Patent Liability Defense Insurance

One of the most traumatic and potentially financially crippling events for a company is when it is accused of patent infringement.

There are between 20,000 and 30,000 patent infringement disputes every year in the United States. Most of these disputes are resolved prior to formal litigation usually through negotiated license agreements in which the accused company pays. Many of these disputes are settled in this way because the accused company does not have the capital available to spend in litigation even if they believe their product is not infringing. The industry pejorative term for this scenario is "a holdup". Of course in just as many cases the accused company's product does infringe but almost always the company was unaware of the infringement.

About 10% of patent disputes end up in litigation. There were 3,504 patent infringement suits filed in 2010. The average litigation expense per side (not including damage awards) is $3.1 million when between $1 million and $25 million of value is at risk. The median damage award over the past 15 years has been $5.2 million.

One way for a company to protect itself is by purchasing patent liability defense insurance. A defense policy can provide up to $10 million of liability coverage. The cost (premium) of the coverage runs between 1-2% of the limit purchased. For example, a $1 million limit at 1% would be $10,000.

  

Insuring Your Intangible Assets

A commonly overlooked risk management area for most companies is their intellectual property rights (IPR). Companies purchase insurance for their tangible assets such as buildings and equipment, but what about a company's intangible assets-the right to protect their creative efforts and the freedom to sell their product in the marketplace? According to some reports intellectual property can be a company's most important asset, accounting for as much as 80% of a company's valuation. Yet it is rare for companies to address IPR as a risk management issue. Virtually all general liability insurance policies now exclude coverage for intellectual property.

Fortunately, another kind of insurance coverage is available-IP insurance. There are four types of IP insurance that can help companies better manage risks associated with intellectual property. They are:

• Defensive IP insurance: Provides protection in the event your product is accused of patent, trademark or copyright infringement.
• Enforcement (Abatement) IP insurance: Provides capital in the event another entity is infringing on your intellectual property rights.
• First Party Riders: Provides coverage to pay you for loss of income, design around costs, etc. in the event your product is found to be infringing. 
• Representations and Warranty insurance: Provides satisfaction for indemnity agreements in contracts such as supplier agreements.