For most SMEs, the real challenge with an IP dispute is not the legal question. It is the financial one. Whether the claim is strong or weak, the cost of dealing with it properly can be prohibitive. This is how that played out for one of our clients.
The business
A UK-based technology company with turnover of approximately £4 million. The business had developed a proprietary product supported by a small but important patent portfolio and was growing strongly, with expansion into overseas markets underway. As part of that expansion it had entered into a number of licensing and distribution agreements, some of which contained IP indemnity clauses.
The trigger
Shortly after entering a new market, the company received a letter of claim from a competitor alleging patent infringement.
The claim was not obviously strong but it was credible enough to require a detailed legal response. At the same time, one of the company’s commercial partners pointed to an IP indemnity in their agreement and indicated they expected to be protected if the claim progressed.
Two problems had arrived simultaneously.
The exposure
Initial legal advice indicated that defending the claim through to trial could cost several hundred thousand pounds. Even a successful defence would still need to be funded.
The contractual indemnity added a second layer of financial exposure. The business was facing a significant liability to its commercial partner on top of its own legal costs, at exactly the point when management bandwidth and capital were committed to growth.
Without insurance, the options were unattractive. Settle early regardless of the merits, divert capital from growth to fund the defence, or attempt to negotiate from a position of financial weakness.
How insurance changed the position
The company had taken out an IP insurance policy before beginning its international expansion. The policy covered defence costs for infringement allegations and certain contractual liabilities including IP indemnities.
The matter was notified to insurers at an early stage. Specialist legal advisers were appointed, a defence strategy was developed and approved, and legal costs were met under the policy. The indemnity position was managed alongside the defence, avoiding a separate financial exposure to the commercial partner.
The business was able to respond robustly to the claim without immediate financial pressure and without diverting capital from its growth plans.
The outcome
The claim was resolved without proceeding to full trial.
The legal outcome matters less than the commercial one. With insurance in place the company defended on the merits, maintained its commercial relationships and kept its growth trajectory intact. Without it, the almost certain outcome would have been an early settlement on terms driven by financial necessity rather than legal merit.
The broader point
IP disputes are not just legal events. They are financial and strategic ones. For an SME at a critical stage of growth, the ability to respond properly can matter more than the underlying strength of the claim.
If your business is expanding into new markets or entering agreements that include IP indemnities, it is worth understanding how those risks might play out in practice before a claim arrives rather than after.
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This article is provided for general information purposes only and does not constitute legal advice. Readers should seek independent legal advice on their specific circumstances before taking any action.
