Leveling the Playing Field for Patents

Unsaid in all of the discussion about patents: how are we going to pay for enforcement?

It may be all well and good to have the right patents at the right time, but you are powerless to do anything unless you have an enormous bankroll.

Small Companies Have the Most to Lose

In many ways, patent litigation is a giant financial game of “chicken.”

Both sides try to act as if they will win, but both are doing the financial math.  Litigation is brutally expensive, and the party with the most money in the bank can always wear down the other.

If a stronger party senses that their opponent does not have the financial resources to fight, they can drag out litigation and make it unbearably expensive for their weaker opponent.

The first party to blink is the loser.

In this scenario, the company with the most money almost always wins.

Startup companies have the biggest risk. They are the most likely target for patent trolls, and they have the least amount of capital to defend their position. (Note that most patent trolls start by suing the smallest players in the field. This gets them a couple “wins” and helps them build a bankroll to sue the bigger players.)

How do we deal with this risk?

The same way we deal with every other business risk, like product liability, director’s and officer’s liability, etc.: Insurance.

Intellectual property insurance is the way we level the playing field.

IP insurance has been around for 25+ years, but virtually nobody knows about it.

Insurance policies pay all your attorney’s fees, settlement costs, and out-of-pocket expenses for enforcing your patents against someone else, or when someone sues you (or your customer). Insurance also pays all your defense costs (and settlement payments) if you are sued by a patent troll or a competitor.

These policies are completely game-changing for smaller, high growth companies, and they make it possible for even the smallest player to put their hard-earned patents to use in a business context.

If you are a founder or investor, make sure your company has IP insurance.

Litigation can cripple a small company, so it always makes sense to insure the risk.

You wouldn’t ship a consumer product without product liability insurance, so why go without patent insurance?

Most angel investors (and founders) get Director’s and Officer’s insurance – because it protects them if there is a lawsuit because of their actions.

However, you are 22 TIMES more likely to have patent lawsuit than a claim on your D&O insurance.

IP insurance just makes sense.