Introduction

Intangible assets, including intellectual property (IP), have become the primary drivers of corporate value. The shift is dramatic: In 1975, the market value of S&P 500 companies consisted of 17% intangible and 83% tangible assets (i.e., property, equipment, inventory, and other physical assets). By 2025, those figures had effectively reversed, with intangible assets representing approximately 92% of market value and tangible assets accounting for just 8%. Indeed, IP held by some of the world’s largest companies reached a record value of $97.6 trillion, a 23% increase from 2024 and the highest since this metric was first tracked in 1996.
 
This concentration of value in intangible assets carries corresponding risk. Patents, trademarks, copyrights, and trade secrets are now among the most valuable assets a company holds, and disputes involving those assets can be extraordinarily expensive. According to the American Intellectual Property Law Association, a patent case with more than $25 million at risk results in an average spend exceeding $4 million in legal fees through trial. Trade secret damages averaged approximately $13 million between 2020 and 2025. Beyond litigation costs, a company that loses an IP dispute may face injunctions that prevent it from practicing key technologies or using critical brand assets.

Despite the value IP contributes to a company, many organizations continue to under-protect these assets from an insurance perspective. Companies that assume their existing policies will respond in the event of an IP enforcement or defense need are often mistaken. Most commercial general liability policies contain exclusions for patent infringement and trade secret misappropriation, leaving significant gaps in coverage for precisely the types of claims that can be most damaging. IP insurance (which refers to several distinct insurance products, including infringement defense coverage, enforcement coverage, and specialized policies designed to protect the value of IP assets) exists to address these gaps, yet adoption remains limited. One study found that only 38% of venture-backed U.S. startups carry IP insurance.

This article explores the role of IP insurance in the context of mergers and acquisitions (M&A), funding rounds, strategic partnerships, and overall portfolio valuation. For companies approaching key inflection points (whether a Series A, B, or C financing round, an acquisition, or a strategic partnership) IP insurance can serve as both a risk-mitigation tool and a market signal: It provides a mechanism to manage the financial exposure associated with IP disputes while demonstrating to investors, acquirers, and partners that the company takes its IP position seriously.

IP insurance use cases

M&A

Given the central role IP plays in corporate valuation, it is no surprise that IP assets are often among the most scrutinized components of an M&A transaction. For companies looking to position themselves for acquisition, demonstrating a well-managed IP portfolio (even a modest one) can materially affect how buyers perceive deal risk. IP insurance can help facilitate M&A transactions by providing an additional layer of protection against IP-related exposures and by reducing the diligence friction that can slow or complicate deals involving companies without comprehensive IP programs.

In a typical M&A transaction, the seller makes representations and warranties (R&Ws) regarding its assets. These R&Ws are formal statements of fact (essentially contractual promises) that a buyer relies on when evaluating whether to consummate a transaction. In the IP context, a seller might represent that it owns all of its IP free and clear, that no third party has asserted an infringement claim, and that, to the seller’s knowledge, its products do not infringe any third-party IP rights. Not all companies maintain comprehensive IP portfolios or conduct robust freedom-to-operate analyses. The absence of such documentation does not mean the company lacks valuable IP; it simply means the company may have difficulty making the broad, unqualified representations that sophisticated buyers typically expect.

To allocate the risk of a breach of seller R&Ws, the buyer often obtains R&W insurance. A buyer-side R&W policy generally responds when a covered representation proves to have been inaccurate, subject to the policy’s terms, exclusions, retentions, and underwriting requirements. This allows the buyer to seek recovery from the insurer rather than pursuing indemnification claims directly against the seller. However, buyer-side R&W insurance has important limitations in IP-intensive deals. Buyer-side R&W policies are underwritten based on the diligence conducted in connection with the transaction, and insurers may exclude or limit coverage for known IP risks, insufficiently diligenced IP matters, or risks that fall outside the scope of the representations as written. Additionally, buyer-side R&W insurance typically covers breaches of representations as of signing or closing and does not generally extend to new infringement claims that arise after the transaction closes based on post-closing activities. For companies with limited IP diligence history, these coverage limitations can create meaningful gaps in risk allocation.

This is where IP insurance can serve as a complementary tool. Depending on the policy structure, IP insurance may provide coverage for defense costs, damages, or settlement expenses arising from infringement claims, including, in some cases, claims involving risks that were not identified during pre-transaction diligence. Coverage varies significantly by insurer, policy form, jurisdiction, covered IP rights, and underwriting assumptions. Depending on the underwriting and policy terms, IP insurance may respond to certain infringement claims that were not identified during transaction diligence.

