Patent insurance is designed to cover the legal costs of prosecuting or defending a patent infringement case. Even if it is not your intention to steal another's intellectual property, your business might become the target of a claim of patent infringement. You will have to pay a lawyer to defend yourself against this claim, and it can get costly.

Conversely, your business might need to stop another business or individual infringing upon your patent. Such an infringement can and does cause business losses; it is incumbent upon any business to protect its intellectual property by prosecuting actions against infringers.

How much does patent insurance cost?

A patent infringement case is costly to prosecute or defend against.

  • At a minimum, patent litigation can cost $200 to $300 thousand.
  • For a disputed intellectual property of $1 million to $25 million in value, the average cost of patent infringement lawsuits is $2.8 million
  • A rule of thumb for determining how much defensive patent insurance will cost is 2% to 5% of the insured amount; for $1 million in coverage, the insurance would cost $20 thousand to $50 thousand.
  • The average cost of defensive policies is $50 to $80 thousand per year.
  • In patent insurance policies, co-payments range from 2% to 5% of the amount insured. If you have a judgment of $1 million against you in an infringement case, you will have to pay the first $150 thousand to $250 thousand.
  • A large proportion of patent infringement prosecutions cost businesses more than $2 million, even when the commercial value of the patent in question is less than half of that amount.
  • Damage awards are often in the $9 million range.
  • The cost of policies that cover both prosecution and defense of patent infringement claims is more than those with defensive coverage only.

Factors which determine the cost of your coverage are in which industry you work, and how many patents you have.

When issuing an insurance policy, patent insurers are very conservative. They examine your patent portfolio, and determine if there are conflicting patents. They determine the likelihood that you will be sued, or need to sue in order to protect your patent.

A side benefit of the underwriting process is that it exposes the strengths and weaknesses of a patent. The owner of the patent can take measures to lower the cost of premiums.

Does commercial general liability insurance sufficiently protect a companies assets?

Many business owners are unaware that Intellectual property coverage is most likely excluded in a company's commercial general liability (CGL) insurance policy. Becoming the target of an intellectual property infringement action limits a company's ability to sell their product, thereby damaging their bottom line.

In order to protect the patents it holds, a business must enforce those patents.

Having patent insurance can determine the outcome of a patent infringement case, because a small business owner will have the resources necessary to pursue all legal remedies, tactics, and defenses in their case. For example, with funds from an insurance policy at their disposal they will be able to, among other things:

  • engage effectively in discovery
  • take depositions
  • retain expert witnesses
  • file legal briefs, and
  • explore legal arguments.

Is patent insurance a business necessity?

Obtaining a patent is a laborious process, yet this step alone is not enough to protect your intellectual property. Infringement lawsuits are on the increase, making it more likely that you will have to defend your business against such claims. Even if a claim of patent infringement is not legitimate, there are legal costs involved in defending your business.

It is crucial to understand that once a patent enforcement action has been taken against your business, or your business is in the position of having to enforce its own patent, it is too late to obtain patent insurance.

The cost of patent insurance begins to look more manageable when you consider that for a small business targeted for patent infringement, a large award could be ruinous. From either side—prosecuting or defending against an infringement case—paying for patent insurance is part of the cost of doing business in today's complex business environment.

If you need help with making patent insurance decisions, or with choosing counsel to represent you in a patent defense or infringement lawsuit, 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.