The importance of patent risk insurance is starting to really sink in. Brokers know that their clients need only scan the news for stories on the latest infringement cases to understand that buying patent insurance is a smart decision.
But for some, buying patent insurance is like planning for retirement: Yes, it's the smart thing to do, but there's no real sense of urgency.
Perhaps the sense of urgency will come when business owners consider where their companies are in their respective lifecycles. How would patent litigation affect a company's ability to get funding, go public, acquire a company or be acquired themselves?
Sometimes, all it takes to tip the scales in the right direction is a little perspective from those who have lived through the patent infringement nightmare. So here you have it. The companies in all three of the following stories operate in different verticals and are at different points in their life cycles. But they have one thing in common: They all were able to avoid costly litigation because they had the forethought and the business sense to buy patent insurance.
Litigation costs reduced by 10X
One, an early-stage software company, avoided millions of dollars in protracted litigation after being sued for patent infringement. The company had only a few options: Settle as quickly as possible to avoid a steeper demand from the plaintiff later on, or litigate using its own outside counsel — at a cost of up to $2 million.
Thanks to the company's patent insurance, a better option emerged. Its insurance provider negotiated a maximum defense budget of $5,000 with a law firm that knew the venue, plaintiff and judge. Under the arrangement, the company dramatically reduced its litigation expenses while its insurance provider purchased rights to the asserted patent and ended the litigation. The entire claim was resolved in 95 days and the software company was out less than $3,700 — 10 times less than the award for a similar case and outcome.
Insurance saves an IPO
In another case, a pre-IPO telecommunications startup learned it had been sued for infringement. Its insurance provider covered the claim under the startup's policy.
Because the suit was part of a campaign against dozens of the company's clients, the provider was already familiar with the plaintiff and the ongoing litigation. With this knowledge, the provider determined that obtaining rights to the portfolio would achieve the best resolution. Within two months, the provider had negotiated and finalized rights to the asserted portfolio and licensed all of its relevant clients. In the end, the startup avoided all costs associated with the suit and never had to retain outside counsel. Its IPO plans went on without a hitch.
Litigation avoided
As mentioned in a previous article, technology companies aren't the only targets. An online marketing company and an e-retailer both received patent assertion letters from the same plaintiff threatening multimillion-dollar litigation.
Their patent insurance kicked in, and since their provider has a deep understanding of patent litigation and the players involved, it was able to present detailed data on the scope, nature and credibility of the assertion letter campaign, as well as detailed background information on the plaintiff. The information revealed that the plaintiff had sent assertion letters to dozens of companies doing business online, and that the risk to these companies was likely minimal.
With this information, the client determined that a no-engagement strategy was the most appropriate. The companies saved an estimated $40,000 to $60,000 in fees to investigate this assertion letter, and avoided hiring outside counsel. To date, no litigation has been filed.
The aforementioned cases are classic examples of how patent insurance safeguards hard-earned revenues, ensures business as usual and provides peace of mind throughout a company's lifetime. Still, not all businesses owners are ready to commit to patent insurance, even though it may offer affordable peace of mind.
However, as patent risk continues to be commonplace for so many organizations, insurance emerges as the best bet to protect against litigation and ensure a company lives to see the next stage of its lifecycle.
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