Do you copy?

Invest in research
The principles are simple. An unprotectable patent or copyright is little use to anyone and knowledge is increasingly the stuff of business - a change from the days of smoking factories churning out widgets.

The argument runs: if you can insure intellectual property then you can invest in R&D with less fear. SMEs in particular spend less on R&D than big firms. The high costs of defending patents in the courts are enough to scare off any chief executive wavering over whether to invest in research.

And more research is better for all - more and better goods help the economy grow.

The Danish report states: "The lack of patenting as well as R&D by the smaller firms means less R&D overall, which is bad for the economy because it reduces productivity and growth."

It argues that if smaller companies can protect their inventions and ideas, there will be more knowledge and better products.

It goes on: "Hence there exists an economic argument for providing public support to private R&D via, for example, a legal expenses insurance programme."

Much of the pressure on companies to buy IP cover comes from venture capitalists. With companies securitising against their intellectual property, money lenders want to know the assets aren't going to simply disappear when a patent is infringed or found wanting.

Limited understanding
And risk managers are cottoning on too. Williams says: "Risk managers at medium and larger companies are becoming so much more astute. Buildings can burn down and you can replace them, but if you lose your intellectual property you are yesterday's news."

But there is still a problem. With the exception of Glenrand and a few other specialists, understanding among brokers is limited. This could be a great opportunity.

The insurance industry is a perfect example of the difficulty of protecting IP. If a smart insurer comes up with a new product, its competitors will soon be producing copies.

Oliver Prior says: "The smart money waits until the product is finished and then hires the person who created it for a lot more money."

In contrast to Kay, who believes the difficulty with IP is in gauging the risk, Prior says it is difficult to value the property itself.

"It would be fair to say that the techniques for valuing these things have not yet given the degree of comfort insurers want."

Prior admires the Hiscox policy for neatly sidestepping the problem. Instead, it effectively gets a court to do the work.

By effectively arming the insured for a legal assault, it helps to prevent a problem arising through the threat of a quick legal response such as an injunction.

Kiln's product goes further, to protect the value of a piece of IP, but requires more information from the insured.

Prior says: "The average risk manager would like the Kiln product, but without the underwriter asking so many questions."

And his conclusion is markedly less upbeat.

He says: "It's going to remain a niche product for a while."

The patent profession - past, present and future
Barrister, inventor and technologist Ernest Kay made his first patent application in 1954. His recipe for an antiseptic is still in use today in Savlon. As an industrial scientist he has worked with giant companies such as Pfizer and Shell and has combined his technical skill with his knowledge of law to advise on insuring intellectual property.

Kay is a member of Hogarth Chambers, one of the leading IP chambers in the UK. Notably, he is part of a team advising the European Commission on patent litigation insurance which is now making recommendations on how insurance can be used to protect inventors.

The final recommendations will probably be made towards the end of this year, but Kay favours an insurance system - whether voluntary or system - covering all patents throughout Europe.

Nobody should be keener to protect intellectual property than the companies spending their R&D pounds or euros but the key to a successful system is likely to be persuading insurers to take part.

"Since 11 September the insurance market has declined very markedly, but IP in particular has gone through a very unproductive patch," Kay said.

"Underwriters have been very relunctant to accept anything other than the more mundane risks."

Kay's work on producing a due diligence report for the scientists working on Dolly the sheep lay behind her creators protecting their work through insurance placed at Lloyd's.

Kay acknowledges that underwriters face difficulties in covering IP - not least because the task of gauging the risks that threaten it can be tricky.

But he says the market will respond to demand.

"The patent profession is increasingly aware of insurance now and although there were faults with earlier insurances, such as low levels of indemnity and failing to cover the US, patent agencies now know their clients would find this useful.

"There's a new generation of IP insurance emerging which is much more acceptable to the legal advisers of SMEs."

At the moment though, only the bigger brokers have the muscle to invest in staff who can devote themselves to building up expertise on the subject. Alexander Forbes and Millers both have staff who understand both IP and industry.

Damningly, Kay says: "The majority of brokers don't understand either."

But he does suggest a way forward. He proposes training for brokers and the charging of a fee on top of the premium to reflect the necessary research.

Despite the difficulties and underwriters' preference for writing safer risks he is bullish about the prospects.

"I would predict that within the next five years, litigation insurance that protects IP would well be one of the leading insurances, particularly as the European Commission is taking the lead - this is going to spearhead the development of IP insurance."