If patent insurance hasn't historically been top of mind for business owners, it definitely should be today. Let's face it: We live in a litigious world. This, coupled with the fact that technologies and the related patents overlap, can cause any business that makes, sells or uses technology to become a prime target for patent litigation.
It also makes them ideal candidates for patent insurance.
Still, brokers and their clients are just catching on to the importance of patent insurance in transferring risk. Let's review both the big picture and the specifics to emphasize the importance of this critical coverage.
Patent insurance: The new standard coverage
The first thing to remember is the vastness of the patent world: More than 300,000 patents are granted every year, and the likelihood of infringing on a patent is high.
Just ask Adam McDonough, executive vice president at Lockton Insurance Brokers, LLC.
"I would say virtually all of my clients have been subject to patent litigation," he says. "[The uninsured] have had to deal with it on their own, and have incurred the associated costs."
Between legal fees and settlements, litigation costs can run into the millions of dollars. Larger companies may be able to absorb the costs, but for small and mid-sized companies, patent litigation can mean the end of their business. And, unfortunately, businesses that have already received one assertion letter could more than likely become targets again.
Business owners who might be waffling on patent insurance must also ask whether their business can sustain a possible litigation at this juncture of its lifecycle — the timing of a patent lawsuit could have disastrous effects for a company going through a merger or preparing to go public, for example.
With so much hanging in the balance, and as technology continues to become even more central for businesses, many brokers are advising their clients to treat patent insurance as a standard business expense — much like general liability or cyber risk coverage. An annual premium provides peace of mind: should litigation occur, companies have a safety net to offset large costs.
Best-in-class providers customize policies using detailed data
While the need for patent insurance is clear cut, deciding which product to invest in requires a bit more guidance from those in the know. Savvy brokers steer their clients toward top-tier providers that use a data-based actuarial approach to risk assessment — data on the technology in question, the company's litigation history and its business dynamics, including sales and business partnerships. Cost data from the provider's existing client base is also fundamental to calculating a company's projected losses. In addition, the ideal provider uses in-house experts to analyze the detailed data and put them in context. With this approach, a provider can design a customized policy for a company's unique risk profile — and a price to match.
It's also important to find a provider that offers appropriate advice and support, so you can make informed decisions.
"If a company hasn't been involved in a lot of patent litigation, it really needs a partner to help explain what it's up against, the right questions to ask and how to select the right counsel," says Kim Cauthorn, global IP practice leader at Willis Towers Watson. "Companies need someone on their side that understands the litigation process."
Brokers and organizations alike are beginning to understand that patent risk is a common pitfall plaguing today's organizations. In fact, thanks to the ubiquitous use of technology, it's following a similar trajectory as cyber risk, which — to all who are reading this — should create some anxiety. But patent litigation insurance is a cost-effective safety net that allows organizations to continue operations, with the peace of mind that their business is protected from the inevitability of patent risk.
Additional RPX Insurance articles by Paul Scola:
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