Patent Insurance Basics: What You Need to Know

Insurance coverage plays a key part in protecting your business. If you want to take measures to prevent problems with your intellectual property, you need the right type of policy. When your company invents and develops products, you need patent insurance to limit the risk of financial loss due to challenges from competitors or to protect yourself from outsider interest in your item or process.

What is Patent Insurance?

When you take out a patent, it means you own the intellectual rights to a specific product or process. For example, your company may take out a patent on the design for a new device or the process to make a food item for consumers.

But just because you’ve got a patent on a product or process doesn’t mean the competition will always play by the rules. So what do you do if a competitor is trying to beat you at your own game by infringing on your patent?

Patent insurance is a form of intellectual property insurance designed to protect your business from financial loss when you must take a third party to court due to infringement on a process or product your company developed and patented.
 

Types of Patent Coverage

There are typically two types of patent insurance coverage available for your company: defense coverage and offensive coverage.

Defensive Patent Insurance

Defensive patent insurance coverage is the most popular form of intellectual property insurance.

This type of coverage is designed to:

• Cover the costs of defending your company in the event of a patent lawsuit - and any resulting settlements or judgments.
• Protect against risks when your business focuses on patent-heavy industries, such as technology or communications.
• Often pays for a portion of the legal fees, and it may offer additional coverage for damages to your company.
• Help protect you against “patent trolls”: companies who solely exist to sue other businesses in hopes of a big settlement

Offensive Patent Insurance

If your company holds valuable intellectual property, you may want to consider offensive patent insurance coverage. Also known as “enforcement coverage," offensive patent insurance can help you afford to go-after a larger—or better-capitalized—competitor who’s infringing on your intellectual property rights.

This type of coverage is designed to:

• Cover the legal costs of taking a third-party to court for patent infringement.
• Pay a portion of the legal costs when you sue a third party.

Offensive coverage is particularly beneficial to small- or mid-sized companies with valuable intellectual property assets, but without the unlimited resources of a major competitor.

What Does Patent Insurance Cost?

While patent insurance does offer protection against litigation costs and protects your business from financial complications in a court case, it can be more costly compared to other business insurance policies.

Intellectual property litigation, including patent infringement cases, can be extremely costly.

• A 2014 patent litigation study revealed that the median damages awarded in the telecommunications industry were $22.3M per case.
• In the patent infringement case of Polaroid v Kodak, $900 million was awarded in damages.
• In the patent infringement case of Honeywell v Litton, $1.2 billion was awarded in damages.

Since the average cost of a patent infringement cases is high, your premiums for a patent insurance policy can be higher than what you pay for general liability, for example.

An offensive policy will usually pay around 75% of the legal costs. In most cases, a business pays around 10- 20% of the cost as a deductible and may share a portion of the risk when taking a third-party to court.

Defensive policies generally charge a percentage of the coverage amount. For example, if you have coverage for $100,000 and the policy charges 2% for your coverage, then your company could pay around $2,000 for the premium. A defensive policy usually costs 2 to 5 % of your coverage, but the exact amount varies between policies and insurance providers.

CEOs are beginning to recognize that protecting their intellectual property is one of their top three risks because IP is one of their biggest assets. When it comes to intellectual property insurance and patent litigation, everything is higher: the stakes, the cost of litigation, and most of all - how much it can cost to lose.
 

When to Purchase Patent Insurance

Patent insurance gives you peace of mind against litigation costs and unexpected court cases.

While it may come with a higher premium, the policy does offer protection when you work in a patent-heavy industry. The coverage will help you breath easier as you’re getting your business off of the ground by limiting the losses you would take if drawn into a legal battle while developing your products or processes.

As a general rule, you want to consider offensive patent insurance coverage when you patent a product, process or item.

The patent gives you the exclusive legal right to your product or process, but you also want insurance to avoid high-cost litigation expenses. By purchasing the insurance policy when you obtain the patent, you limit the financial risks to your company.

Many business owners can benefit from defensive patent coverage. You could be slammed with a patent infringement lawsuit for legitimate reasons or simply for operating your business as usual.

Before selecting an insurance policy, clarify your options and compare the plans to find the right balance between cost and coverage.

Purchasing patent insurance gives you the opportunity to protect your company from unexpected legal costs. The key is recognizing the right type of policy for your product or process as well as the risks associated with your company. Patent insurance coverage can give you the assets you need to fight back when a third-party infringes on your intellectual property, or the defense you need if you’ve been accused of doing the same.