The economics of patent litigation sometimes favor large companies or patent trolls rather than the party with the stronger legal position. Existing Patent Insurance Policies are designed to level the playing field, allowing small and medium sized companies to assert their rights based on legal merit. And new forms of Patent Insurance may be on the horizon that will directly confront both patent trolls and some large companies that are abusing their patent portfolios.
Alta is a Patent Insurance and Intellectual Property Insurance expert. As our client, we will explain the various ways to get coverage, guide you through the intensive underwriting process to get proposals from multiple companies, and then help you to negotiate the best coverage provisions and pricing. Alta also offers Intellectual Property Insurance, including Copyright Infringement Insurance, Trademark Insurance, and Trade Secret Misappropriation Insurance.
E&O Insurance, Content and Media Liability Insurance, and Cyber Liability Insurance are also available.
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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). Coinsurance of between 2.5% and 20% is also typical (with 2.5% coinsurance, the insurance company reimburses 97.5% of legal expenses and damages after the retention is paid).
Types of Patent Insurance
Defensive Patent Insurance – Funds defensive efforts against allegations of patent infringement and pays damages. Offensive Patent Insurance – Also called Abatement Insurance, Enforcement Insurance or a Pursuit Policy, it funds enforcement actions against those who infringe against a firm’s intellectual property. 1st Party Patent Insurance – Also called Multi-Peril Insurance, it pays for losses resulting from the invalidation of one’s patent. This can include lost royalty revenue or sunk costs that were incurred in prosecuting the patent. There is also coverage for losses in revenue that would result from a preliminary injunction that barred you from selling covered products while litigation is ongoing. High-Hazard Patent Insurance – This is something new we are thinking about. It would insure against high-hazard situations involving abusive patent assertion techniques. If you have been declined by an insurance company for patent insurance, or subject to particularly onerous exclusions or retentions in relation to such an existing hazard, there is a chance we can help. The product can be configured to combat specific patent assertions that are already underway. If litigation is afoot, specific IP assets are being weaponized, or other elements of a campaign are in place, you may wish to have your counsel contact us directly. Non-Traditional Patent Insurance – Several other products are being considered which would handle risks not addressed in the present market. We can’t discuss them at this point but stay tuned.
Patent Insurance – What it Covers
As we indicated, the economics of patent litigation often favor the wrong party. Patent Insurance policies help to level the playing field.
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. Having an offensive policy can act as an effective deterrent.
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.
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. The others will address perils that have never been addressed by the market.
Patent Insurance Application Process
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. 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.
We proceed to the second phase if you are still interested in procuring the coverage and the insurance company(s) think the risk is likely to be insurable. In the second phase, you complete a very detailed application. And as we indicated, you may need to pay a fee to the underwriter. After several weeks, a firm decision on price and availability of coverage is typically made. This may involve negotiation and the further exchange of information.
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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