Intellectual property insurance, sometimes known as patent insurance, patent enforcement insurance, patent defense insurance, and the like, is essential for any company in the technology space.
Technology companies, manufacturing companies, and any other company that deals in the “knowledge economy” relies on intellectual property. In fact, IP-intensive industries accounted for $6.6 trillion of the US GDP.
Losing your intellectual property means losing your competitive advantage – and losing your investment in your company. You invested in research and development, engineering, marketing, distribution, advertising, to bring your product to market, and this investment can be wiped out when someone rides on your coattails and copies what you have.
Intellectual Property Litigation Costs and Risks
IP-related litigation has been a devastating factor for many businesses. Not only does a typical patent lawsuit cost between $700,000 to $4,000,000, it ties up your company for years.
Patent litigation has been a consistent part of technology businesses since the Wright Brothers and even before.
Patent litigation can occur whether or not you are in the right. Anyone with a patent can sue you, so long as they allege that you infringe their patent. It has become big business for patent trolls to light up litigation only to settle for less than the cost to defend themselves. A typical lawsuit might allege that you infringe someone’s patent, but they would be willing to settle the lawsuit and make it go away for $500,000, for example. From a business standpoint, it is simpler and easier to settle than to pay up to $4,000,000 to challenge the patent.
The term “patent troll” was coined by Intel to put a black mark on anyone who enforced their patents against them.
But there is a robust secondary patent market for patents. Small companies can liquidate their patents, get some cash, and let “patent assertion entities” go forward with litigation. The Patent Assertion Entities get labeled a “patent troll,” but they are vital for small companies to manage their IP. Without Patent Assertion Entities, small businesses would not be able to recoup their patent costs.
However, Patent Assertion Entities are likely to try to assert their newly-acquired patents in every way they can. This means increased litigation (or offers to license/settle), which can affect small businesses especially.
It should be noted that patents are usually asserted against the smaller players first, then larger companies. While it may be true that a big infringer might be a bigger payoff, a patent enforcement campaign typically starts at the bottom. They seek to get a few “wins,” collect smaller amounts of money, and use that money to finance the bigger and bigger lawsuits as they move up the food chain.
Even though you might be the smallest player in the field, you are not immune to a patent lawsuit. In fact, you might be the first one to suffer a patent infringement lawsuit.
What Are The Types of Intellectual Property Insurance?
Intellectual property insurance comes in many flavors. There are numerous companies offering IP insurance, and each one has a different philosophy about which risks are important.
IP Defense Insurance.
IP defense insurance covers inbound litigation – somebody sues you. Defense insurance typically covers the costs of litigation (attorney’s fees, expert fees, court costs) as well as settlement costs. Settlement costs may be the money you pay if you lose litigation – or the money you pay to settle the cost, even if you did nothing wrong.
IP defense insurance is best for any companies who have revenues between $500,000 and $1B.
If you license your technologies to others, you may be required to have patent defense insurance to indemnify your licensee. In other words, if your licensee gets sued, patent defense insurance will cover your licensee’s lawsuit regarding your patent.
IP Enforcement Insurance.
IP enforcement insurance can be called IP abatement insurance, IP pursuit insurance, patent abatement insurance, or patent pursuit insurance.
Enforcement insurance allows you to sue someone else who infringes or copies your IP. Enforcement insurance pays your attorney’s fees, litigation costs, and anything related to your lawsuit.
Many companies give up on their patents because they don’t think they will ever be able to enforce their patents in court. But IP enforcement insurance gives them all the resources they need so nobody will be able to copy or steal their IP.
If you license your technologies to others, you also want to have IP enforcement insurance. With the insurance, you can enforce your IP against non-licensed infringers. This makes your license agreements much more valuable to a licensee, since they are not responsible for all the litigation. This means you can charge more for your license than if you did not have the enforcement insurance.
What Happens If I Don’t Have IP Insurance?
Without insurance coverage, you have several options, none of which are good:
- abandon your intellectual property rights
- settle outside of court
- pay a royalty – even if you don’t infringe
- enter into a licensing agreement, which is often done in the case of financial weakness
- rely on Commercial General Liability Insurance (which often specifically excludes IP-related coverage)
- use reserve capital to fight a lawsuit
- countersue the other party
Every one of these options is expensive. With IP insurance, you shift the risk of these costs to an insurance company.
Enforcing Your IP through Insurance
Most companies know they have intellectual property, but they wonder how they can enforce their IP if it was copied or stolen.
What would you do if a competitor started making your patented product? The cost of patent litigation is staggeringly high – a full-fledged lawsuit is $5,000,000 or more.
Patent Enforcement Insurance pays for your patent enforcement. You get pre-paid legal fees and costs, and you can enforce your patents on an insurance policy, not out of pocket.