How Much Patent Insurance Do I Need?
Your need for patent insurance changes as you grow from a pure idea to a full-fledged company selling patented products and services.
Independent inventors or ‘hobbyist inventors’ create inventions with a goal to monetize the invention. Monetization is typically through licensing to a manufacturer, or through sales of your product/service.
Independent inventors typically need enough patent insurance to enforce their non-disclosure agreements as they begin discussions with licensees, or as they begin the process of developing their product for the market.
We typically recommend $250,000 or $500,000 policies for inventors at this stage. We often recommend a licensee endorsement to cover any licenses that you may get. These policies typically cost $250-500/mo.
These smaller policies are designed to cover the costs of filing an infringement lawsuit and negotiating a settlement. Policies of this size will not cover the cost of an extended patent lawsuit, but are designed to be enough so that you will have a meaningful settlement negotiation with an infringer.
Inventor Insurance for Online Retailers
Online retailers who sell their patented products have two big risks. The first risk is another company (typically overseas) that floods the market with your patented product. The second risk is that you might be infringing on someone else’s patent.
If your patent is infringed by an overseas company, they can pop up on Amazon or other online platforms very quickly, so it is important to stomp them down immediately. Amazon has a take-down procedure for patents and trademarks, and this can be very effective (but of course limited to the Amazon marketplace).
The second risk – the risk of someone suing you – is also very high. Patent enforcement litigation allows the patent holder to go back six years for collecting damages. In many cases, patent owners will sit on the sidelines for several years as you enjoy your sales, only to come out of the woodwork when there is enough sales to justify a lawsuit on their end.
We recommend at least $500,000 of insurance with a combined enforcement/defense for companies who generate up to $500,000/year of online sales. These policies might cost $750-1500/mo. For companies with up to $2M sales, we recommend at least $1M but preferably $2M of combined enforcement/defense insurance. Companies at this stage should expect to pay $1200-2500/mo for IP insurance.
Early Stage Companies With Investors
An early stage company with early seed or angel investors will typically need more insurance coverage.
These companies are laying the groundwork for widespread sales by making prototypes, testing early sales with customers, and developing their go-to-market strategies.
Our recommendation for early stage companies is a combination of enforcement and defense insurance. We typically recommend at least $500,000 but often $1,000,000 coverage, and these policies can cost $1000-2000/mo.
Investors love patent insurance. It shows two big differences between your company (with patent insurance) and other companies (without patent insurance). The first difference is that you are thinking strategically about your intellectual property. It is not just a shiny plaque on the wall – it is a business weapon that you plan on deploying. The second difference is that the inventor’s money is protected. If there is an infringement action, you will not be spending the inventor’s money with attorneys – you will be building your company.
Many early stage companies have an indemnification risk. This happens when you sell products to a very large company or have a large company distribute/sell your product, such as when you have a larger strategic partner. The larger company might attract an inbound lawsuit from a patent owner, and you, the status company, must defend your strategic partner. This happens more often than you think.
Venture Capital/Revenue Generating Company
When a company reaches meaningful revenue and/or are venture-backed, the founders (and investors) have a lot riding on the company, and the risk of a patent lawsuit can be devastating. As companies become successful, they become targets for inbound litigation (other people suing you or your customer). They also become bigger targets for being ripped off or copied.
Once your company starts having significant revenue, you have proven that your product meets a real need in the market. This attracts copiers, including small companies (such as overseas manufacturers) who flood the market with knock-offs, as well as industry giants that freely copy inventions and only pay royalties when they are sued (“efficient infringement“).
When you company is at this stage, millions of dollars and years of your life have been invested – and all of that can be erased with a long, drawn-out, expensive IP litigation.
We typically recommend at least $2,000,000 of combined enforcement/defense coverage for early venture-funded companies with revenue of $5M, and we recommend up to $5M coverage as the company’s revenue really start to ramp up and they attract attention. These policies are still very affordable, with a $2M policy ranging from $2000-4000/mo.