Insurance Coverage for Corporate Counsel
Corporate Counsel May Be Defendants in IP Litigation and Fall Under Express Provisions of the Corporation’s D&O As Well As E&O Coverage
Many IP litigation matters involve direct exposure to officers and directors of a company under theories of inducement of infringement, whether patent, copyright, or trademark. Similarly, trade secret misappropriation claims may implicate either current or ex-employees. Where the allegedly wrongful conduct occurred while the officer or director was an employee of the company, its policies may be implicated. It is therefore essential in auditing the company’s assets to assess under what circumstances its Errors and Omissions and/or Directors and Officers coverage may include intellectual property coverage. This follows because the capacity in which an employee or officer acts in rendering services for the company may dovetail with its professional activities as well as involve its general business conduct, thereby implicating coverage under an E&O policy.
Similarly, a Directors and Officers policy, while typically implicated in a securities fraud/shareholder derivative suit, would not come into play for intellectual property or antitrust claims. A recent survey reveals that fully 85% of such policies do not include express exclusions for intellectual property or antitrust claims. As such policies are written on a claims-made basis, so long as the claim is asserted in a year in which no exclusion arises, potential coverage may be implicated. Such exclusions, however, may be readily included in policy forms. To guard against such a likelihood, a longer term (i.e., three- to five-year form) policy written on a claims-made basis, which may not be endorsed during subsequent years in a way that limits coverage without an express negotiation regarding same, including reduction in premium, should be obtained.
Where the officer named is also corporate counsel, specific insurance for such counsel’s activity should be reviewed to assure that it may encompass intellectual property lawsuits, at least to the same extent as that offered by the corporation’s coverage.
Tracking Corporate Counsel Fee Expenses in IP Litigation in Coverage for Defense Costs
Where the corporate counsel is not named as a party but its energies are devoted to tracking, overseeing and active involvement in litigation, recapture of those fees as if they had been rendered by outside counsel is becoming an option. Ironically this potential flows out of the PLCM case, where an insurance company’s corporate counsel sought and successfully obtained reimbursement for its fees. PLCM Group, Inc. v. Drexler, 22 Cal. 4th 1084, 1088 (2000), citing Garfield Bank v. Folb, 25 Cal. App. 4th 1804, 1807 (1994).
The court found that the reasonable value of in-house counsel’s legal services is recoverable by the prevailing party where counsel is actively engaged in preparing for trial.). Thus the insurance industry has established precedent that can be best used by its own corporate policyholder clients to seek reimbursement for the fees their inside counsel attain.
A key problem in this respect is that many corporate counsel do not record time the same way as outside counsel. Reconstruction of the time expended by such counsel or creation of other mechanisms for tracking reimbursement of such expenses after the fact can be expensive. PLCM Group, 22 Cal. 4th at 1096.
The declaration of the attorney as to the number of hours spent on the case is sufficient evidence to support a fee award. Martino v. Denevi, 182 Cal. App. 3d 553, 559 (1986). Contemporaneous time records are not required for a recovery of attorney’s fees (id); however, in PLCM the Falik Declaration was explicitly based upon a review of two sets of contemporaneous records of work done: the electronic files stored on her computer directory for this case and the paper files maintained in chronological order throughout the litigation. Indeed, pleadings, depositions, and other evidence of the actual work performed by counsel are on their own sufficient to ascertain the reasonable amount of fees. Melnyk v. Robledo, 64 Cal. App. 3d 618, 624 (1976).
Some proactive mechanism to record time spent in interacting with matters in which potential coverage may arise is another element of the protocol that companies should prepare to obtain maximum recapture of litigation fees, both internal and external, in matters which may be subject to coverage.
On May 14, 2008 HP obtained a judgment of over $51,000,000 for post-tender attorneys’ fees, including several million dollars of in-house fees based on reconstructed contemporaneous billing records reflecting interaction with outside counsel.
Many IP litigation matters involve direct exposure to officers and directors of a company under theories of inducement of infringement, whether patent, copyright, or trademark. Similarly, trade secret misappropriation claims may implicate either current or ex-employees. Where the allegedly wrongful conduct occurred while the officer or director was an employee of the company, its policies may be implicated. It is therefore essential in auditing the company’s assets to assess under what circumstances its Errors and Omissions and/or Directors and Officers coverage may include intellectual property coverage. This follows because the capacity in which an employee or officer acts in rendering services for the company may dovetail with its professional activities as well as involve its general business conduct, thereby implicating coverage under an E&O policy.
Similarly, a Directors and Officers policy, while typically implicated in a securities fraud/shareholder derivative suit, would not come into play for intellectual property or antitrust claims. A recent survey reveals that fully 85% of such policies do not include express exclusions for intellectual property or antitrust claims. As such policies are written on a claims-made basis, so long as the claim is asserted in a year in which no exclusion arises, potential coverage may be implicated. Such exclusions, however, may be readily included in policy forms. To guard against such a likelihood, a longer term (i.e., three- to five-year form) policy written on a claims-made basis, which may not be endorsed during subsequent years in a way that limits coverage without an express negotiation regarding same, including reduction in premium, should be obtained.
Where the officer named is also corporate counsel, specific insurance for such counsel’s activity should be reviewed to assure that it may encompass intellectual property lawsuits, at least to the same extent as that offered by the corporation’s coverage.
Tracking Corporate Counsel Fee Expenses in IP Litigation in Coverage for Defense Costs
Where the corporate counsel is not named as a party but its energies are devoted to tracking, overseeing and active involvement in litigation, recapture of those fees as if they had been rendered by outside counsel is becoming an option. Ironically this potential flows out of the PLCM case, where an insurance company’s corporate counsel sought and successfully obtained reimbursement for its fees. PLCM Group, Inc. v. Drexler, 22 Cal. 4th 1084, 1088 (2000), citing Garfield Bank v. Folb, 25 Cal. App. 4th 1804, 1807 (1994).
The court found that the reasonable value of in-house counsel’s legal services is recoverable by the prevailing party where counsel is actively engaged in preparing for trial.). Thus the insurance industry has established precedent that can be best used by its own corporate policyholder clients to seek reimbursement for the fees their inside counsel attain.
A key problem in this respect is that many corporate counsel do not record time the same way as outside counsel. Reconstruction of the time expended by such counsel or creation of other mechanisms for tracking reimbursement of such expenses after the fact can be expensive. PLCM Group, 22 Cal. 4th at 1096.
The declaration of the attorney as to the number of hours spent on the case is sufficient evidence to support a fee award. Martino v. Denevi, 182 Cal. App. 3d 553, 559 (1986). Contemporaneous time records are not required for a recovery of attorney’s fees (id); however, in PLCM the Falik Declaration was explicitly based upon a review of two sets of contemporaneous records of work done: the electronic files stored on her computer directory for this case and the paper files maintained in chronological order throughout the litigation. Indeed, pleadings, depositions, and other evidence of the actual work performed by counsel are on their own sufficient to ascertain the reasonable amount of fees. Melnyk v. Robledo, 64 Cal. App. 3d 618, 624 (1976).
Some proactive mechanism to record time spent in interacting with matters in which potential coverage may arise is another element of the protocol that companies should prepare to obtain maximum recapture of litigation fees, both internal and external, in matters which may be subject to coverage.
On May 14, 2008 HP obtained a judgment of over $51,000,000 for post-tender attorneys’ fees, including several million dollars of in-house fees based on reconstructed contemporaneous billing records reflecting interaction with outside counsel.
