Copyrights and trademarks and patents! Oh, my! Insurers need to know the uses, benefits and risks of intellectual property rights to protect their own businesses and to avoid infringing on competitors' rights.

Intellectual property rights (copyrights, trademarks, patents and trade secrets) can be valuable assets for insurers, but also can pose potentially significant risks--not only for willful "me too" infringers who intentionally copy approved forms and filings, but also for innocent infringers. The following highlights some of the issues insurers should consider as they evaluate each type of intellectual property, both to protect their own businesses and to avoid infringing on competitors' rights.

Copyright Protection

In general, copyright protection exists for "original works of authorship." Only a modicum of originality is required for protection. Referred to as the idea-expression dichotomy, copyright protection is available only to original expression, not to the ideas or facts being expressed. Copyrights, governed by federal statute, provide owners with the exclusive rights to, among other things, reproduce, prepare derivative works of, and distribute copies of the work.

Although a federal copyright registration provides benefits, such as access to federal courts and potential statutory damages, copyright exists as soon as the work is fixed in a tangible medium of expression, such as on paper or on a DVD. To prove infringement, a copyright owner must show the accused copied protected elements of the work, either by direct evidence of copying or by showing access and substantial similarity to the copyrighted work.

In a recent case, American Family Life Assurance Company of Columbus ("Aflac") sued Assurant Inc. and its subsidiaries for infringing copyrights held by Aflac in its Cancer Indemnity Insurance Policy, Hospital Confinement Indemnity Policy, Accident-Only Policy and Hospital Confinement Sickness Indemnity Policy. Aflac alleged that similarities between Aflac's policies and those of Assurant constituted copyright infringement and sought a preliminary injunction to prohibit Assurant from offering its competing policies. The District Court for the Northern District of Georgia granted Aflac's motion in part, prohibiting Assurant from selling its Cancer and Accident Policies.

As noted by the Aflac court, each of Aflac's four policies took a significant amount of time and effort to create--eight months for the Cancer Policy (five months' drafting); nine months for the Accident Policy (six months' drafting); nine months for the Hospital Policy (three months' drafting); and nine months for the Sickness Policy (four months' drafting). Although the level of effort did not, by itself, render the works copyrightable, the associated cost increased Aflac's incentive to protect its work product.

In contrast, Assurant created four competing policies in about a five-month period. In developing its policies, Assurant reviewed samples of supplemental insurance policies, including Aflac's copyrighted policies.

In finding for Aflac, the court found that Assurant had copied aspects of the policies that were protected by copyright. Among other things, Assurant had copied many of Aflac's subjective and discretionary choices in the drafting of the policies, including determining which treatments and conditions to cover; what new benefits to provide and on what terms; whether existing benefits, if any, should be changed; how the benefits should be ordered in each

== policy; and what limitations, exclusions and definitions should be added or changed from previous policies, if any. Moreover, the court found that Assurant had copied specific policy language describing the coverage of the policy and that Aflac had made discretionary drafting decisions to create this language. The court found that Aflac's selections, discretionary decisions and narrative descriptions embodied the minimal degree of creativity and originality for the policies to qualify for copyright protection.

The court found that Assurant had copied most, if not all, of the descriptions of the 28 benefits cited by Aflac in Aflac's Cancer and Accident Policies, listing them in the same order in both policies. Such copying of protected elements of the policies supported the issuance of a preliminary injunction. However, applying a legal doctrine known as the merger doctrine, the court found that not all of Assurant's copying was actionable.

The merger doctrine provides that where the form of expression is largely prescribed by functional constraints or where an idea and the expression of that idea are so closely tied together that there are few ways to express the idea, the idea and its expression are said to have "merged" and the expression is not protected by copyright. The court found that with regard to certain definitions, limitations and exclusions contained in the Aflac policies, the merger doctrine likely applied. For example, Assurant argued that although its definition for "bone marrow transplantation" was nearly identical to Aflac's, the definition was susceptible to few, if any, variations in expression and thus was not protectable expression. The court apparently agreed, holding that Assurant's use of the definition likely did not violate Aflac's copyright.

