What is Patent Insurance?

Introduction

For those working in an industry where inventions are commonly patented, patent trolls tend to be a problem. Patent trolls are aggregators of patented inventions which are broadly worded and not generally in use. These inventions mostly exist as a vehicle to sue and discredit other businesses and hamper innovation. And unfortunately, getting a patent is only the first step towards defending against these aggressors.

Simply being granted a patent will not guarantee you your rights. A patent allows you to retaliate against infringement, but it does not prevent this infringement from happening in the first place. You can deal with such third-party infringement by filing a suit before Court. However, patent litigation is both very expensive and time-consuming. Patent infringement litigation can cost up to $3 million or more in the USA, for example. Plus, it takes 2 to 3 years to conclude patent litigation. In other countries like India, the proceedings are likely to take even longer.

The cost of conducting a patent infringement litigation itself can bleed a company dry. Such suits prevent you from exercising the exclusive right to sell the product or process invented. This in turn reduces your company’s market share and tarnishes its reputation. The valuable time which could have been spent developing the product or process further gets wasted in such court matters.

What Is Patent Insurance?

Patent insurance is a form of intellectual property insurance. But patent insurance covers and deals only with patents and no other forms of IP rights such as copyright, trademark, design and so on. Patent insurance allows an organization or company to cover a chunk of the money spent on taking third parties to the court for infringing upon your product or process patent.

There are typically two types of patent insurance coverage available for you: defense coverage and offensive coverage.

The most popular form of intellectual property insurance coverage is “defense” coverage, which covers the costs of defense of an intellectual property infringement suit and any resulting settlements or judgments. In patent-heavy industries, this defence coverage reduces risks to a considerable extent. Having such insurance may deter the patent trolls, whose goals are usually to have the victim agree to a settlement in desperation. The defense insurance enables small companies to cover costs.

The second type of coverage is offensive coverage. Smaller or medium-sized companies may opt in to this type of insurance. When bigger companies with more capital infringe on your patent, the cost of taking them to the court can be reimbursed from such offensive patent insurance. Without such insurance, the larger competitor may be more likely to infringe on the smaller company’s intellectual property rights with the expectation that the small company may not be able to afford to defend its rights.

How Much Does It Cost To Get Patent Insurance?

Like any insurance policy, you have to pay a premium for the patent insurance. Also note that compared to other business insurance policies patent insurance tends to cost more. An offensive policy will usually pay around 75% of the legal costs. Companies generally pay 10 to 20% of the cost and may have to share the risk of taking a third party to the court. A defensive policy usually costs 2 to 5 % of your coverage, but the exact amount varies between policies and insurance providers. This policy will change a portion of the coverage provided.

These insurance premiums may initially may quite expensive and impractical. However, in comparison to the actual cost of a patent infringement suit, it is always advisable to spend money to get the insurance rather than litigation. The latter is likely to lead your company to bankruptcy. The amount of money you need to spend on paying the litigation liability will always be higher than the cost of paying a premium for the patent insurance.

When Should You Invest In Patent Insurance?

A patent is not fool-proof protection, it merely grants a patent owner the right to sue intruders. If the patent holder cannot monitor infringement, if he cannot identify the infringer, or if the enforcement is too costly, the patent is undermined.

Insurers mainly provide two types of coverage (a) cost only i.e. litigation cost only and (b) cost and damages. The damages are less common compared to litigation costs, but they tend to be much steeper. Bigger companies have a dedicated team of attorneys fighting for them, they often have a budget set aside for patent litigation and associated patent insurances.

Smaller parties, on the other hand, dread such litigation. They have more limited budgets and they need to carefully weigh the risks of infringement and the costs of patent insurance to decide what the best option would be on a case to case basis. As pre-existing commercial activity, whether known or unknown, is generally excluded from coverage, it is therefore important to secure coverage for intellectual property at the time of grant of patent. The existing problems of a company do not get covered hence it is important that the patent – holders are aware of these rights and apply for the insurance well in advance.

Author: Dipanwita Chakraborty, Legal Trainee at PA Legal.

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