It is becoming more and more common for technology business owners to be faced with patent infringement suits filed by a non-practicing entity (NPE), an entity that does not manufacture or sell the product covered by the patent. Defending a patent infringement suit can be very expensive, and for a small company, can threaten its very existence. Historically, patent litigation insurance has not been readily available. But now, patent aggregator RPX and insurance company Aon Risk Solutions have teamed up to offer patent litigation insurance for suits brought by non-practicing entities.
Developed specifically with small-to-medium-sized businesses in mind, Aon Risk Solutions is offering the product to companies with $1 billion or less in annual revenue. Underwritten by RPX, this new line of patent litigation insurance will initially allow up to $2.5 million in coverage against legal action from NPEs. In implementing this service, Aon aims to limit severity risk and is complemented by RPX’s talents in identifying and clearing high-risk patents through their core defensive patent acquisition service.
According to a study by James Bessen and Michael Meurer of the Boston University School of law, the total cost for NPE litigation in 2011 was $29 billion, up over 400% from 2005. The study also found that 82% of the defendants sued by NPEs had less than $100 million in revenues.
The joinder provision of the America Invents Act, which went into effect on September 16, 2011, has decreased the number of defendants that are sued by NPEs, but suits are still filed by NPEs on an almost daily basis. This joinder provision, however, makes it more difficult to file large multi-defendant infringement cases.
Also worth keeping an eye on is H.R. 6245, the Saving High-Tech Innovators from Egregious Legal Disputes Act (SHIELD Act). If the Shield Act is passed, this could potentially allow the defendant in a patent suit over computer hardware or software to recover legal fees if a court rules the plaintiff does not have a reasonable possibility of succeeding. Introduced August 1, 2012, the bill is currently under review by the House subcommittee on Intellectual Property, Competition, and the Internet. But even if the Shield Act is passed, the defendants must still defend the suit and will likely have a difficult time in most cases having the court rule that there is no reasonable possibility of success by the plaintiff.
So even with new and pending legislation, the risk of patent litigation by a NPE is still present for technology companies. Patent litigation insurance may be a good solution for companies looking to minimize company exposure to such risk.
Vincent Allen is a partner at Carstens & Cahoon. He focuses on the litigation of intellectual property disputes and the prosecution of patent and trademark applications.
This blog is maintained by Carstens & Cahoon, LLP to inform readers of recent developments in intellectual property. Solely informational in nature, this blog is not intended to create an attorney-client relationship or to be used as a substitute for legal advice or opinions.