How can AI companies use insurance to protect themselves and their users from IP infringement?

May 11, 2024

blog

TL;DR

  • Foundational policies offer limited coverage, require augmentation.
  • Purchase Media liability especially if you may be accused of using copyrighted data in training
  • Obtain IP insurance especially for patent infringement claims
  • Offer Microsoft-like copyright guarantee to your clients

What is Intellectual Property?

Intellectual Property (IP) refers to the intangible assets created by “human intellect”. [1] The four most common types of IP in an AI company include:

  • Patents: e.g. algorithmic design patent
  • Copyrights: e.g. original product explainer videos in the website
  • Trademarks: e.g. company logo
  • Trade secret: e.g. software development process

IP rights give the creator an exclusive right over the use of their creation for a certain period of time. As a result, IP infringement is said to have occurred when a third party uses an IP without the creator’s authorization.

Losses due to IP infringement

If your company is accused of IP infringement, there can be serious financial, legal, and reputational consequences such as:

  • Legal defense costs: Defending yourself against IP infringement claims requires access to specialized IP lawyers and legal experts which can be quite expensive.
  • Lost revenue due to defamation and reduced sales: Accusations of IP infringement can erode trust among customers and partners resulting in loss of revenue and market share.
  • Penalties or settlement fee: If the infringement is proven, the company may be penalized for financial and reputational damages caused to the IP holder. Similarly, settlements can also involve significant financial payouts.

What modes of IP infringement should you be concerned about?

Every company should be mindful of potential IP infringement in their processes. In this section, we are limiting our discussion to the additional ways in which an AI company may be exposed to this risk.

  1. Using data for training or fine-tuning without express authorization from the owner:
  2. The AI-generated output is considered an infringement.

How can you leverage insurance to protect yourself and your clients?

Insurance can be used to proactively safeguard your company against the unforeseen liabilities associated with IP infringement claims.

In order to develop a comprehensive IP insurance plan, it is important to think about three aspects:

  • The type of IP related coverage you are already getting from the foundational business insurance policies like Commercial General Liability, Errors & Omissions and Cyber insurance.
  • Which specialized business insurance policies you should obtain and when?
  • How can you de-risk the adoption of your GenAI product by protecting your clients from IP infringement claims?

Let us now explore these aspects in a greater detail. For our discussion, we will be considering typical insurance policies since insurance policies like any other legal contract can be tailored as per a company’s needs.

Moreover, it is important to note though that intentional infringement and infringement due to gross negligence will be difficult to obtain coverage for. This is where the other tools in your risk management strategy like risk mitigation strategies can come handy.

Limited IP coverage under foundational business insurance policies

Commercial General Liability (CGL) insurance

  • Only covers copyright infringement
  • Coverage is offered only when infringement occurs while advertising your own business
  • Coverage limit for copyright infringement is usually small

Let’s take the example of a Generative AI company named TeaserAI that specializes in generating product teaser videos using its clients’ marketing materials.

The videos that it produces for its clients will not be covered under Commercial General Liability (CGL) if accused of copyright infringement. The rationale is that these videos were part of its typical professional service and hence, cannot be classified as an advertising injury.

If TeaserAI uses its own product to generate videos that it uses to advertise its product and services, copyright infringement will be covered.

Errors & Omissions (E&O) insurance

  • Sometimes covers copyright infringement
  • Coverage is offered only when infringement is the result of the action of an employee

E&O insurance policies may cover copyright infringement claims especially if they are the result of an employee’s actions. For example, while producing a product teaser video for its clients,   *TeaserAI’*s forgets to purchase the rights for the copyrighted images used in the video. If accused of copyright infringement, TeaserAI’s E&O insurance will cover the legal costs and settlement charges, up to the policy limits.

Cyber insurance

  • Usually only covers copyright infringement
  • Coverage is offered only when IP infringement occurs due to a cyber-related incident.

Cyber insurance policies may provide limited coverage for IP infringement claims that occurred due to a cyber-related incident. Imagine that TeaserAI suffers a cyberattack and it fails to safeguard its clients’ proprietary materials in its possession. TeaserAI’s cyber policy may cover the damages resulting from the theft of their client’s intellectual property. [2]

Improved IP coverage under specialized policies

Since foundational business insurance policies offer limited IP coverage, AI companies should consider obtaining specialized policies.

Media Liability insurance

  • More specialized E&O
  • Copyright infringement coverage regarding training data.
  • not only cover copyright infringement for a media business, but also claims for defamation, invasion of privacy, and similar offenses. [1]

Media Liability is a more specialized E&O policy with broader coverage. Since AI companies heavily rely on content based marketing especially in the digital form, obtaining a Media Liability Insurance is of critical importance. Imagine that TeaserAI publishes a blog asserting its product’s technical superiority against its competitors. TeaserAI may be sued for libel by a competitor, if the information presented in this comparison is believed to be inaccurate .

Moreover, Generative AI companies are purchasing Media Liability insurance to protect themselves from copyright infringement claims regarding their training data. For example, TeaserAI is trained on 1 million publicly available product videos. If they are accused of copyright violation in any of the videos in their training set, Media Liability Insurance will cover the damages.

Intellectual Property (IP) Insurance

  • Covers all major types of IP infringement claims including patent infringement
  • Must be considered if you need to go on offense too

If you are interested in building defense against all IP infringement claims like patent infringement or trademark infringement, you should consider obtaining an IP Insurance policy.

Moreover, if you may have to go on the offensive against another company if they violate your IP, you should obtain IP insurance with enforcement coverage. This will cover your litigation costs and the lost revenue.

Offering coverage to your users

Copyright guarantee to de-risk AI adoption for clients

  • Microsoft promises to defend its customers if sued for using the output generated by Microsoft’s Copilot

Microsoft, one of the largest players in Generative AI, is offering Copilot Copyright Commitment to its customers. As a result, if a customer is sued for using the outputs generated by Microsoft’s Copilot as per the suggested guardrails, Microsoft will bear the legal defense cost and the penalty or settlement fee.

Taking inspiration from Microsoft, other Generative AI companies should also consider to offer a copyright guarantee that covers their clients if they used the output of their GenAI product and were subject to a claim of copyright infringement as a result.

Consider a case when a small marketing agency, AgencyX wants to use TeaserAI to build a product video inspired by the marketing behemoth, Moonshot. When AgencyX releases the video*, Moonshot* sues it for copyright infringement. The agency does not have extensive insurance policies to protect itself against this lawsuit and hence, declares bankruptcy.

Other marketing agencies are now wary of adopting TeaserAI because they are not confident if they will be able to avoid similar cases of accidental infringement.

As a result, TeaserAI starts to offer a copyright guarantee to its users. Through this guarantee, TeaserAI promises to cover such copyright infringement claims to de-risk the adoption of its product.

Conclusion

Safeguarding against potential intellectual property (IP) infringement is paramount for AI companies, particularly those building Generative AI products. Foundational business insurance policies like Commercial General Liability, Errors & Omissions, and Cyber insurance offer limited coverage for IP infringement, highlighting the necessity for specialized policies such as Media Liability and Intellectual Property (IP) Insurance. These specialized policies provide broader coverage, including copyright infringement related to training data and protection against various IP infringement claims like patent infringement.

Moreover, offering coverage to clients, as exemplified by Microsoft's Copilot Copyright Commitment, can not only mitigate risks for users but also foster trust and encourage adoption. Embracing comprehensive IP insurance plans and extending copyright guarantees to clients are proactive measures essential for navigating the intricate landscape of AI-driven innovation while mitigating the risks of IP infringement.