Insuring Your Start-Up Against Litigation

written by James Kobucar, Esq., Patent Attorney at Gearhart Law
www.GearhartLaw.com

            About a year ago, a crowdfunding campaign was run by Ditto.com to raise money for its business. However, this wasn’t your typical crowdfunding campaign. Ditto was attempting to raise money to fight an allegation of patent infringement made by a “non-practicing entity (NPE)” or patent troll. 

            Many in the start-up community are aware of the existence of these entities and the high level of damage such an allegation can cause to a start-up. According to John Amster, CEO of RPX, Corporation, “if a start-up gets hit [by an infringement suit], it’s a catastrophic outcome.” Indeed, statistics show that the average cost of a “small” case (with projected liabilities under $10 million) is about $1.25 million to litigate, with the alternative being a settlement which may or may not be warranted. 

Thus, RPX has found a niche in the business of providing patent risk management services. The company identifies and purchases patent assets they deem of high value and then charges a fee to companies to have access to these patents for defensive purposes. Currently, the company owns about 4,900 U.S. and International patent assets. The model has thus far proved successful for the six-year old company with membership fees for companies ranging from about $65,000 to $6.9 million and expected revenues this year of around $256 million. 

            Obviously, such fees are not practical for most all start-ups and entrepreneurs who rely on every cent to make their dreams a success, but recently RPX rolled out a line of lower cost insurance options. This includes patent litigation insurance premiums starting at $7,500 for $1 million in coverage. Unlike the company’s previous offerings, there’s no limit as to the size of the company seeking coverage and RPX will even insure pre-revenue companies. This should prove advantageous for the entrepreneurial community as larger companies are much more willing to take on these NPEs leaving the smaller companies as vulnerable as ever. 

            Thus, if you are a start-up (especially in the tech community) some form of litigation insurance may be another avenue to explore to secure your company’s position. It should go without saying, but there are many, many more terms, exceptions, and limitations involved with such insurance than those mentioned in this blog and other forms of protection may be available as well. 

Overall, it seems the business community as a whole is taking a harder stance against the NPEs. Hopefully, this is another step in the right direction to help protect the innumerable start-ups and entrepreneurs working to establish themselves in the business community.

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