How actively using Intellectual Property insurance can help small players negotiate with giant companies.
Intellectual property insurance – patent insurance specifically – comes in two main categories: enforcement policies and defense policies. In this scenario, we are going to discuss enforcement policies where a company has a patent portfolio and is engaging a larger company as a supplier to the larger company, or in a joint venture/partnership or distribution agreement.
Big companies engage smaller companies, especially startup companies, because smaller companies are trying new ideas and bringing them to market. Most big companies do limited amount of innovation internally, but do a large amount through acquisition.
Any time a small company begins a relationship with a bigger company, there are risks that the big company might milk the good ideas from the small company – then walk away.
For example, consider a supplier to several larger companies who are bidding on a large government contract. The supplier is a small company, and they have agreements in place to supply patented components to each of the larger companies who are the prime contractors.
What happens if the prime contractor sources the components from a different supplier and violates the smaller company’s patents?
In another scenario, what happens if you sign a Non-Disclosure Agreement with a big company, but they wind up selling a product using your patented ideas?
Early Intervention Using Patent Insurance
A small company always appears to be weak in the eyes of larger companies. Larger companies can ‘sweat out’ the smaller company by endlessly delaying contracts, payments, or just getting started on a project. If their smaller partners run into financial trouble, the larger company can buy the smaller company for pennies on the dollar.
This is especially prevalent in technology, medical devices, government contracting scenarios.
Early Intervention is a service offered by patent insurance companies that sends a carefully-worded letter to the larger company notifying them of the smaller company’s patents – and the fact that the patents are insured.
Patent insurance means that the smaller company has all the resources they need to enforce the patents against the larger company – if the larger company fails to honor their contracts or agreements.
Large companies often follow a policy of “efficient infringement,” where they willfully violate a smaller company’s patents and wait for the small company to sue. If the small company actually sues, the large company will take note, settle, and pay a license fee. However, it costs millions for a patent lawsuit, and many small companies do not have those resources.
The Early Intervention service is one of the free services that are bundled with IP insurance. It works like this:
The insurance company sends a letter to the legal department of another company. The letter informs the larger company of the smaller company’s patents – and that the patents are insured. This means that that the smaller company has all the resources it needs to assert their patents.
Early Intervention is a nicely-worded warning to take the smaller company seriously. It comes from the insurance company, rather than from the smaller company’s attorney. Attorney-written letters only show that the smaller company is worried about being bullied – and kind of implies that they are scared.
A letter from the insurance company shows that the smaller company has the financial backing to fight.
In many cases, these Early Intervention letters bring the parties to the table quickly and efficiently. Rather than the big company using their normal tactics of “sweating out” the smaller company, the larger company realizes that their normal tactics will not work. So, they have more respect for the smaller company and negotiate in better faith than before.
There are countless stories of small companies whose patents were infringed but they did not have the resources to assert them. Having IP insurance will certainly give you the resources to assert your patents, but Early Intervention services is one of those often-unused services that can be strategically deployed.