Are the trolls coming and should you fend them off with insurance?

The APC report

The Australian Productivity Commission recently released its final report on the effectiveness of the intellectual property system. The report mentions that there is currently limited concern for patent trolls in Australia, and that the intellectual property insurance market in Australia is undeveloped.

Are the trolls coming?

The so called trolls are entities which do not “practice” their inventions, and who hoard patents in the interests of suing for infringement of their patents, and for generating licensing fees.

There is potential for trolls to grow their influence in Australia; a risk acknowledged by the Australian Government Productivity Commission. That potential appears to be confirmed by some publicly known examples of trolls operating in Australia. Furthermore, the majority of Australian patents are being granted to US residents 1, the arguable “home” of the trolls, which could mean increased troll activity in Australia.  That said, the trolls’ invasion at this stage does not appear significant.

What’s the benefit of patent insurance?

Most patentees will likely have a general liability policy. Generally speaking, a liability policy will not respond to a claim regarding the insured infringing a patent(s) 2, and will not cover patent enforcement proceedings. Accordingly, if patentees want cover for patent infringement or enforcement they will need to seek specific cover.

The two broad types of patent insurance are: patent enforcement insurance and patent infringement insurance.  Patent enforcement covers the insured’s costs for enforcing its patent rights against alleged infringers. Patent infringement insurance 3 covers the insured’s costs and any damages payment, where the insured is alleged to have infringed another party’s patent(s). Patent infringement insurance is particularly relevant for dealing with trolls.

Patent infringement insurance has the benefit of enabling an insured patentee to continue a defence of an infringement proceeding by a troll, without needing to settle by paying damages, or by paying licensing fees to the troll, solely to avoid the costs of the proceedings. A further benefit is enabling the insured patentee to avoid incurring all, or at the least a substantial part of the costs of, what are usually expensive proceedings.

The commonly argued limitations of patent infringement insurance are its high costs, usual requirement for co-payments, limited availability, and the policy apparently being confined to limited territorial boundaries, its exclusion of certain costs and damages (for example fines and exemplary damages), and requirements for the insurer to approve the insured’s proposed lawyers.

Is patent insurance worth it?

Although, the price of patent insurance appears to be decreasing, it still appears relatively high compared to other insurance markets. That said, patent insurance is worth considering, given it can provide significant protection for patentees, particularly from the trolls, despite its drawbacks.

If you have any queries or would like further information regarding this article, please contact:

Scott Shelly
Senior Associate
M: 0409 805 517

1  Australian Government IP Australia, Australian Intellectual Property Report (2016), 8 – 9.

2  Desmond Derrington and Ronald Ashton, The Law of Liability Insurance, (LexisNexis, 3rd Ed. 2013), 2655.

3  Other insurance options include the broader intellectual property rights insurance which will cover enforcement of all intellectual property rights rather than only patents.

Published: 16 May 2017

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