Technology, Risk, and the iPad

During a recent visit to my daughter's college, I listened to a speech by the school's vice president of technology. While discussing the varied technological benefits the school offers, she said something that resonated with -- and even shocked -- me: "The iPad will change the world."

This seemed to be an obvious overstatement. However, then I reflected on the history of technology and the printed word. A sampling:

  • 1900 B.C. - The earliest known writing system, cuneiform script, is created.
  • 1700 A.D. - Erasable slates are developed.
  • 1888 A.D. - A paper mill employee creates the first legal pad (unsure as to whether this is actually an advance).
  • 1993 A.D. - The Apple Message Pad, which can almost recognize handwriting, arrives.
  • 2010 A.D. - The iPad is here.

Having given it some thought and recognizing that while the iPad won't end war or resolve global warming, it very well may fundamentally change the way we receive, share, and safeguard information.

Let's face it: Libraries are all but obsolete. When is the last time you told your kid to check the encyclopedia? Do you even go to the video store anymore? Do you read the daily paper? Ok, I do read the paper.

The iPad is the next step in the data evolution. The speed of this next step will depend on:

1) Content suppliers' willingness to invest in and alter the nature of their content.

2) Manufacturers' willingness to price it for the masses.

3) Advertisers' vision that the platform will get their message out the most efficiently.

4) Businesses adopting and supporting it. (There is no simple formula here).

Although I continue to fold my daily paper and carry it in my bag, I recognize that there are fewer people folding...and more clicking/touching for their news, information, and work. Other pads/tablets failed because they were PC extensions. The iPhone showed what a true touch environment can be. Stand-alone functionality is the reason the iPad is so fundamentally unique and potentially risky.

When discussing the iPad, David Wadmore, editorial consultant with News International, said, "This will be a revolutionary device, not for any single reason but just for the shift in paradigm to a true 'pad' experience that this will provide."

I agree. Wadmore identified three stages for individuals and businesses: 1) I want one; 2) What is it, really?; and 3) I can't live without it.

He predicts that sales will be hot as the early adopters satisfy the "I want one" need. Then they'll dip as people try to assimilate "what the iPad really is" ..... just a cool toy or a shift change in computing? Then the growth will be constant and widespread as the iPad becomes the chosen device to bridge work/home environments.

Steve Purdham, CEO of We7, believes this will lead to a fundamental shift in the way the written media operates. Old school brick-and-mortar publishers, content providers, and so on will need to reinvent themselves to ride the hurtling wave of technology. The iPad will drive pay-per-use subscription services. The distributing licenses will be the publishing of the future. No longer will we purchase physical text books. Rather, the content will be used on the iPad -- or Nook or Kindle -- under a license. The same type of impact may develop throughout the business world.

Risk and insurance implications may arise as companies are forced to shift traditional roles and enter this more ethereal cyber world. Insurers and brokers should be cognizant of their insureds' evolving exposures and changing insurance needs.

A traditional insurance package could leave broad gaps in the protection afforded an entity if it fails to consider changes in technology, distribution, use and entrustment of information, and risk. For instance, an insured could face a claim for copyright or patent infringement for the use of an unlicensed item. Generally, the remedies a plaintiff may seek for such a copyright infringement are:

  • Injunctions.
  • Impoundment and destruction of infringing products (17 USC 503, a-b).
  • Damages based on the extent to which the market value of the copyrighted work is impaired. This is generally measured by plaintiff's lost profits or a reasonable royalty. The plaintiff has the initial burden to show lost revenue, after which the burden shifts to defendant to show that the loss would have occurred even absent infringement.
  • Additional profits of the infringer can be added to actual damages; however, no double recovery is allowed.
  • Statutory damages -- discretionary amounts that range from $750 to $30,000 per infringement. If willful, then up to $150,000 per infringement. If innocent, then this amount can be reduced to $200 per infringement.
  • Attorneys' fees (discretionary).
  • Customs seizures.

As is evident from this broad range of available remedies, defending against a copyright or patent infringement claim is no small task. It carries enterprise risk cost implications. Therefore, it is critical for an entity to appreciate its risks and insurance options before facing such a claim.

Yet another new business exposure arises not from improperly using information, but from losing it. For instance, if an iPad is lost, stolen, or hacked (and it contains or had access to customers' personal, medical, and/or financial information) then the risk, and the expense, becomes real. Such a "breach" event will trigger the need for the owner of the lost or compromised data to comply with various new state and federal data breach notification laws.

If a large amount of data is compromised or stolen, then conforming with the various notification and e-discovery laws can be a huge, expensive task -- one that is usually not covered by traditional E&O, PL, CGL, or D&O policies. A full analysis of, and solution for, the insurance needs of a 21st century company will result in the proper coverage being in place when such a data breach event occurs. Statistically, it's more a question of when, not if.

The sweeping impact of new technologies such as the iPad should prompt insurance professionals to consider the different exposures insureds face as they adopt new technologies. It is important for such professionals to conduct a thorough analysis of an entities' risks and insurance needs to completely asses the overall protections an insured requires.

So is the iPad a world changer? A risk changer? Indeed.

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