Why do I need intellectual property insurance?
You build things, write code, create a product or offer a service that could be infringing on existing intellectual property rights. Depending on the type of company, your valuation may even go hand-in-hand with your IP.
Sure, you’ve done your research, but you’re in a innovative and competitive space. The risk of infringing on IP seems like it’s always there. The patent litigation trends back that up: the US has seen a 200% increase in the frequency of these types of suits over the last 30 years. Between real innovators and patent trolls, there are countless unknowns who have the power and motivation to disrupt your business.
A judgment against you in one of these cases could lead to you paying your competitor for their lost profit, signing unfavorable licensing agreements or forfeiting your rights to sell the product altogether. There will be PR and investor relations costs that are difficult to predict. And we haven’t even begun to talk about legal fees, administrative costs and the years it could take to settle the case. Even if the complaint is borderline frivolous, you’ll still have to pay a lawyer to respond and defend you.
Patent lawsuits average between $1.6 million and $2.8 million in total costs, depending on how far the trial goes. It should come as no surprise, then, that intellectual property insurance (or patent insurance) has stepped in to address this risk for businesses both big and small.
What is it?
Intellectual property insurance provides capital for defense costs and legal fees in the event that you are sued for IP infringement. The policy would also pay as much of any judgment or settlement made against you as its coverage and limits would allow.
Some policies even allow you to go on the offensive with a coverage known as “abatement.” Instead of just providing defense costs when you are named as a defendant in a lawsuit, this lets you work with underwriters to actually enforce your own patents. With the carrier’s permission, you could sue the infringer and then be reimbursed for your legal costs.
Many carriers take a proactive approach and help their insureds as much as possible. These carriers will (for a fee) conduct a full analysis of your IP risk relative to your industry and provide you a report prior to issuing their insurance quote. This serves the dual purpose of letting the underwriter do his or her job while also ensuring that the carrier recruits well-informed policyholders who know how to operate safely in their space.
Intellectual property insurance is an outstanding deterrent of patent trolls. Some of these companies will amass huge IP portfolios and then file as many lawsuits as possible in the hopes that a few will have merit. Our advice: speak softly and carry a big stick. If a troll sues you in hopes that you’ll settle to avoid a headache, give them the headache instead. Hit back with a carrier at your side and see how far they’re willing to take this dispute when you’re sitting on millions of dollars of legal defense funds.
IP litigation is one of the most common claims out there and is far more likely to occur than even D&O claims. In 2015 alone, there were over 5,500 patent actions in the US courts, up 15% from the year before. The number would be even higher if we included out-of-court settlements. IP holders found some relief in 2016 with a marked decline in actions being filed but it’s important to remain vigilant: we’re still seeing over twice as many actions filed each year compared to 20 years ago.
These numbers mean that businesses absolutely need to have a healthy respect for this risk and do whatever they can to manage it. Including intellectual property insurance in a wholistic risk management program is an important piece of that.
How do I protect my company and myself?
Want to read more on the subject? Check out our blog posts on intellectual property insurance.
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