Written jointly with Janaki Mandala
– The ‘Surefire Way’ to Winning A ‘Hardened IP Battle’
The concept of Intellectual Property (IP) and IP Insurance is a relatively new concept, which functions akin to any other insurance policy, but it comes with its own unique set of terms and conditions. The main coverage provided under the ambit of IP is in relation to the costs of legal proceedings and charges only. IP is gaining prevalence and pace in the market, and considering an emerging country like India, the scope of development is very promising.
Patent Insurance is a form of IP insurance, which protects the insured in fighting a legal battle against an infringement by rivals, or against an infringement law suit filed by the competitors. 'Patent infringement insurance' literally means indemnity guaranteed to the inventor of the patent by an insurance company for a premium. However, patent insurance technically means guaranteed indemnity as against:
- Defense expenses, including legal fees, declaratory statements, injunctions and appeals.
- Damages, including judgments and settlements, past lost royalties and past profits, interest and costs, as well as legal expenses assessed by the court.
- Liability for the company, its subsidiaries, employees, products and patents.
- New acquisitions, previous acts, arbitration and dispute resolution procedures.
Having a patent does not prevent infringement but it bestows the right to sue an infringer. Individuals and Small and Medium Businesses (SMBs) are often hesitant to pursue infringement cases in a court due to the time and money involved in fighting a litigation suit. A patent insurance policy safeguards the insured in a legal tussle against an infringing company or an infringement lawsuit filed by an opposing company, depending upon the type of policy. Patent insurance gives you an expert partner and pays the costs of the infringement suits so that you can focus on developing your business.
IP insurance covers businesses for the legal costs associated with pursuing infringement or theft of IP. It even covers legal defense costs for policyholders accused of IP infringement or theft. There are two basic types of IP insurance:
- Infringement Defense Insurance: This is the most popular type of IP insurance. It covers policyholders for infringement claims brought against them.
- Abatement Enforcement Coverage: This coverage gives IP owners the financial resources to enforce their IP rights and pursue infringement claims.
Enforcing or defending your IP rights against infringement is often expensive. IP insurance policy is one way of preparing for possible enforcement or defense costs. IP insurance policy covers the costs of legal proceedings. An IP insurance policy can include coverage for patents, copyrights, trademarks and other specific types of IPs. The terms ‘IP insurance’ and ‘Patent insurance’ are sometimes used interchangeably, but not all IP insurance policies cover patents.
Importance of Patent Insurance
Patent insurance has long been considered potentially important as a means of promoting innovative culture in SMBs that don't have enough resources to fight legal battle. A patent is not a total protection against infringement, it just grants a right to sue intruders. If the patent holder cannot constantly monitor or identify infringement, then this might have huge financial impact on the patent holder.
Indian companies have made their mark in key sectors such as IT, electronics, biotechnology, pharmaceuticals and telecommunications. These industries carry out a wide range of R&D projects on a regular basis. Unfortunately, their efforts often come to naught as foreign companies challenge innovations and new developments on the basis of patent laws. Hence, it is very essential for Indian companies to embrace patent insurance so as to protect their inventions and secure products of all types from damages.
With the increase in number of SMBs and startups in India, the number of innovations and patents are rising. With the increase in patent applications/grants and growing importance of IP, litigation can be expected to proliferate in future. Therefore, patent insurance is crucial for Indian companies, startups and research institutes to emerge as an innovation hub and bridge technical gap with other countries.
Need for Patent Insurance
Effective protection of IP and IP portfolio is essential for strategic planning of risk management and to prevent any infringement by competitors. The following points emphasize the need for patent insurance:
- Safeguarding IP: IP becomes a mandatory obligation from the very next moment of incorporation of the company. In the corporate world, IP is vital and considered as the backbone to a business. In today’s competitive world, there are always people who will want to make use of your ideas and duplicate your inventions for financial benefit. IP rights prevent competitors from selling your ideas or products without your consent.
- Drives Economic Growth: The major reason for safeguarding IP is the immense economic benefit that it carries with it. IP continues to be a massive economic driver for jobs and investment. In the U.S. alone, IP supports more than $6 trillion in GDP, 81 industries, and over 45 million jobs.
- Soaring Costs of IP Litigation: In recent years, the global importance of IP rights and their related expenditure have risen significantly. According to the International Risk Management Institute (IRMI), the cost of IP litigation can be astronomical, and continues to rise each year. In certain cases, the high stakes of IP litigation can pose a real threat to the company itself. In other words, IP litigation costs could have a substantial, material impact on an organization, making risk transfer an absolute necessity.
- Protection to Small Businesses: Due to competition and other factors in the market, it’s difficult for the SMBs to compete in the market with larger businesses. Small businesses cannot fight the legal battle of IP infringement against a powerful opponent in the courtroom.
Cost of Patent Insurance
According to a 2009 economic survey by the American Intellectual Property Law Association, the cost to litigate a patent infringement lawsuit averages US$ 2.8 million (amount in controversy lies between US$ 1 million and US$ 25 million). Damages average close to US$ 9 million. With these escalating costs and exposures, insurance cost is not the issue; the issue is the company’s survival and its ability to stay in business.
The insurance premiums for patent insurance generally vary between 2-5% of the insured amount. Same patent may have different premiums based on the risk assessment done.
The insurance coverage premiums for a $1 million patent start at $25,000 plus charges. Deductibles can start from $50,000 to $100,000 and include a co-insurance percentage after the deductible. The co-payment can vary from 15% to 25%. Damages can be covered up to $1 billion under the insurance, while $20-30 million are common.
Premiums for defensive patent infringement policies typically would be between $20,000 to $50,000 per year for $1 million in coverage, with deductibles (or co-payments) ranging from 15% to 25%. Premiums for offensive patent infringement policies typically would be between $3,000 to $4,000 per year for $500,000 in coverage.
In India, on an average, an interim decision costs up to $25,000 and a complete trial, up to $60,000. However, this may vary based on the court, the damages claimed, the period of time and complexities of the case. Highly complex cases could cost between $100,000 and $150,000 for an interim decision and $200,000 and $350,000 for a full decision.
Patent insurance in India is the need of the hour. Patent insurance is crucial for Indian organizations, startups and research institutes to emerge as an innovation hub and bridge the technical gap with other countries. Patent insurance will play a key role in the development of the Indian economy. Unfortunately, most organizations and innovators are unaware of the concept of patent insurance. In India, though many innovators and startups apply for patents, they are ignorant about safeguarding their innovations from patent infringement. No insurance company in India offers patent insurance, though there is steady rise in the number of patent applications and grants. India still has a long way to go in the field of R&D and patent insurance will provide a breather to organizations and individuals developing new products.
There is a perception that Indian Patent Law is not as strong as it should be. Also, very few policies of patent protection are available to the innovators, compared with many European countries. Although patent insurance has been in vogue for long, only a minority of patent owners and organizations are aware about the existence of such coverage.
Presently, no country has a law providing a mandatory scheme of patent insurance. A compulsory scheme can be introduced by enacting appropriate legislation, though such a scheme will involve various types of administrative controls from insurers as well as the government, but in the present situation, no scheme is likely to succeed without compulsion. A system will have to be developed with a mandatory scheme such that there is coordination between insurance companies and national patent offices, so that renewal of insurance premium paid certificate is immediately and automatically sent by insurance companies to the patent offices. This will be necessary to renew the patents.