Intellectual Property and Patent Infringement

Insurance/Risk Transfer Techniques to Accomplish Your Goals


Patent Troll Defense Insurance Patent Enforcement Insurance Collateral Protection Insurance Post-Grant Review Defense Insurance Unauthorized Disclosure of Confidential Information Insurance


IP Infringement Defense Insurance

Product Overview

       Your company can be sued IP infringement by simply making, using, selling, importing or offering for sale a product and/or service; or, if you own valuable technology on products, processes or methods of doing business. Also, if your company is experiencing or planning a merger and/or acquisition, or if your vendor and supplier contracts require indemnification for IP litigation, you will have additional exposure to IP lawsuits.

       The fact that your company has products protected by patents does not guarantee that you will not be sued by a third party, such as a patent troll or a competitor, holding similar IP rights. Even if the case against you is unjustified or frivolous, you will still pay big legal bills funding your defense, and paying potential damages if you lose.

Features & Benefits

       Infringement defense coverage is available for the Scheduled Products of your company: products that you make, use, sell, offer for sale or import, or where you use a trademark and/or service mark and/or use copyrighted materials in commerce. Coverage may also be available for business processes and services.

       Policy terms range from 1 to 3 years with limits ranging from $250K to $10M (higher limits may be available). Copay is 10% (minimum), Self-Insured Retention (SIR) is 2% (minimum) of claim limits. Pre-existing threats of infringement are excluded from coverage, and damages will be covered back to the date the infringing activity began.

       Lower limits of Troll coverage are often included in the Defense policy, and covers your non- Scheduled, non-Core Products, such as your routine use of office equipment such as printers.

       Advantages of the Defense policy include preventing abandonment of market share as well as preventing unexpected cash drain on operations. Carrying the Defense policy often deters frivolous infringement lawsuits and provides adequate litigation funds to optimize a favorable outcome on the merits. Insurance may attract investors, and reduces the pressure to settle infringement cases.

       For a higher premium, your policy can often be provided with an Additional Insured Endorsement that extends the Infringement Defense policy to lawsuits that are filed against the Additional Insureds of your technology (who could be licensees of your technology, or customers of your products).



Patent Troll Defense Insurance

Product Overview

       Patent Assertion Entities (also known as patent trolls) are companies that buy (usually inexpensive poor-quality) -- patents, and use them as a basis for demanding royalty payments from other companies while threatening to sue non-compliant companies. Frequently trolls do not disclose what patents they own, or what specific functionality of a technology is infringing. Instead the troll challenges the entrepreneur to hire expensive lawyers and fight (indeed, in some cases, the patent trolls are lawyers who cut costs by handling the lawsuit), while simultaneously offering to settle the claim less expensively than the lawyers will cost.

       Settling with trolls often requires an up-front payment, continuing revenue share payments, agreeing to issue a press release that praises the troll's technology and "fair licensing terms", and signing a non-disclosure and non-disparagement agreement that stops the "victim" from speaking freely about this extortion.

Patent Troll Defense Insurance is a limited version of the more robust IP Infringement Defense Insurance.



Patent Enforcement Insurance

Product Overview

       The Enforcement policy (formerly called the Abatement policy) is a unique plaintiff's policy which reimburses your litigation expenses when you need to enforce your Intellectual Property (IP) against alleged infringers, as well as reimburses your costs due to any invalidity counter lawsuits filed against your IP.

       The Enforcement policy is a blended coverage, meaning, there are elements of pure insurance (unexpected risk) and a bond (people made/moral risk). In the event that you lose your IP lawsuit, the Enforcement policy acts as a pure insurance policy. In the event that you win your IP lawsuit and are awarded damages and fees (or receive a settlement), the policy then acts as blended coverage. That is, you only cover the costs to date in the lawsuit paid out by the insurance carriers as part of the policy.

       You and your company retain all other monies obtained. This is a much better deal for you, as opposed to Contingency litigation, where your lawyers want a percentage, often big, of all of the monies you receive. Even better, once the accounting is closed for your first lawsuit, your policy is automatically reset, and you can sue another infringer, up to the policy limits.

       If you win and get an injunction, but obtain less compensation than the cost of the trial, you have to cover the balance of these costs, after the lawsuit is over. Until then, during the trial, the running costs of litigation are covered by the policy. However, once you cover the remaining costs of the lawsuit, then your policy can be automatically reset, and you can sue another infringer, up to the policy limits.

       If you win and get an injunction, but obtain no compensation, then you have to reimburse the costs of the the entire lawsuit, after the trial is over. Again, once you reimburse the costs of the lawsuit, then your policy is automatically reset, and you can sue another infringer, up to the policy limits.

Features & Benefits

       Enforcement coverage is available for any company with issued patents, patent application or provisional application; registered trademarks, trademark applications, common law trademarks, trade dress, and registered or unregistered copyrights (must be registered before asserting).

