This is interesting. Does BIPH have insurance to defend their $1500(?) patents? Note the insurer checks the patents first to make sure they can be defended.
PATENT INSURANCE, IS IT WORTH IT?
© 2000, 2001, 2002 Bruce E. Burdick
Patents are the crown jewels of many companies, but they can land you in court.
They protect the technology that provides the competitive advantage that gives the company its "winning edge." They are not self-enforcing. If they are yours, you may have to enforce them to stay in business. If they are theirs, you may have to defend yourself and your business against charges of patent infringement.
Patent litigation is very, very expensive.
How Expensive?
The average cost of patent litigation through trial ranges from $500,000 to almost $2,000,000 for each side. These numbers can easily be higher for high profile cases. Patent litigators charge $200-$500 per hour, and lots of hours are required. Multimillion dollar verdicts and injunctions are the norm in successful patent infringement suits, and these suits are often “bet-the-business” gambles for one or both sides.
While corporate giants such as IBM or Microsoft can afford patent litigation without insurance, infringement litigation presents small or start-up companies with great risk of being overwhelmed by the big players. This reminds me of the saying "If you you're too small to play with the big dogs you better stay on the porch and watch." Patent insurance can turn a small dog into a big dog in a patent dogfight, and its presence may encourage the other side to stay on the porch.
Hidden Costs.
A major hidden cost is the diversion of management time. If your company's executives are attending trial, being deposed, or preparing to testify, they are not attending to other company business. You must decide if the people involved can handle both their regular tasks and the added tasks of litigation. There is also stress on management and possible adverse publicity involved in being in court over patent infringement.
Despite these costs, patent litigation is sometimes unavoidable, and patent litigation is becoming more common, particularly with high-tech businesses where patent rights can be the key to success or failure of the business. These are often
But, there is Good News (…or is it?)
The insurance industry has new policies to cover the costs of prosecuting and defending patent litigation.
Defensive Policies
These policies take effect when someone sues you for infringing THEIR patent.
These policies are also called "Patent Infringement Defense Insurance”, “Patent Liability Insurance", "Patent Infringer's Insurance" or other similar names.
Since around 1995, defensive patent infringement insurance policies have been available. They may help prevent a small company from being steamrolled by a big company with a patent. Without it the big company may use a patent infringement suit to bankrupt the small company or force it out of the market. Typically, "defensive" patent infringement policies cover both damages and defense costs within predetermined limits, although some less expensive policies cover only legal costs, but not damages.
Premiums typically run 2% - 5% of the insured amount (i.e.$20,000 to $50,000 per $1 million in coverage) with co-payments ranging from 15% to 25%.
Insurers often rate prospects in various ways, such as " industry hazard groups" previously rated by the insurer.
Insurers check how carefully applicants check for possible conflicting patents before committing to specific designs, how carefully they have handled patent matters in the past, whether the applicant has its own collection of patents to trade in negotiations and whether the applicant regularly consults patent counsel on new products.
Most policies require an opinion by outside counsel, sometimes at the expense of the insured, as to the merits of the patent infringement claim being defended against. More normal is that this opinion is up to the insurer as part of the insurer's defense against the claim, as that way the insurer can get an opinion from a patent litigator it knows to be reliable.
The policies have been common for about seven years now, so track records of coverage disputes are beginning to emerge. Some policies provide that if the insured does not agree with a settlement proposed by the insurer, payment of defense costs is suspended until resolution of the case. That situation could force the insured company to sue the insurer to get paid and certainly puts the insured and insurer at odds with each other.
We think your money is generally better spent trying to identify relevant patents of others and avoid infringement by designing around those patents. We think your money is also better spent in research to develop patentable inventions and in patenting your own inventions. Alternatively, we think you can normally obtain an opinion of non-infringement and defend against many patent claims without having to spend as much as for the insurance. With the advent of high-tech companies where intellectual property rights can be the entire business and where "burn rate" has gone from a side issue to a main issue, however, the landscape has changed and patent risks can be significant enough to warrant this kind of insurance. With start up companies, the risk of infringement is greater because the established companies are more likely to patents to try to nip the startup in the bud and the downside is much greater because the number of products is often so few that an adverse patent infringement judgment might shut down the entire product line. In areas like telecommunications, bio-tech and internet businesses, where there is known to be substantial patenting by the leading players and where it is known that the leaders are litigious, this insurance often makes sense.
