Do Inventors Need Patent Infringement Insurance?

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If someone claims that you have copied, used or sold their patented invention without their permission they may sue you in federal court for patent infringement. As you might expect, defending such lawsuits can be very expensive. In recent years, some insurers have begun to provide special patent infringement insurance to cover patent litigation costs.

There are two types of patent infringement policies: (1) defensive policies that cover you if someone sues you for violating a patent; and (2) offensive policies that help pay your attorney fees and other costs if you sue someone else for violating a patent.

For the majority of inventors, neither type of patent insurance is a good investment. Defensive patent insurance typically costs 2% to 5% of  the insured amount -- that comes to $20,000 to $50,000 for $1 million in coverage. That’s a lot of money you could be spending to develop or market your invention. Moreover, you must make a co-payment ranging from 15% to 25% of any damage award -- for example, if you suffer a $1,000,000 patent infringement judgment and have $1,000,000 in defensive coverage, you’d have to pay the first $150,000 to $250,000 yourself. Just as bad as the expense involved is the strict screening process patent insurers will make you go through before issuing a policy. They’ll look very carefully at your patent portfolio and check for conflicting patents. They tend to be very conservative and will refuse to issue you a policy if they think there’s even a small likelihood you might be sued. The same defects apply to offensive patent insurance.

In some cases, your business may be insured for intellectual property infringement claims and you may not even know it. The Comprehensive General Liability Insurance (“CGL”) policies typically obtained by businesses may provide such coverage. Several courts have held that the “advertising injury” provision included in many CGL policies covers some types of patent  infringement claims. These are usually cases where an allegedly infringing product is used to help advertise goods for sale to the public. However, not all CGL policies provide such coverage. Ask your insurance broker whether your policy covers infringement claims. If the broker doesn’t know, you may need to consult with an insurance attorney who represents policyholder. Learn more about Patents and Business.  

by: , J.D.

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