Unlike R&W insurance, which is tied to the accuracy of specific deal representations, IP insurance is typically structured to respond to defined IP-related events regardless of whether a representation was made about the underlying risk. The two products often address different exposures and can work together as part of a comprehensive transaction risk allocation strategy. For sellers, obtaining IP insurance before going to market can be a strategic consideration; it may signal to acquirers that the company has proactively assessed and managed its IP risk, which can support valuation discussions, reduce friction around escrow or indemnification terms, and help streamline deal timelines. In practice, a company preparing for sale should consider obtaining an IP insurance quote as part of its pre-transaction readiness process, alongside cleaning up its IP portfolio, confirming chain-of-title for key assets, and ensuring that employee and contractor invention assignment agreements are in place.

Funding rounds and debt financing

Even if a company is not pursuing an M&A exit in the near term, IP insurance can play a meaningful role in raising capital, whether through equity financing rounds or IP-backed debt. For a company raising a Series A, B, or C round, investors regularly evaluate whether its IP position can withstand competitive challenges. A well-documented IP portfolio paired with IP insurance communicates that the company has identified and taken steps to mitigate key risks, which may reduce investor concerns and contribute to more favorable term-sheet discussions. For companies seeking debt financing, IP insurance addresses a different challenge: Unlike tangible assets such as real estate or equipment, IP is inherently difficult for lenders to value and liquidate, which can make them reluctant to accept it as collateral.

In certain IP-backed lending transactions, IP insurance may help address lender concerns regarding enforcement costs and collateral impairment. Depending on the policy, coverage may address defense costs associated with claims that could diminish the collateral value of insured IP assets, or it may provide a backstop against certain valuation risks. Policy structures vary, and the scope of coverage available will depend on the insurer, the nature of the IP portfolio, and the specific risks being underwritten. Even the process of obtaining an IP insurance quote can be valuable for companies approaching a financing milestone, because it forces an early-stage assessment of the company’s IP strengths and vulnerabilities – issues that will inevitably surface during investor or lender diligence.

IP insurance can thus provide an additional measure of confidence to both equity investors and lenders, and it may allow companies to leverage their IP assets more effectively when seeking capital.

Portfolio valuation

IP insurance may positively influence how investors, lenders, and acquirers assess the risk associated with an IP portfolio, which can indirectly support valuation and transaction outcomes. Whether structured as IP defense insurance (which covers the cost of defending against infringement claims brought by third parties) or IP enforcement insurance (which funds the cost of enforcing a company’s own IP rights against infringers), these products enhance a company’s practical ability to protect and monetize its IP.

When a company can credibly demonstrate that it has the financial resources to enforce its rights or defend against challenges – backed by insurance – the perceived value and durability of its IP portfolio may increase. In the context of a financing round or partnership negotiation, a company that can show both a well-organized IP portfolio and insurance coverage for its key assets may present a lower risk profile than one that cannot, which can be a differentiating factor in competitive processes.

Next steps

For companies approaching a financing round, acquisition, or strategic partnership, the following steps can help determine whether and how to incorporate IP insurance into an overall risk strategy. 

First – Conduct an IP inventory. Compile a register listing all patents (issued and pending), trademark filings, material copyrights, and key trade secrets. Confirm chain-of-title documentation for each asset and identify those that are essential to core revenue streams and competitive differentiation (these are the assets most worth insuring). A limited-scope portfolio assessment by outside IP counsel can typically be completed in a matter of weeks and provides a foundation for both insurance applications and due diligence responses.

Second – Audit existing coverage for gaps. Review current insurance policies and determine what IP enforcement and defense mechanisms, if any, are already in place. Existing commercial general liability insurance, directors and officers insurance, or cyber insurance policies may offer some coverage. Determine whether affirmative IP coverage is needed to cover standard policy exclusions for patent infringement and trade secret misappropriation.

Third – Engage advisors early. Work with counsel and insurance professionals who can assess the company’s risk profile, recommend appropriate coverage levels, and translate the insurance into deal language that investors, acquirers, or lenders will recognize. The goal is to demonstrate a level of IP maturity proportionate to the company’s stage and the expectations of counterparties at its next inflection point.

Conclusion

Given the growing importance of IP in corporate valuation, companies should consider incorporating IP insurance into their overall risk management framework. IP insurance is not merely an enforcement and defense mechanism; it can also strengthen a company’s positioning in M&A transactions, enhance its credibility in equity and debt financing negotiations, and contribute to a more robust overall portfolio valuation. For companies at key inflection points, IP insurance offers a practical risk-transfer mechanism to demonstrate IP readiness and reduce counterparty risk when it matters most.

Client Alert 2026-125