- Defence expenses, including legal attorney fee, declaratory statements, injunctions and appeals.
- Damages covered, including judgments and settlements; previous lost royalties and previous profits, interest and costs; attorney fees assessed by the court.
- The policy covers directors, officers, employees, company, its subsidiaries, all products, and all patents – utility, process, and design.
- Coverage of new acquisitions, previous acts, arbitration, and dispute resolution procedure.
ENFORCEMENT INSURANCE Some companies do not apply for patents because of the misconception that there is huge cost and time involved in obtaining and protecting the patents. On the contrary, the cost of applying and securing a patent is only a fraction of the cost of developing the new product. If the invention has financial viability, then it makes good sense to apply for a patent. And once the patent is granted, insuring the patent would be the next logical step as it reduces the financial burden of fighting any legal suits. An insured patent also discourages probable infringement, as the infringing firms would fear the financial strength of the patent holder (due to the muscle power of the insurance company) in fighting any legal battle. INSURANCE PREMIUMS Premiums for patent insurance depend on the patent and/or the product being protected. They usually range between 2-5% of the insured amount. Damages of up to $1 billion are covered under the insurance, while $20-30 million are common. Insurance limits up to $15 million coverage per patent are available. Deductibles start around $50,000-$100,000 and include a co-insurance percentage after the deductible. The co-payment can vary from 15% to 25%. Defense expenses such as legal fees, declaratory statements, injunctions, and appeals are usually covered by the policies. The insurance coverage premiums for a $1 million patent starts at $25,000. The factors that determine the premium rates are the past records of the firm, the care taken in patent research to prevent infringement and the firm’s own research and development work. However, before providing the insurance coverage, insurance companies carefully consider the following aspects of the insured company:
- Past attempts at handling and enforcing patents
- Licensing programmes
- Detailed patent claims of the insured’s patented product
- Steps taken by the company to protect and monitor conflicting patents
- Existing and potential competitors in related markets
- Sales and market share of top five companies in the market
- The known patents and patent-holders in a particular field
- The availability of capital resources for marketing a competitive/patented product.
WHO SHOULD OBTAIN PATENT INSURANCE? Every company which manufactures or markets new products must cover its risk by obtaining patent insurance. The key words here are “new products.” If new technology, new design or new functionalities are available or embedded in the products that are manufactured or marketed by a company, it is recommended that the company must obtain patent insurance. Also, several aspects of a business have inherent intellectual property material which may not even be known to the business. For instance, a business may have websites that need to be protected. Websites are publications, and as a publisher, the company may be liable to infringement claims. If the new technology is patented by the company, they will benefit from the patent pursuance insurance or enforcement insurance. If the patents are not held by the company, it is possible that some other company holds the patents, and therefore the company must have the patent litigation insurance, to mitigate the risk of possible infringement suits against the company. Patent insurance of both kinds (defense and offence) should be obtained by companies of all sizes – small, medium and large. Because, patents are size-neutral, and so is its insurance. In fact, the smaller companies must try to get more patents and more Enforcement Insurance to benefit from licensing to bigger companies. The bigger companies, on the other hand, must obtain Liability Insurance to protect against lawsuits brought against them by smaller companies. Of course, the bigger companies must also strive to have their own patents and the Enforcement Insurance on those patents. In short, if you have your own patents, you must have Patent Enforcement Insurance. If you don’t have patents on your product line, you must have Patent Liability Insurance. In addition to everything stated above, every company must perform infringement analysis to ensure that their products do not infringe on anyone’s patents. On the other hand, they must also establish market vigilance procedures to ensure that their competitors are not infringing on their patents. EVERYBODY HATES INSURANCE! A patent is the armour on the products. A patent insurance is the Teflon coating on the armour, which ensures that no infringement will stick. Having said that, it is also fair to mention that patent insurance is not the main highlight of a business plan. Of course, there is always the option to “do nothing.” It is the first course of (in)action; it is the path of least resistance; it is a procrastinator’s quick decision, and it is a no-premium but high-risk option. Yes, it is a simple decision to be without insurance. However, the people who do not obtain insurance, knowingly or unknowingly, still have, what is termed as ‘self-insurance.’ They are just not paying premiums. In a self-insurance scenario, you don’t pay premiums, but you might, one day, pay a heavy price.
And, if and when, that day comes, and an infringement occurs, against your patents, or against your products, and if it finds you without a Patent Liability Insurance or Patent Enforcement Insurance, and then, and there, you find the competitor to be aggressive and fierce, and you feel a sense of loss; and, for that day and hour, if you want to save this article, to be read and reviewed – yes, by all means, save it now; and, on that day, read it again; and then, surely you will read it in a different light.Today’s post comes from M. Qaiser and P. Mohan Chandran with iPrex Solutions, Hyderabad, India. This article was earlier published with globally leading US-based online portal --- IP Frontline. Copyright © 2005, iPrex Solutions.