Intellectual Property Risks

Defending the Digital Frontier

Insurance coverage and IP laws need to adapt, as publishing has moved to digital platforms.
By: | February 18, 2014 • 7 min read
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Digital technology continues to transform the global publishing arena, from changes in copyright law to ways in which media and technology are insured.

Kevin P. Kalinich, Chicago-based global practice leader for cyber/network risk at Aon Risk Solutions, emphasized just how dramatic the transformation in global publishing has been in recent years.

“If you take a look at the top four or five publishers like Pearson, Reuters, Thomson, Reed Elsevier and Wolters Kluwer … in just the last five years they’ve converted from being 75 percent hard copy to being 80 percent electronic.

“It’s amazing, and here’s why it’s so important,” Kalinich added. “In the old world when hard copy ruled, the end user — the consumer — would not be liable because the publisher was liable for publishing it.”

Now, however, there are few limits to how an end user can use digitally published content. And it’s not always clear where the line is between fair use and infringement.

Kalinich and others said that publishers walk the tightrope of trying to protect the original content owner while protecting the end user from unintentional intellectual property infringement.

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“End users need the appropriate legal rights to use copyrighted materials or they could potentially commit copyright or trademark infringement,” said Kalinich. “Typically, the IP rights are granted through a licensing agreement or ‘fair use exception’ to copyright violations. Fair use is a limitation and exception to the exclusive right granted by copyright law to the author of a creative work.”

The Role of Intent

In the past year, there have been two landmark copyright decisions in the online publishing realm that have media/technology experts buzzing.

One is Authors Guild Inc., et al. vs. Google Inc., a decision rendered in mid-November. The other is the Associated Press vs. Meltwater U.S. Holdings Inc., a decision reached last March.

In the Google case, book authors and several major book author associations challenged Google’s reproductions of books and “snippets” of millions of books on its website. The book authors claimed this did not constitute “fair use” and violated their copyright protection.

The decision by U.S. Circuit Court Judge Denny Chin in Manhattan — if it survives an announced appeal of the ruling — lets Google continue expanding the online library. Chin ruled that Google’s product helps readers find books they might not otherwise locate.

The institutions that have provided works for scanning of snippets include Harvard University, Oxford University, Stanford University and the New York Public Library.

A key element in Chin’s “fair use” decision was that Google does not receive any monetary gain from posting whole volumes or snippets of some 20 million books in its electronic library.

In the Meltwater case, New York District Court Judge Denise Cote ruled that online aggregator Meltwater infringed upon AP’s copyright protection by using original content that AP had “labored to create.”

Not long after Cote’s ruling, AP and Meltwater entered into an agreement for AP to produce and Meltwater to electronically distribute content in a joint venture.

 Joanne Richardson practice leader, U.S. media and entertainment, E&O, Hiscox USA.

Joanne Richardson
practice leader, U.S. media and entertainment, E&O,
Hiscox USA.

“It’s encouraging to see collaborations like the one between the Associated Press and Meltwater aggregating service as they try to work together, because clearly this is what the future looks like,” said Joanne Richardson, New York-based practice leader, U.S. media and entertainment, E&O at Hiscox USA.

“Companies that find ways to bring content and distribution together are really going to be the winners at the end of the day,” Richardson added. “I think it’s the way things are going to have to go. They need each other. It’s a win/win for everybody.”

Eric Seyfried, New York-based senior vice president at Marsh & McLennan Cos.’ FINPRO group, makes a distinction between online aggregators that are in business for monetary gain, like Meltwater, and online aggregators like Google Books, which exist to serve research and other scholarly purposes.

“In Judge Chin’s decision, he talks about Google providing significant public benefit,” said Seyfried. “Are they making available information that has been buried in the bowels of libraries, for example? In the Google case you have to look at the purpose and character of the use. Are they bringing potentially long-lost volumes to light for scholarship and research?”

Seyfried believed that Chin was “growing the pie” of books available.

Aon Risk Solutions’ Kalinich noted that Chin said he believed the authors involved would get more sales because Google was cataloguing their work, and that Google wasn’t making any money off the arrangement.

In the Meltwater case, Marsh’s Seyfried said, Meltwater used its proprietary technology to “scrape” the Internet for news stories and then processed the information into some sort of news digest for their subscribers.