The court denied Aflac's request for a preliminary injunction with respect to its Hospital and Sickness Policies, leaving Assurant free to offer them. Although Assurant offered the same benefits in its hospital and sickness policies as were in Aflac's, it used different language to describe those benefits. Consequently, the court did not find it likely that Assurant had copied enough original, protectable expression to constitute copyright infringement.

To obtain the preliminary injunction, Aflac also needed to prove a substantial risk of irreparable harm. Assurant argued there was no risk of irreparable harm to Aflac because Aflac could be compensated by monetary damages. The court disagreed, citing widely recognized legal precedent that if a copyright owner makes out an initial showing of a case of copyright infringement, irreparable harm is presumed. The rationale, the court explained, is that the financial impact of copyright infringement often is hard to measure and involves intangible qualities.

Based on these findings, the court enjoined Assurant from selling its infringing Cancer and Accident Policies until final resolution of the case. Although the court held that Aflac's copyright did not prevent Assurant from offering the same benefits under similar terms, Assurant was not entitled to do so by using language that was virtually identical to that in Aflac's policies.

Aflac had registered its copyrights in the policies--a necessary precondition to bringing a federal lawsuit. However, before seeking to register a copyright in a particular work (such as marketing literature, Web-site content and software), an insurer should confirm that it owns the copyright in the work. Merely paying for work to be performed does not convey ownership in the resulting work product. Furthermore. an assignment of copyright must be in writing. Therefore, when hiring an independent consultant to develop a Web site, software, or other copyrightable work, insurers should include an intellectual property assignment provision in the written agreement.

Trademark Protection

An awareness of the benefits of trademark protection, and the risks of unintentional infringement, are also important for insurers. A trademark is a designation of source for either goods or services.

Trademark infringement is based on use of a trademark that is likely to cause confusion with the trademark of a competitor. Unlike copyright infringement, trademark infringement need not be intentional.

Though common law rights can exist based on an insurer's actual use of a trademark, obtaining a federal registration provides certain benefits. A federal registration is helpful in establishing what is known as "priority of use." The first user of a trademark generally is deemed to have "priority," which confers on it the right to use the trademark. However, without federal registration of the trademark, priority is limited to the geographical region in which the trademark Ks actually been used, whereas a federal registration is deemed to be nationwide notice of the owner's use of the trademark. This has the same effect as if the trademark owner had used the trademark nationwide--no one subsequently can claim priority, even in a geographical region in which the trademark owner has not actually conducted business under the trademark. Given the benefits of federal registration, insurers should consider obtaining a federal trademark registration as an early step in their branding strategy.

An issue that arises with regard to trademark use in the insurance industry is the clearance of insurer names. Although state insurance departments typically check records of existing insurers in the state to confirm that no other insurer is registered under the same or similar name, a trademark clearance typically involves searching not only exact matches of the name, but also similarly spelled names and similarly sounding names--both having the ability to cause confusion and to result in claims of trademark infringement. Although departments of state may allow multiple insurers to use names having words in common unless the proposed name contains a word associated with a well-known insurer, such as "Allstate," as opposed to more generic words, such as "American," trademark infringement can be based on the use of arguably generic words, particularly if used in combination.

In addition, because a state regulatory clearance typically focuses on words associated with well-known insurers, it may fail to identify potential trademark infringement arising from similarly sounding names. Thus, although a state insurance department might permit two insurers to exist with the names "Insurex" and "Assurecs," the similar pronunciation of the two names might expose the second-comer to the market to claims of trademark infringement.

There are other important differences between insurance department and trademark clearances. State insurance departments typically focus on the potential for confusion with an existing licensed insurer, whereas a trademark clearance also includes names and trademarks of unregistered entities such as the unlicensed parent of an insurer, and consultants or vendors providing services to the insurance industry.

