Oops! Hope this cargo ship has insurance coverage like IP in China

Authors: Jili Chung, Josie Chen, Jonas Hou

Are you covered?

In recent weeks, the world was anxiously watching a 200,000-ton vessel blocking the Suez Canal, a historical passage for the global economy. The probability of such an incident is very low but yields large, detrimental impacts. Attention soon shifted to the insurance coverage for such an unprecedented loss in global shipping history.

Insurance may cover a vessel against this kind of risk and the losses associated with it. Likewise, insurance may also cover IP for unexpected infringement disputes in its global operation. Especially as the US-China trade war continues, IP disputes are becoming an imminent risk that has the potential to halt an industry’s regular operations in a single night.

However, very few people are aware that China is rapidly building its IP insurance market.

The Current Status of IP Insurance in China
In 2020, the insured amount of intellectual property insurance had exceeded CN¥20 billion (about US$3.1 billion). This growing market benefits 4,295 enterprises, as shown in the 2020 Q1 press conference with the China National Intellectual Property Administration (CNIPA) in Beijing.*

The significant volume reflects the rapid growth of the IP insurance market. It also indicates that China’s innovation ecosystem is becoming more amicable towards the commercialization of IP, the fruits of innovative activities.

Innovation’s Crouching Tiger elaborates such a subtle but essential connection happening in China.

The Function of IP Insurance
Intellectual property is a kind of intangible property, which does not have the precise boundaries of physical property. Its scope and validity are subject to interpretation and challenges, and various commercial factors affect the monetary value it can eventually generate.

Furthermore, in extreme cases, legal issues can delegitimize the IP exchanged in a transaction. As such, transactional parties have reason to worry about the legal defects of the IP.

Patent insurance cannot eliminate these uncertainties. But it does provide some comfort to lubricate patent-related transactions. It could also mitigate the risks on two aspects:
First, an insurance policy’s existence assures the transactional party that a professional has looked at the IP before underwriting it. Second, having insurance means that the costs of defending the rights may be covered to some extent, if not wholly.

In other words, mitigation measures do not commercialize IP, but they lubricate the transaction by decreasing the risk.

This benefit is very visible in China. China’s IP regime is still evolving. The scope and validity of a granted IP are subject to the threat of various unpredictable factors.

Furthermore, while IP commercialization is becoming a popular idea in China, the IP system itself is still strange to many parties who may want to engage in transactions. In this environment, insurance provides participants with some indication of legitimacy, doubled with a safety net.

Tips for Using IP Insurance to Mitigate Risk in China
IP insurance is a mature practice in developed markets. Well-established insurance carriers, such as IPISC or Willis, provide the various policies below:

  • Abatement insurance
  • Defense insurance
  • Multi-peril intellectual property
  • Unauthorized disclosure insurance
  • Litigation management

A foreign party who either collaborates or competes in the Chinese market may wish to acquire such IP insurance. But Chinese insurance carriers have not attended to this group of clientele. One may consider leveraging such policies provided by foreign insurance carriers for IP in China.

This option is feasible because IP — especially patents, trademarks, and copyrights — is a jurisdiction-based right. That means, for instance, a Chinese company may apply for a patent with the Chinese patent office to protect its invention, but if the company wants to protect its IP rights in the US, it must also undergo the patent application process with the US Patent and Trademark Office (USPTO).

Although a Chinese company may be te owner of the US patent, the USPTO grants the US patent according to US patent law and practice. Therefore, a US IP insurance carrier should feel comfortable underwriting such a patent regardless of its value realized through business activities in China.

Interested in learning more about IP risk mitigation in China?
Read more about developments in China’s IP ecosystem by visiting our blog at ICTiger2020.com or follow us on Facebook @ICTiger2020 for related news stories. Contact the author at Jili_ICT@springip.com.

*See: https://www.cnipa.gov.cn/col/col2521/index.html

Innovation's Crouching Tiger is written with the wish to guide people everywhere to learn about fintech and IP monetization in China’s innovation ecosystem.