“Is Google trying to further some level of scholarship and research, whereas Meltwater is looking to monetize content for its own benefit through selling subscriptions?” asked Seyfried. “It’s not some sort of academic or intellectual exercise, while Google is about building the brand rather than a subscription base.”

Louis Scimecca, Kansas City, Mo.-based senior vice president for AXIS PRO, which provides media and entertainment coverage, among other solutions, noted: “With the Internet and electronic communications flourishing and expanding, in a lot of cases the law hasn’t caught up with new technology. The technology comes and then the law follows.”

Scimecca said that the issue isn’t restricted to content aggregators. Any individual can find themselves in a legal tangle for using another party’s copyrighted material or trademarked digital matter without permission. “Generally right now, if a person or an entity is taking somebody’s else’s copyright material without permission or consent, that is a problem,” he said.

As in the Google case, Scimecca said, “fair use” might be a defense if material is used for educational, scholarly or teaching purposes.

Protecting the Business

In the realm of insuring risks at media/technology companies, Chad Milton, a partner at Kansas City, Mo.-based Media Risk Consultants LLC, said that as technology at media companies with innovative strategies change, these businesses threaten somebody else’s old business model.

“And the result more often than not leads to a copyright infringement claim,” said Milton. “The history of this kind of litigation is that it’s really about business practices rather than about individual bits of content. We’re not really talking about infringements in a writer’s product or work, we’re really talking about infringements in the way media companies do business.”

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It wasn’t often that anybody cared about copyright infringement when content was free, Milton added. “But now that so many online publishers are trying to find ways to monetize their content, it now conflicts with the business models of the online aggregators who want to use other people’s content without paying for it.”

This environment creates interesting risks for insurers because formerly the insurers were asked to insure individual bits of media content: individual songs, individual films, individual stories and individual broadcasts, Milton said.

“They’re now being put in the position of insuring business models, and it’s harder for insurers to be able to insure the innovators,” Milton said. “And I think they need to find a way to convince underwriters that this is a manageable risk. I know there’s some resistance on the carriers’ part about this.”

But Hiscox USA is not one of those underwriters. As long as a decade ago Hiscox was creating product to address the merger of media and technology.

“We were able to put a form together that addressed both, so there was no gap in coverage because media companies now had technology exposure and technology companies had media exposures,” said Hiscox’s Richardson. “Today, there’s a lot more combined forms of media, technology and data privacy.”

Richardson said Hiscox tends to look at things on an individual risk basis, which means they want to understand how these new technologies work and function and be able to sort out exactly what some of the hiccups for them might be along the way.

“We will need a lot more case law to develop in some of these areas before we’re able to ultimately and completely understand all the exposures,” she added.

Observed Marsh’s Seyfried: “The key to insuring a media company is to try to come up with a comprehensive professional liability program. The foundation of that program is based on media liability insurance and making sure that a robust program covers a variety of media perils.”

The next step is finding a market that has the appetite to take on the risk. The other piece of the coverage is some sort of technology offering.

“I can say I do not have one significant media client in the whole risk management space that does not buy some combination of network privacy coverage and/or technology products and services coverage,” Seyfried said.

Steve Yahn was a freelance writer based in New York. He had more than 40 years of financial reporting and editing experience. Comments can be directed to [email protected]
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Aviation Woes

Coping with Cancellations

Could a weather-related insurance solution be designed to help airlines cope with cancellation losses?
By: | April 23, 2014 • 4 min read
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Airlines typically can offset revenue losses for cancellations due to bad weather either by saving on fuel and salary costs or rerouting passengers on other flights, but this year’s revenue losses from the worst winter storm season in years might be too much for traditional measures.

At least one broker said the time may be right for airlines to consider crafting custom insurance programs to account for such devastating seasons.

For a good part of the country, including many parts of the Southeast, snow and ice storms have wreaked havoc on flight cancellations, with a mid-February storm being the worst of all. On Feb. 13, a snowstorm from Virginia to Maine caused airlines to scrub 7,561 U.S. flights, more than the 7,400 cancelled flights due to Hurricane Sandy, according to MasFlight, industry data tracker based in Bethesda, Md.