Our recommendation normally is NOT to spend for this type of insurance unless: (a) you are entering a new business area where you are small and the big players have patents, or (b) you have other reasons to believe a patent suit against you is pretty likely, or (c) you have so few products that a serious patent claim against you on one of them could shut your business down, or (d) you have customers you must agree to protect against infringement claims and you do not have the resources to do so without insurance.
Offensive Patent Infringement Insurance
These policies take effect when someone else infringes YOUR patent.
Policies described as "Offensive Patent Insurance," "Patent Pursuit Insurance", "Patent Enforcement Insurance," or "Infringement Abatement Insurance" insurance are available for companies wanting to buy the ability to engage in litigation to protect and enforce their patent rights. Enforcement policies allow companies to use the insurance company's cash to go after infringers.
The most common current policies cover 75% of the enforcement costs up to a fixed amount, with $500,000 being a fairly standard maximum coverage. Annual premiums are typically $3,000 to $4,000 for $500,000 in coverage.
Before issuing offensive patent insurance, the insurance company will require information about:
previous attempts to enforce the patent;
active licensing programs;
the availability of the inventor to testify at trial (and whether the inventor will be a friendly witness);
patent claims, in detail, in the field of the potential insured's product;
knowledge of any existing infringement (e.g., warning letters sent or received) and the difficulty of detecting infringement;
competitors in the relevant markets;
the sales and market share of the top five companies in the market;
the known patents in the field and who owns them;
the availability of technically qualified people to try to design around patents; and
the total capital necessary for a company to market a competing product.
Before a policy will issue, an opinion letter from a qualified intellectual property attorney opining as to the validity of the patents in question must usually be issued. This is a lucrative field for some patent attorneys, as these opinions can be quite expensive if thoroughly researched and well written. Some insurance companies have in-house patent attorneys to do this work while others have established close affiliation relationships (the cost typically ranges from $3,000 to $15,000 per opinion with $500 to $5,000 for updates). This cost of these opinions is normally the responsibility of the potential insured even if no policy is ultimately issued. For example, our understanding is that Lloyd's charges $25,000 for the patent review process prior to issuing policies.
There may be some crucial exclusions, that affect your litigation expenses, such as defense of opposing claims (for example, the normal counterclaims of invalidity, any antitrust claims, cross-claims for infringement, breach of contract claims, etc.) and liability for judgments or damages for opposing claims (such as a for infringement of one of defendant's patents)
Upon finding an instance of infringement, the insured policy owner must promptly notify the insurance carrier in writing and give the carrier a favorable written opinion from an independent attorney finding infringement to be present (again at the insured's cost). If the infringement suit succeeds, the insurer under some policies gets part of the recovery, most often 50%, until the insurer’s costs are reimbursed. If the insured is unsuccessful at the trial level, the policyholder may have to pay for appeal if the insurance company elects to pursue an appeal.
Advantages of patent enforcement insurance include:
1. Insurance deters infringement because it gives financial power to more aggressively protect a patent.
2. Insurance reduces pressure on the patent holder to settle because of mounting legal expenses.
3. Insured patents may encourage investors by reducing their risk.
4. Insured patents are easier to license because prospective licensees feel more secure in them and less eager to risk avoiding them.
Disadvantages of patent enforcement insurance include:
1. Insurance premiums are usually based on the number of intellectual patents covered, not the likelihood of enforcement litigation.
2. Policyholders must periodically review coverage and update the list of patents covered or chance a newly issued patent not being covered.
3. Disputes often arise between the insurer and the policy owner as the insurer tries to avoid paying, and this can make insurance increase litigation costs rather than decrease them.
4. Insurance may actually encourage policy owners to litigate where negotiations and settlement may make better business sense.
5. The money might sometimes be better spent on developing new products.
Our normal recommendation is that Offensive Patent Insurance makes financial sense for small to medium size businesses with a key patented product or service that is likely to draw competition, or where patent royalties on a key product are the main source of revenue for the company, but we think Patent Enforcement Insurance makes little sense for large companies.
Some warnings:
Before getting into the patent insurance market, either from the offensive or defensive end, make a careful review needs. Study your patent portfolio's value and the odds you are infringing or being infringed. Review how much insurance coverage exists under other policies. Think whether you have the cash available to defend or prosecute patent infringement litigation. If you have lots of cash it makes sense to "self-insure" and spend the premium money on marketing and R&D.
Even if you never have patent litigation, this careful review will help you find ways to better use your patents and better avoid infringement.
