Is Trade Secret insurance the silver bullet PE firms have been waiting for?

Trade secrets have become the fastest growing and most critical intellectual property asset category that garners specific protections under the law. There are many factors that are causing companies to change their Intellectual Property (IP) strategy; the passing of the Defend Trade Secrets Act (DTSA) in 2016, the adverse positions taken in recent years by the USPTO regarding patent approvals, and the lightning fast growth of the digital economy have contributed to this phenomenon.

Over eighty (80) percent of senior executives recognize that trade secrets are critical to their business, and 69 percent foresee trade secrets as becoming more important than any other category of IP (Baker, 2017). Yet there has been surprisingly little emphasis on protecting those assets in a meaningful way, either by the companies that own those assets, the private equity (PE) or venture capital (VC) firms that invest in those companies, or by the insurance industry.

The reasons for this lack of formal focus are many:
Trade secrets are not protected by the official receipt of a certificate or tangible piece of paper granting such protection; and there is no “application” process that results in either acceptance or rejection as validation;
Trade secrets typically are home-grown – except for those acquired through acquisition or merger – and the value increases incrementally over a period of time. The value can sneak up on you if a formal process is not in place to identify and value those assets, while continuously adjusting the amount of effort that goes into keeping them “secret”.

Until recently the value of those assets has seemed very subjective. Putting an objective, defensible value on these assets (and then insuring them) may allow you to borrow against them like you would your tangible assets. This could make or break some smaller innovative companies!
Multiple individuals or divisions within a company may have knowledge about the status, location, value, stage of development of these assets, making that information harder to capture. The knowledge about and responsibility for protection of trade secrets often lies with multiple people such as legal, IT, engineering, operations, and risk management.

The insurance industry, particularly the cyber market, has grappled with how to address this risk and provide meaningful capacity for years; but the perceived subjectivity of the valuation, challenges in proving the loss, and other impediments have prevented discussions from getting anywhere…

Until now.

Crown Jewel℠ Insurance was formed to provide risk management and insurance advisory solutions focused on IP assets, specifically trade secrets. We have assembled a ground-breaking policy wording and insurance line-slip that specifically offers an agreed value (translation=easy to adjust!) first party coverage for theft, disclosure, or misappropriation of trade secrets. In order to gain market support, we combined the experience of some of the foremost subject matter experts in this niche area to provide a full suite of risk management services in support of the insurance offering.

The insurance policy is called Crown Jewel℠ and provides up to $50M of capacity backed by an A+ rating. The entire offering, called Crown Jewel℠ Protector, includes both pre and post loss trade secret risk management services provided and paid for as part of the insurance premium. These services are used as the key tools for underwriting and improving an Insured’s risk against misappropriation or theft, ensuring that they are insurance worthy. The underwriting process alone will make the vast majority of corporations much better prepared to protect and defend these extremely valuable assets.

This offering is great news for the PE/VC space, because there is little real insurance to protect the value of their underlying investments in the current insurance market. PE, VC and other investors/lenders currently require standard property and casualty insurance, D&O, Crime and sometimes E&O and/or Cyber insurance. But none of these products protect the value of the underlying (intangible) assets that garnered the investment in the first place!

If you are interested in hearing more about us, please visit our website at www.crownjewelinsurance.com, follow us on LinkedIn, or email us at info@crownjewelinsurance.com.

Copyright March 2020 Crown Jewel Insurance, Mary Guzman, CEO/Founder as Author.

 

References:

Baker and McKenzie, The Board Ultimatum, 2017