How can we afford to enforce our patents?

This question is often raised by clients with limited resources to fight an infringement action.

Most patents are never litigated - estimates range from 3 to 5% of patents ever become part of a serious dispute, and that is over the full 20 year life of a patent. For most technologies, serious disputes are most likely to arise 6 to 10 years after filing. This is a long time after the initial product development, reflecting the stage when a product is successful, and hence most likely to be copied by a competitor.

However the statistics hide a number of cases where either there is no dispute because the patentee cannot afforest the fight, or where a dispute begins but is settled on unfavourable terms because the patentee could not afford to take the dispute to trial.

The risk for a small or early stage entity is that early in the lifecycle of the product, or even before commercialisation, infringement will occur. This is often the point at which cash reserves are lowest, and where a company can least afford to spend money, time and management resources on litigation. These risks are highest where a product is quickly on the market, such as software, and lowest where long regulatory hurdles prevent rapid infringement, for example pharmaceuticals.

One tool for risk management is to take out insurance to fund the potential costs of some or all of litigation over a company’s patent portfolio. This type of insurance has recently become available on the Australian market, supported by a specialist underwriter. The insurance covers the cost of litigation to enforce patents, up to a certain limit. To support a claim, there must be a reasonable prospect of success. The insurer recovers their costs, where possible, from the fees and damages recovered from the judgement or settlement. The cost of cover is assessed on a case by case basis, and of course has to be taken out before any infringement occurs. Cover can be for Australia only, or international in scope.

We have recently attended a presentation about cover, and the premiums are within a range which may be affordable for small and start up entities. The existence of such cover could, in itself, assist in resolving disputes, by making it clear that ‘even though we are a small entity, we have insurance and our insurer has accepted the claim’. This is a valuable tool when confronting a large, well funded competitor, who may hope to prevail by sheer size and expense.

Other forms of cover can assist with other costs, such as infringement challenges to a product. Insurance coverage could also be reassuring to investors at an IPO, providing them with confidence that an IP position can be defended. If any of our readers are interested, we are able to provide contact details for providers of IP insurance in Australia.

by Peter Franke