Patent insurance can be either defensive or aggressive. In buzz-word American or business-speak, Patent Liability Insurance and Patent Pursuance Insurance.
Patent Liability Insurance is defensive – it pays out to help the insured fight an infringement lawsuit filed by a rival company. For this simple reason it is also called Patent Infringement Defense Insurance. The insurance company pays a part of the legal expenses and/or the damages.
Patent Pursuance Insurance provides to help the insured fight against patent infringement by third parties. In the trade this may also be called Patent Enforcement Insurance, Patent Abatement Insurance or Offensive Patent Insurance, although this last might be considered by some to be.. umm.. offensive.
Whatever it is called, in summary the insurance pays a portion of the legal expenses incurred by the insured company.
For an example, the American Intellectual Property Law Association estimates the average cost of US patent litigation to be a half to 5 million dollars for each party, depending on the amount of infringement in question.
The costs can go as high as 500 million. Patent litigation can be enough to make or break a business of many sizes. Insurance is becoming a necessity as the number of patent infringement lawsuits filed annually, in the US – generally a keen business barometer, increased by 111 per cent in three years over the turn of the century.
It has been estimated to cost alleged infringers on average triple figures minimum to defend actions.