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.