Key Takeaways

  • Patent infringement insurance protects businesses from the high costs of defending or enforcing patents.
  • Coverage is typically split into defensive policies (covering lawsuits when you are accused) and enforcement policies (covering costs when you sue for infringement).
  • Policies can cover attorney fees, court costs, damages, and sometimes settlements, which can reach millions of dollars.
  • Standard commercial insurance often excludes intellectual property disputes, making patent-specific coverage essential.
  • Costs vary by company size, industry, and patent strength, with underwriting assessments influencing premiums.
  • Exclusions may apply; policies often require favorable legal opinions before covering litigation expenses.

Patent coverage may assist you if another party infringes upon your patent or if you are accused of patent infringement yourself. There are numerous reasons why patent insurance coverage may be a wise idea for your company.

What Is a Patent Anyway?

When a person invents something, he or she may be able to claim exclusive right over the invention with a patent. In general, a patent may cover a product or process that offers a new technique or technical solution to an existing problem. To acquire a patent, technical information about the product or process must be provided to the public in a patent application.

The patent owner (inventor) is able to grant permission (license) to other parties to use the invention upon mutually beneficial terms and formal agreement. In addition, the owner can sell the rights to another party, who then becomes the new owner of the patent. Patent protection ends once the patent expires, and then the invention enters the public domain. Once this occurs, anyone can make a commercial venture using the patent without infringing upon it.

Patent Insurance

Patent insurance, as a type of intellectual property insurance, is intended to protect the patent holder in case another party infringes upon the patent and causes a loss in business. This kind of insurance is like a liability policy for manufacturers. If someone claims a business is infringing upon another's patent, the insurance policy will cover the associated legal costs of the accusation.

It may seem like an unnecessary policy if you don't intend to steal anyone else's idea, but patent infringement occurs more often than it would seem. Even if you did not intend to threaten someone else's patent, the patent holder may still sue you for losses.

There are two kinds of patient infringement insurance:

  • If you're sued for infringing upon a patent, a defensive policy will cover it.
  • If you need to sue another party for patent infringement, patent litigation insurance will assist you.

It is not necessary to buy both kinds of insurance, but it is a more complete policy approach.

What Does Patent Infringement Insurance Cover?

Patent infringement insurance is designed to manage the financial risk of patent disputes, which are often among the most expensive forms of litigation. Coverage may include:

  • Legal defense costs: attorney fees, expert witness fees, and court expenses if you are accused of infringement.
  • Settlement or damage awards: payment of judgments or negotiated settlements.
  • Enforcement actions: the cost of pursuing infringers when you need to enforce your own patent rights.
  • Alternative dispute resolution: some policies also cover mediation or arbitration expenses.

This type of insurance is especially important because general liability or commercial policies almost always exclude intellectual property claims.

Why Purchase Patent Insurance?

As companies compete to develop the next big idea, intellectual property claims are becoming more common. General commercial insurance policies aren't meant to protect a business from loss as a result of intellectual property theft or an accusation of patent infringement. In business, it doesn't necessarily matter whether an invention was created by you, but whether or not you are able to financially defend the idea. You may have obtained a patent, but if a large international business sues you in relation to your patent, will you be able to pay the associated legal fees?

Even smaller businesses may need intellectual property insurance. As companies grow and expand globally, it's important to examine insurance policies. Keep in mind that if you have an action lawsuit, you'll be unable to apply for patent insurance at that point, so being proactive during the initial stages of patent application is the best idea.

Common Exclusions and Limitations

Patent infringement insurance does not provide blanket coverage. Common exclusions include:

  • Willful infringement or knowingly violating another party’s rights.
  • Claims made before the insurance policy took effect.
  • Patents under active dispute or already the subject of litigation.
  • Certain industries or high-risk technologies, depending on underwriting.

Additionally, many insurers require an opinion of counsel confirming the likely validity and enforceability of your patent before covering enforcement actions. This step helps insurers reduce exposure but also adds to the upfront costs for policyholders.

Types of Patent Infringement Insurance Policies

There are two primary types of patent infringement insurance:

  1. Defensive Insurance – Protects you if your business is sued for patent infringement. It covers legal defense fees and, in many cases, settlements or damage awards.
  2. Enforcement Insurance (or Abatement Insurance) – Covers the cost of suing others who infringe on your patent. This is critical when small or mid-sized companies need to assert their rights against larger corporations.

Some businesses purchase both for complete coverage, while others choose one based on their risk profile.

Cost of Patent Insurance

How much does patent insurance cost anyway? If the idea in dispute is worth anywhere between $1 million and $25 million, patent infringement lawsuits cost about $2.8 million on average. Associated damages are typically about $9 million. For smaller businesses, a lawsuit of that amount would easily put the company out of business. Consider the financial risk of a lawsuit as compared to patent litigation insurance , and you might discover that you'd rather pay for insurance.

Patent insurance premiums will vary based on numerous factors, and may run from a few thousand dollars to over $25,000 yearly. Insurance coverage limits and amounts will also affect your premium. Patent insurance also involves underwriting, which enables a business to consider the strengths and weaknesses of a patent. Using those results, a business can actively take measure to eliminate the chances of a claim arising and keeping premiums low.

Before you sign up for a policy, keep in mind that for an insurance company to pay your litigation fees, you'll need to acquire the opinion of a patent counsel who states that you have a likely winning chance. This patent counsel opinion typically costs about $5,000. You'll have to pay everything yourself if the counsel doesn't like your odds of winning and you decide to continue with litigation.

Factors That Influence Premiums

Premiums for patent infringement insurance can range from several thousand dollars to well over $25,000 annually, depending on multiple factors:

  • Patent strength and enforceability – Well-drafted patents with strong claims may reduce risk and cost.
  • Industry sector – High-litigation industries such as software, pharmaceuticals, and biotech usually face higher premiums.
  • Company size and revenue – Larger companies or those generating significant revenue from patented products face higher potential exposure.
  • Claims history – Businesses with prior IP disputes may pay more.

Insurance underwriting often involves a review of the patent portfolio, competitive landscape, and potential infringement risks.

Frequently Asked Questions

  1. What is the main benefit of patent infringement insurance?
    It helps businesses manage the high cost of defending against or pursuing patent lawsuits, which can otherwise reach millions of dollars.
  2. Does general liability insurance cover patent disputes?
    No. Standard commercial policies almost always exclude intellectual property claims, making specialized coverage necessary.
  3. Can small businesses afford patent infringement insurance?
    Yes, many policies are designed for startups and small businesses, with tailored coverage levels and premium options.
  4. Are there restrictions on when I can purchase a policy?
    Yes. You cannot obtain coverage once you are already involved in an infringement lawsuit; policies must be purchased proactively.
  5. What happens if my insurer denies coverage?
    If a legal opinion or underwriting review determines your case is weak, you may have to cover costs yourself. This is why policy terms and exclusions should be reviewed carefully with legal counsel.

If you need help understanding patent coverage, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.