Patent Risk is More Common—and Costly—Than You Think

Consider this scenario: Your client, a small business that makes trophies, plaques, signage and customized sports awards, deploys an app that enables clients to design, order online and 3D print finished products for same-day pick up at various locations. It’s an exciting, entrepreneurial, technology-driven step into the 21st century, and it promises to expand the client’s available market while dramatically increasing revenue and profit.

It also promises to get the company sued for patent infringement.

Since 2010, more than 23,000 companies—many with revenues of less than $100 million a year—have been sued for infringing a patent they never knew existed. Considering it happened more than 4,500 times last year alone, it’s clear that patent infringement has become as ubiquitous and dangerous an operating risk for businesses of all sizes as workers comp, property-casualty and cybersecurity.

Because technology pervades almost every element of modern business, almost any company runs the risk of using a patented technology. Even non-technological companies like hotels, restaurants, bookstores and sports equipment manufacturers are being sued on a regular basis.

The most common misperception about patent risk is that it only affects companies that own technology patents. But the universe of risk is actually much larger, because any company is vulnerable if it makes, sells or even just uses products that contain a patented technology. And because the patent landscape is so broad and complex, encompassing millions of issued patents that cover a multitude of inventions and applications, it is impossible for any company to understand all the patents that represent litigation risk.

The good news is that most patent litigations do not force the defendant to pay eight- and nine-figure damages. You read about those cases now and then, but they are the exception, not the rule. The bad news, however, is that infringement lawsuits are still punitively expensive—especially for the smaller and midsize clients in your book of business.

Most patent suits actually do not reach a judgment—they end in a settlement. But in the time it takes to reach a settlement, lawyers on both sides bill hundreds of thousands of dollars in legal fees. Add in the license or royalties agreed to in the settlement and a single patent suit can cost millions to resolve. Your clients face very few risks that are this common—or severe.

As an insurance professional, it’s your job to protect your clients against all types of risk. Patent infringement is one that’s worth covering.

Patent insurance can cap financial losses and offer the predictability of an annual premium. It gives policyholders access to an expert adviser and can save them millions of dollars in unanticipated legal fees and settlement costs. Infringement coverage can reduce per-case costs by up to 60% and dramatically simplify case management.

Plus, unlike most insurance, patent risk can be markedly more predictable, which means providers and policyholders can anticipate—and often fully or partially prevent—patent licensing attacks. All levels of risk can be insured, from venture-backed startups to fast-growing small companies to large firms with high risk and indemnity exposure.

Patent risk is real, expensive and here to stay. Your business customers may be surprised to discover how prevalent it has become—and how insurable.

Paul Scola is head of insurance services at RPX Corporation, which provides patent risk management solutions to nearly 350 companies.