laguna_alcueo331Whether for better or worse for the IP litigation landscape - depending on who you are and from what perspective you view the enforcement of intellectual property rights - the intellectual property insurance business model is catching on with companies that view themselves as “at risk” entities.  I recently sat down at a meeting with Chuck Baxter, General Counsel and Senior Underwriter for Intellectual Property Insurance Services Corp., to learn first hand what services are offered by an IP insurer; how might these services benefit a business (and how a business might simply benefit from realizing that patent insurance is available); and how might those services change the IP litigation landscape and the IP marketplace.  Chuck discussed the policies that his company offers, including IP Defense Insurance for companies that wish to insure their IP assets against future infringement claims, and IP Abatement Insurance for companies looking for a stronger position in enforcing its IP assets. 

Of course, the benefits of owning IP Defensive Insurance in the case of being served with a patent infringement claim are obvious.   According to IPISC, being insured means that (1) the defendant may have enough funds to support a strong legal front, thereby increasing the likelihood of a favorable outcome, (2) a company doesn’t have to rely on operating funds or other capital to defend itself, and (3) a company with less capital and a stronger legal position doesn’t have to succumb to the pressure of settling or licensing. (see IPISC website)

In short, it is IPISC’s position, and I don’t disagree, that IP Abatement Insurance may afford a stronger negotiation position and may increase licensability of IP assets because it (1) creates the potential to reduce the pressure to settle due to a limited resource of funds, (2) could discourage potential infringement by demonstrating the financial ability to enforce intellectual property, (3) could help maintain market share by allowing for quicker decisions and actions with respect to potential infringers, and (4) could increase the value of intellectual property because that value is intrinsically tied with the quality of intellectual property, which is inherently tied to enforceability.   (Per IPISC’s website)

While the benefits to certain companies are real, depending on their portfolio and market position, the merits of this system of subsidizing litigation and settlement negotiations are yet to be completely examined.  The business model is still somewhat new - and growing.  Surely, there will be debate about whether insurance will donate false courage to those in weaker legal positions, thereby creating outcomes that don’t accurately reflect the “right” and the “wrong”.  On the other hand, it has the potential to create an even playing field and balance the seesaw of bargaining positions, thereby letting legal sufficiency talk instead of pocket books.  One of the more interesting implications of IP insurance is that it could have an impact on the IP marketplace.  As stated above, it could have the tendency to enhance licensability, thereby increasing the frequency of IP transactions.

For now, it may be prudent to simply advise clients that intellectual property insurance is available.  Moreover, that advice could be equally as prudent if only to help them realize that the other side may be insured, and therefore bluffs at litigation may turn into a “be careful what you wish for” situation.

(pictured here is the fantastic mountain-adorned landscape of the Chilean countryside)

This entry was posted on Tuesday, April 27th, 2010 at 4:03 pm.
Categories: Burgeoning Business ~ by Ian McClure.

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