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Roughly 100,000 flights have been canceled since Dec. 1, MasFlight said.

Just United, alone, the world’s second-largest airline, reported that it had cancelled 22,500 flights in January and February, 2014, according to Bloomberg. The airline’s completed regional flights was 87.1 percent, which was “an extraordinarily low level,” and almost 9 percentage points below its mainline operations, it reported.

And another potentially heavy snowfall was forecast for last weekend, from California to New England.

The sheer amount of cancellations this winter are likely straining airlines’ bottom lines, said Katie Connell, a spokeswoman for Airlines for America, a trade group for major U.S. airline companies.

“The airline industry’s fixed costs are high, therefore the majority of operating costs will still be incurred by airlines, even for canceled flights,” Connell wrote in an email. “If a flight is canceled due to weather, the only significant cost that the airline avoids is fuel; otherwise, it must still pay ownership costs for aircraft and ground equipment, maintenance costs and overhead and most crew costs. Extended storms and other sources of irregular operations are clear reminders of the industry’s operational and financial vulnerability to factors outside its control.”

Bob Mann, an independent airline analyst and consultant who is principal of R.W. Mann & Co. Inc. in Port Washington, N.Y., said that two-thirds of costs — fuel and labor — are short-term variable costs, but that fixed charges are “unfortunately incurred.” Airlines just typically absorb those costs.

“I am not aware of any airline that has considered taking out business interruption insurance for weather-related disruptions; it is simply a part of the business,” Mann said.

Chuck Cederroth, managing director at Aon Risk Solutions’ aviation practice, said carriers would probably not want to insure airlines against cancellations because airlines have control over whether a flight will be canceled, particularly if they don’t want to risk being fined up to $27,500 for each passenger by the Federal Aviation Administration when passengers are stuck on a tarmac for hours.

“How could an insurance product work when the insured is the one who controls the trigger?” Cederroth asked. “I think it would be a product that insurance companies would probably have a hard time providing.”

But Brad Meinhardt, U.S. aviation practice leader, for Arthur J. Gallagher & Co., said now may be the best time for airlines — and insurance carriers — to think about crafting a specialized insurance program to cover fluke years like this one.

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“I would be stunned if this subject hasn’t made its way up into the C-suites of major and mid-sized airlines,” Meinhardt said. “When these events happen, people tend to look over their shoulder and ask if there is a solution for such events.”

Airlines often hedge losses from unknown variables such as varying fuel costs or interest rate fluctuations using derivatives, but those tools may not be enough for severe winters such as this year’s, he said. While products like business interruption insurance may not be used for airlines, they could look at weather-related insurance products that have very specific triggers.

For example, airlines could designate a period of time for such a “tough winter policy,” say from the period of November to March, in which they can manage cancellations due to 10 days of heavy snowfall, Meinhardt said. That amount could be designated their retention in such a policy, and anything in excess of the designated snowfall days could be a defined benefit that a carrier could pay if the policy is triggered. Possibly, the trigger would be inches of snowfall. “Custom solutions are the idea,” he said.

“Airlines are not likely buying any of these types of products now, but I think there’s probably some thinking along those lines right now as many might have to take losses as write-downs on their quarterly earnings and hope this doesn’t happen again,” he said. “There probably needs to be one airline making a trailblazing action on an insurance or derivative product — something that gets people talking about how to hedge against those losses in the future.”

Katie Kuehner-Hebert is a freelance writer based in California. She has more than two decades of journalism experience and expertise in financial writing. She can be reached at [email protected]
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Sponsored Content by Chubb

Electronic Waste Risks Piling Up

As new electronic devices replace older ones, electronic waste is piling up. Proper e-waste disposal poses complex environmental, regulatory and reputational challenges for risk managers.
By: | July 5, 2016 • 4 min read
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The latest electronic devices today may be obsolete by tomorrow. Outdated electronics pose a rapidly growing problem for risk managers. Telecommunications equipment, computers, printers, copiers, mobile devices and other electronics often contain toxic metals such as mercury and lead. Improper disposal of this electronic waste not only harms the environment, it can lead to heavy fines and reputation-damaging publicity.

