Patent Insurance is one of the most heavily underwritten forms of insurance. And the number of entities
selling coverage is quite small.
The application process for Patent Insurance is unique and consists of two phases. In the first phase, an
abbreviated application is completed. Within about a week, the underwriters indicate whether they think the
risk is likely to be insurable, and what the price range is likely to be. They also provide a quote for the
underwriting fee associated with the second phase.
The client proceeds to the second phase if it is interested in procuring the coverage. In the second phase,
the client completes a very detailed application. After several weeks, a firm decision on price and availability
of coverage is made. This often involves quite a bit of negotiation, and the exchange of further information.
Many aspects of the coverage are negotiable, but may require additional underwriting information or higher
premiums. Negotiation can be a very important part of the process for the client. In some instances, the
underwriting fee must be paid before commencing the second phase of underwriting. In other instances,
the fee need only be paid if a policy is purchased.
Price of Patent Insurance
We have seen defensive patent insurance rates range between 1.5% and 5% of the limit for a
smaller company. So between $15,000 and $50,000 per million of coverage. Typically there is a
minimum retention (like a deductible) of 2% of the limit of insurance ($20,000 per million), and
coinsurance of at least 7.5% (the insurance company reimburses 92.5% of legal expenses and
damages).
What is Covered With a Patent Insurance Policy
The economics of patent litigation sometimes favor large companies or patent trolls rather than the
party with a stronger legal position. This is what existing patent insurance policies are designed to
prevent. These policies help to level the playing field, allowing small and medium sized companies
to assert their rights based on legal merit.
The policies accomplish this by funding meritorious litigation. When a claim is presented, the policy
requires some sort of determination that the policyholder is likely to prevail in the litigation. The
defensive policy thus protects the insured against patent trolls and competitors who bring weak claims
knowing that the insured does not have the funds to litigate. The policy also provides leverage
when a competitor or patent troll brings a weak case in order to attract a nuisance settlement. This
can be extremely valuable because a high proportion of today's patent assertions are based on
weak allegations, where the plaintiff is simply taking advantage of perverse patent litigation economics.
The case is similar for the offensive policies. For example, sometimes a cash strapped inventor or a
small company may attempt to find partners to produce the patented invention. Sometimes these
potential partners decide to infringe the patent, believing the inventor will not have the resources
to litigate. The offensive policy does not fill as big of a need as the defensive policy, because there is
an alternative option available in attempting to fund litigation via a contingency agreement with
an attorney. But these policies can still be valuable. Having an offensive policy can act as an effective
deterrent. Additionally, there is no guarantee that an infringed inventor will be able to find a qualified
IP attorney to litigate on a contingency basis.
The standard patent insurance products do not cover infringement situations that the client knew
about before a policy is issued. For this and other reasons, it is important to insure as early as possible.
Some Common Defensive Coverage Provisions
Some Common Offensive Coverage Provisions
Some Common 1st Party Coverage Provisions
Typically patent insurance covers specific products and/or specific IP. A brand new variant is
said to now be available which covers the entire firm rather than specific products or IP. However,
it is said to only be available in conjunction with a defensive patent aggregation scheme where the
firm effectively must purchase licenses to a broad range of patents.
As we stated we are also working on new forms of insurance. Some will handle instances where
traditional products think that specific hazards are too high. And others will address perils that
have never been addressed by the market.
Purchasing Patent Insurance
If you are interested in being helped by an expert, who will explain your options, help you with the
demanding underwriting process, get you multiple quotes to compare, and aid you in negotiating
the best pricing and coverage provisions, don't look any further. At Alta we are focused on this line
of business. Contact Us today.
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