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Tuesday, May 26, 2009

Protecting The Bottom Line

Considering the costs of the equipment you rely upon to make a living as a photographer, understanding how to insure that gear is of paramount importance

“Insurance Issues Are Problems”
While it may be easy to identify the risks, ensuring that you have the right coverage tends to be far more of a challenge. It doesn’t help that the insurance industry has attempted to narrow the scope of coverage, particularly for intellectual property claims.

According to Orlando, Florida-based attorney David Henry, who deals with insurance law-related issues, “Insurance issues are problems for clients, lawyers and insurance agents and underwriters as the insurance industry attempts to address Internet technology, the boundaries of defamation law, trademark infringement, cybersquatting and copyright violations.”

Part of the problem stems from changes that Insurance Services Office (ISO)—a company providing, among other things, insurance policy language for insurance underwriters—made to the standard insurance policy language. If you look at your own insurance policies, you may find a reference to “ISO” or “ISO Properties” (probably near the bottom of the page), and if so, you’ll almost certainly find a reference to a year in close proximity. It’s those references that help differentiate the different versions of otherwise “standard” policies.

In 1996, the ISO changed the language for GCL policies by separately defining “personal injury” and “advertising injury.” Advertising injury originally included written publication of material violating a right of privacy, misappropriation of advertising ideas or styles of doing business, and even copyright and trademark infringement. By 2001, the ISO GCL policy included several key exclusions suggesting an intent to narrow the scope of protection afforded under GCL policies. For example, a new exclusion appeared for “Media and Internet Type Businesses” (despite the exclusion, the policies still provided coverage for personal injury); other exclusions, such as those seeking to exclude claims for copyright infringement, patent infringement, trademark infringement and misappropriation of trade secrets, applied to all businesses.

Henry suggests that the intellectual property-related exclusions (copyright infringement, patent infringement, trademark infringement and misappropriation of trade secrets) also have a “give-back” provision that provides coverage if the claim relates to the policy’s definition of advertising injury. In this context, the exclusion and “give-back” provision may be evidence that the insurance company is seeking to preclude only claims that don’t truly relate to advertising.

 

“Still, upon further study,” says Henry, “one is left to conclude the insurance industry’s approach is awkward and confusing.”

While the typical GCL policy has been changing to limit the scope of claims, it’s not uncommon to find E&O policies being tailored to include coverage for copyright infringement and other risks. In addition, some insurance companies have started offering specific policies to cover risks such as copyright infringement and even patent infringement.

While most photographers don’t expect to be sued for patent infringement, that didn’t prevent Austin, Texas-based photographer Elizabeth Kreutz from being named as a defendant in a patent-infringement lawsuit. Kreutz, who declined to comment on the litigation, was named as a defendant, along with Brightroom, SmugMug, Printroom and others, in mid-2007 when the inventor and patent owner, Peter Wolf, brought suit. The defendants in the action settled, and in May 2008 the case was closed.

Wolf, who prefers to avoid litigation, says, “Going into court isn’t beneficial to the patent holder or to the defendant; it’s only beneficial to the attorneys involved.”

In light of the average costs of defending a patent-infringement suit, it’s difficult to disagree. According to an annual economic survey conducted by the American Intellectual Property Law Association, the average cost of defending a patent-infringement suit alone ranges from $600,000 to $1 million where there’s less than $1 million in damages at issue (and as much as $3.2 million or more where the damages involved are in excess of $1 million). Given the tremendous costs of defending claims, a photographer without proper insurance coverage has little choice but to settle and obtain a license (assuming that’s even a possibility; it may not be in all cases). The cost of defending a patent-infringement case is simply prohibitive for the average individual or small business.

If Wolf’s patents were the only ones that related to the photography industry, one might be able to rationalize his infringement action as something of an aberration. Sadly, the case may be a sign of things to come.

In September 2008, VPS, LLC, which does business as Virtual Photo Store, LLC, sued Pictage, Inc., Edward Fox Photography, Artisan Events, Prêt-a-Poser Photography, George Street Photo & Video, Slack Photography, Glen Abog Photography and David Wittig Photography for infringement of two patents: one relating to a “digital image management and order delivery system” and the other relating to “a method and apparatus for storing and printing digital images.” The case—hardly VPS’ first foray into the realm of patent-infringement litigation, as it previously filed patent-infringement actions against Eastman Kodak, Ofoto and Shutterfly—has now been settled.

Around the same time as the settlement, several Pictage customers received an e-mail from Pictage’s CEO and founder, Jason Kiefer, explaining that as part of the settlement, Pictage agreed to pay a “multimillion dollar fee for a license covering past and future online sales on pictage.com,” including past and future sales that Pictage’s customers make through Pictage. However, Kiefer’s e-mail warns that sales Pictage’s customers have made or make through any other website isn’t covered by Pictage’s license.