Many companies worry about infringing patents when they introduce new products due to the costs associated with patent litigation. Even a small patent case can cost a company over a million dollars in attorney’s fees if the parties engage in significant discovery. Plus, the potential liability associated with patent infringement is filled with uncertainties because it is difficult to predict when your product is infringing someone else’s patent rights or whether those patent rights are valid. For these reasons, some companies will explore their options with respect to patent infringement insurance.
Patent infringement insurance can be difficult to obtain because a limited small number of companies specialize in offering patent infringement insurance. In some cases, companies can obtain coverage from the general commercial carrier because Plus, “[s]ome large [insurance] carriers and reinsurers have, on a one-off basis, provided catastrophic coverage for patent infringement liability risk or provided excess coverage where patent infringement liability-risk coverage is part of an integrated-risk program.” [Kimberly Klein Cauthorn, "It’s Not Rocket Science, It’s Insurance How to Use Insurance to Manage Patent Risk," AIPLA 2009 Annual Meeting].
Patent infringement insurance generally falls into two categories, infringement-abatement insurance and infringement-defense insurance. Infringement-abatement insurance provides the insured party with the ability to enforce its patents. Infringement-defense insurance provides the insured party with the ability to defend itself against patent infringement claims.
The costs associated with patent infringement premiums will depend upon the product that is being covered or, in the case of infringement-abatement insurance, upon the patent being covered. The premiums will typically range from between 2-5% of the insured amount. Clearly, these premiums can be very expensive when a substantial insured amount is necessary because the damages are substantial.
Damages of up to $1 billion can be covered by insurance, but $20 to $30 million policies are most common. Deductibles can start at around $50,000-100,000.
Insurance underwriters can require companies that seek insurance coverage to submit financial statements, documents relating to the intellectual-property risk-management practices, litigation history and product information.