       Advantages of the Enforcement policy include preventing loss of market share, as well as preventing a cash drain on your operations due to the cost of lawsuits. When you carry the policy, it can often deter your competitors from infringing your technology (knowing you have the resources tosue), and reduces the pressure on you to settle that lawsuit too early (which often occurs when companies are paying for litigation on their own). And being able to more effectively protect your IP by having the Enforcement policy, makes your business more attractive to customers, partners, licensees and investors.

       The Enforcement policy is claims made and reported. Policy terms range from 1 to 3 years with limits ranging from $250K to $10M (higher limits may be available). Pre-existing circumstances are excluded from coverage if the commercial activity that led to the infringement began before the first policy period. The test is objective; it does not matter if the activity was known or unknown at the time of purchase of the Policy.



Collateral Protection Insurance

Product Overview

       Collateral Protection Insurance (CPI) provides a vehicle through which an owner of intellectual property (IP) can use their IP as collateral for a loan, up to the value of the IP. In essence, the issued CPI policy protects against collateral default.

A CPI policy is NOT a financial guarantee - all it insures is the value of the IP across the duration of the loan for which the policy is used as collateral. If the loan defaults,the balance of the lender's loan is repaid. In parallel, the rights to the insured IP is transferred to the insurance company, who resell the IP to a company better positioned to commercialize the IP, using the proceeds to cancel out the loan repayment.

Typical Purchasers of CPI Insurance

  • Owners of IP rights who wish to leverage the value inherent in the IP to be used as loan collateral.
  • Entities with a financial interest in the value of the IP when using collateralized IP for a loan.


Post-Grant Review Defense Insurance

Product Overview

       In general, companies may risk going out of business if they are not able to protect their innovations from the predatory business practices of others. One of these predatory business practices is extorting money from companies by entities known as Patent Trolls bringing ill-founded lawsuits based upon overly-broad, low-quality, patents. Another predatory practice is a competitor asserting a low-quality patent against your company.

       This real threat of companies being attacked in federal courts with low quality patents prompted a response from the public sector that led to Congress passing the America Invents Act (AIA), which created a new way to challenge patents - a Post-Grant Review process heard before administrative judges at the USPTO.

       While the AIA was well intended in trying to curb the "Patent Troll"-type activities, it also led to an unintended consequence of creating an opportunity for patent trolls, competitors or activist funds to attack your company's quality patents, using the same Post-Grant Review process. For example, a hedge fund might short the stock of a pharmaceutical company, file some Post-Grant Reviews against their patents, which often can cause the stock price to drop in the short term. The hedge fund makes money, and then doesn't care whether it wins or loses the Post-Grant Review challenge. Another example, a start-up has some high quality patents that threaten industry leaders. These large companies can undermine the reputation of the start-up's patents by filing Post-Grant Review challenges. While the start-up often wins such battles, the loss of time and money weakens the ability of the start-up to obtain market share.

       The Post-Grant Patent Defense Insurance Policy available from IPISC helps level the playing field, enabling the policy holder to resist the first wave of attack, i.e. Post Grant Review, against their patents by infringers, trolls and others.



Unauthorized Disclosure of Confidential Information Insurance

Product Overview

       This policy reimburses the litigation expenses and/or damages, made against your company, which arise from a lawsuit which alleges an Unauthorized or Unintentional Disclosure of a third party's Confidential Information by the Named Insured (typically your company); or, which alleges an Unauthorized Disclosure by an employee or person under your direct control or by one of your former employees on whose behalf of the Named Insured is responding pursuant to a written or legally imposed obligation to do so.

       There is typically a ninety (90) Day Exclusionary Period under this type of policy. Any lawsuits (or threats of lawsuits?) brought during the initial 90 days of the policy are excluded from coverage. The 90 days are not lost; they are added to the end of the last UDCI policy held by the Insured.

       Pre-existing threats alleging Unauthorized Disclosure, or, where the Named Insured has knowledge prior to the effective date of the policy of any activities which are or could be the basis for alleging Unauthorized Disclosure, would not be covered.

       EXAMPLE:
       In October 2014, a federal court in Louisiana approve a $32.5 million class-action settlement. It arises from a lawsuit filed in 1997, alleging that Tenet Healthcare improperly discarded boxes of confidential medical records in 1996, leaving them in a parking lot of one of Tenet's hospitals (which had just closed down operations). Anyone strolling through the parking lot could view these confidential medical records. Decision and award calculation at: http://caselaw.findlaw.com/la- court-of- appeal/1629148.html.

There are limitations to this policy:

       Allegations of Unauthorized Disclosure which is not a Willful Disclosure by an Employee, or an Associated Third Party including former employees, subcontractors, other entities indemnified by the Named Insured or are under control of the Named Insured, then the Policy acts as pure insurance.

       If an Employee is found or discovered to have committed a Willful Disclosure and the Disclosure took place more than three (3) years from the effective date of hiring, or the Civil Proceeding began less than one (1) year after the Disclosure, then the Policy acts as pure insurance.

       If an Employee is found or discovered to have committed a Willful Disclosure and the Disclosure took place less than 3 years from the effective date of hiring, or the Civil Proceeding began less than 1 year after the Disclosure, then the Policy acts as a bond and must be repaid by the Named Insured within 1 year of the end of the Civil Proceeding.
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