Federal and state regulators are increasingly concerned about e-waste. Settlements in improper disposal cases have reached into the millions of dollars. Fines aren’t the only risk. Sensitive data inadvertently left on discarded equipment can lead to data breaches.

To avoid potentially serious claims and legal action, risk managers need to understand the risks of e-waste and to develop a strategy for recycling and disposal that complies with local, state and federal regulations.

The Risks Are Rising

E-waste has been piling up at a rate that’s two to three times faster than any other waste stream, according to U.S Environmental Protection Agency estimates. Any product that contains electronic circuitry can eventually become e-waste, and the range of products with embedded electronics grows every day. Because of the toxic materials involved, special care must be taken in disposing of unwanted equipment. Broken devices can leach hazardous materials into the ground and water, creating health risks on the site and neighboring properties.

Despite the environmental dangers, much of our outdated electronics still end up in landfills. Only about 40 percent of consumer electronics were recycled in 2013, according to the EPA. Yet for every million cellphones that are recycled, the EPA estimates that about 35,000 pounds of copper, 772 pounds of silver, 75 pounds of gold and 33 pounds of palladium can be recovered.

While consumers may bring unwanted electronics to local collection sites, corporations must comply with stringent guidelines. The waste must be disposed of properly using vendors with the requisite expertise, certifications and permits. The risk doesn’t end when e-waste is turned over to a disposal vendor. Liabilities for contamination can extend back from the disposal site to the company that discarded the equipment.

Reuse and Recycle

To cut down on e-waste, more companies are seeking to adapt older equipment for reuse. New products feature designs that make it easier to recycle materials and to remove heavy metals for reuse. These strategies conserve valuable resources, reduce the amount of waste and lessen the amount of new equipment that must be purchased.

Effective risk management should focus on minimizing waste, reusing and recycling electronics, managing disposal and complying with regulations at all levels.

For equipment that cannot be reused, companies should work with a disposal vendor that can make sure that their data is protected and that all the applicable environmental regulations are met. Vendors should present evidence of the required permits and certifications. Companies seeking disposal vendors may want to look for two voluntary certifications: the Responsible Recycling (R2) Standard, and the e-Stewards certification.

The U.S. EPA also provides guidance and technical support for firms seeking to implement best practices for e-waste. Under EPA rules for the disposal of items such as batteries, mercury-containing equipment and lamps, e-waste waste typically falls under the category of “universal waste.”

About half the states have enacted their own e-waste laws, and companies that do business in multiple states may have to comply with varying regulations that cover a wider list of materials. Some materials may require handling as hazardous waste according to federal, state and local requirements. U.S. businesses may also be subject to international treaties.

Developing E-Waste Strategies

Companies of all sizes and in all industries should implement e-waste strategies. Effective risk management should focus on minimizing waste, reusing and recycling electronics, managing disposal and complying with regulations at all levels. That’s a complex task that requires understanding which laws and treaties apply to a particular type of waste, keeping proper records and meeting permitting requirements. As part of their insurance program, companies may want to work with an insurer that offers auditing, training and other risk management services tailored for e-waste.

Insurance is an essential part of e-waste risk management. Premises pollution liability policies can provide coverage for environmental risks on a particular site, including remediation when necessary, as well as for exposures arising from transportation of e-waste and disposal at third-party sites. Companies may want to consider policies that provide coverage for their entire business operations, whether on their own premises or at third-party locations. Firms involved in e-waste management may want to consider contractor’s pollution liability coverage for environmental risks at project sites owned by other entities.

The growing challenges of managing e-waste are not only financial but also reputational. Companies that operate in a sustainable manner lower the risks of pollution and associated liabilities, avoid negative publicity stemming from missteps, while building reputations as responsible environmental stewards. Effective electronic waste management strategies help to protect the environment and the company.

This article is an annotated version of the new Chubb advisory, “Electronic Waste: Managing the Environmental and Regulatory Challenges.” To learn more about how to manage and prioritize e-waste risks, download the full advisory on the Chubb website.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Chubb. The editorial staff of Risk & Insurance had no role in its preparation.




With operations in 54 countries, Chubb provides commercial and personal property and casualty insurance, personal accident and supplemental health insurance, reinsurance and life insurance to a diverse group of clients.
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