litigation is costing their company on a per-incident or annual basis.
More than 50% of survey respondents agree that IP litigation costs could have a material impact on their businesses, yet less than 10% purchase IP insurance coverage.
The report also offers a comprehensive analysis of the global IP insurance market noting that, while the market has historically suffered from lack of awareness, new entrants combined with more data and capacity are factors currently driving growth. IP insurance providers surveyed for the report indicated steady increases in interest for risk transfer products, with demand being led by insureds in the retail, technology (software and hardware) and health care sectors.
“In reviewing the findings it’s clear that, while many companies appreciate IP’s value, they have not yet extended the IP management function to include IP risk management and, as such, have not quantified their own IP risk,” said Kim Cauthorn, IP leader, Willis Towers Watson.
“Additionally, we see various stakeholders including risk management, legal, finance and human resources all touching IP in varying capacities, yet we are not seeing a coordinated, comprehensive approach to fully managing IP risk itself. Instead, managing this risk tends to be siloed in legal, and research and development departments. As a result, the full context and benchmarking data are evading companies, preventing them from determining how much they truly spend managing various IP risks. This is a costly approach that leaves organizations vulnerable,” Cauthorn added.