Patent Protection

Insurers increasingly are finding greater applicability in their businesses for Patents the patents. Patents provide the owner the exclusive right to make, use, sell, offer to sell and import into the United States the patented invention. Infringement of a patent does not require knowledge of the patent or copying. For the insurance industry, patents offer offensive benefits but also pose defensive risks.

In a sense, patents pick up where copyrights leave off: While copyright cannot prevent a competitor from offering the same product (only from using a substantially similar description), a patent can exclude competitors from offering the same product even if described differently. In general, patent protection is available to a novel and non-obvious process or machine. Thus, patents have been awarded for computer systems and software, which could include, for example, computer systems and programs for the administration of policies, claims-processing and customer-service features.

More recently, companies have been filing for and have been awarded patent protection for business methods and computer systems for their implementation. A business method patent--simply that, a patent on a way of doing business--may cover a method of administering a novel insurance product, ways of funding an insurance policy, methods of processing claims and other methods.

Thus, an owner of a patent covering a method of creating an insurance product, or a computer system for administering the novel product, would have the right to exclude others from offering the same product--the so-called patent monopoly.

Although obtaining a patent can be costly, competitors must search for patents and consider potential infringement issues, increasing their time to market and their costs of doing business.

Even if an insurer believes it is unlikely to sue for patent infringement, there are reasons to seek patent protection. For example, rather than precluding competition and suing for infringement, a patent owner may license the patented product, computer system or program to competitors in return for a reasonable royalty. Also, because patents convey the image of inventiveness, they may be used effectively as a marketing tool. Moreover, even if an insurer-patent owner does not actively assert infringement claims against its competitors, it might find itself charged with infringement.

To avoid infringement charges, an insurer might consider conducting a search for patents related to the market product/process at issue or for patents held by competitors in the relevant market.

Charges of infringement will not always come from other insurers. Vendors of insurance-related computer systems and software applications also file for patents. Although a vendor may have provided a software program patented by a third party without the patent-owner's permission, the insurer's use nonetheless constitutes an infringement.

Copyrights, trademarks and patents apply to distinct categories of intellectual property, and each provides distinct benefits. As with other industries, as more insurers recognize the value of their intellectual assets, file for protection and enforce their rights more aggressively, others likely will follow suit--if for no reason other than fear of losing a competitive edge or not having their own rights with which to defend themselves.

Key Points

* Copyright protection is available only to original expression, not to the ideas of facts being expressed.

* A trademark is a designation of source for either goods or services.

* Patent protection is available for a novel and non-obvious process or machne.

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American Family Life Assurance Company of Columbus (Aflac) A.M. Best Company # 06051 Distribution: Work-site marketing, individual sales force

For ratings and other financial strength information about this company, visit www.ambest.com.

Navigating the Infringement Forest

Copyrights

* To prove infringement, a copyright owner must show the accused copied protected elements of the work.

* In Aflac vs. Assurant, the court found Assurant had copied many of Aflac's subjective and discretionary choices in the drafting of certain policies and had copied specific policy language describing the coverage of the policies.

* If an idea and the expression of that idea are so closely tied together that there are few ways to express the idea, the idea and its expression are said to have "merged," and the expression is not protected by copyright.

Trademarks

* Trademark infringement is based on use of a trademark that is likely to cause confusion with the trademark of a competitor. It need not be intentional.

* Filing for federal registration is helpful in establishing "priority of use."

* State regulatory clearance of insurer names does not take into consideration similarly spelled or similarly sounding names, both of which can cause claims of trademark infringement.

Patents

* Infringement of a patent does not require knowledge of the patent or copying.

* The best chance of settling a charge of infringement may be an insurer's own patent on the product or process.

* Although obtaining a patent can be costly, competitors must search for patents and consider potential infringement issues, increasing their time to market and their costs of doing business.

Contributors: Ian G. DiBernardo is a partner in the Intellectual Property Practice Group of Stroock & Stroock & Lavan LLP and can be reached at [e-mail] William D. Latza is a partner in the Insurance Group of Stroock & Stroock Practice & Lavan LLP and can be reached at [e-mail].