Patent Infringement Insurance Coverage

Patent infringement insurance coverage is a type of intellectual property (IP) insurance. It is meant to protect the patent holder in the event that someone else infringes on the patent and causes a loss for you or your business. Such insurance is also a liability-type policy for manufacturers. For example, if a company is accused of infringing on someone else’s patent, the policy will cover any legal fees stemming from that legal suit.

Do I Need Patent Insurance Coverage?

Carrying this type of insurance is important, as the cost of patent infringement litigation can be very high, and continues to increase annually. What’s more, the number of actual patent infringement cases has increased over the years. Between 1996 and 1999, the number of infringement suits increased from approximately 1,600 to over 2,300 per year.

Some patents, depending on the type and industry, have a greater chance at a potential infringement suit. Therefore, insurance coverage is key to protecting your company and your invention when dealing with such lawsuits.

When determining which type of patent insurance you should carry, keep in mind that there are two kinds of insurance coverage: [1] defensive policy, which will assist if an infringement suit is brought against you; and [2] litigation insurance, which will cover legal costs if you have to bring an infringement suit against someone who engaged in infringement. While you need not carry both kinds of insurance, you should speak to a qualified insurance agent who can assist in providing you with additional information on which type of insurance is best for you.

Costs of Patent Insurance

  • Generally, such lawsuits cost roughly $2.8M if the invention has a worth between $1M and $25M. Damages fall around the $9M mark for inventions worth these amounts.
  • For smaller to mid-sized companies, lawsuits costing this much can end those businesses, causing them to close their doors.
  • When comparing these amounts to the cost of patent insurance, which is approximately $25,000 annually, it’s an easy decision.
  • The costs of patent insurance premiums depend on several aspects, including how many patents your business has, what type of industry you operate in, as well as other factors.
  • A benefit of carrying such insurance is the underwriting process, which allows businesses to see the strengths of the patent itself, along with areas for improvement. Once having received the report from the underwriting process, a business can take additional measures to prevent possible infringement suits in the future, while also keeping premium costs as low as possible.
  • While legal costs are provided to those who are successful in defending infringement suits (in some cases), these legal suits are generally not covered. You’d be lucky, as a defendant, if you will have your legal costs covered just because you were successful in defending the suit. With that being said, it’s imperative for you to maintain insurance coverage so that the legal costs are covered in this type of legal suit.

Recent Property Infringement Cases and Costs

  • Honeywell v. Litton - $1.2B

  • Polaroid v. Kodak - $900M

  • DCS Communications v. General Instruments - $140M

  • Fonar v. General Electric - $128M

  • Honeywell v. Minolta - $128M

  • Stac Electronics v. Microsoft - $120M

Factors When Determining How Damages are Awarded

When damages are awarded in such legal suits, there are many factors that are taken into account. Such factors can include:

  • Loss profits
  • Royalties, using a minimum floor calculation
  • Punitive enhancement
  • Interest over time, particularly if the infringement suit takes more than a year to litigate.
  • Attorneys fees, which adds up very quickly

Even if the patent infringement suit provides a low damage award to the plaintiff, the defendant could potentially face an injunction prohibiting the defendant from engaging in business activity in that patented technology. This could ruin the company as a whole, and cause the company to become bankrupt and close its doors.

If you need help with choosing which type of patent infringement insurance coverage is right for you, or if you need legal assistance with bringing or defending a patent infringement suit, 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, Stripe, and Twilio.