White House Warns of Patent Trolls

“Patent trolls” – a colloquial name for “patent assertion entities” (PAEs) – have for years been a cause of alarm for many businesses.  This issue has reached the level of the White House and the President’s Council of Economic Advisors has recently released a report outlining the dangers of trolls.

The findings in the paper are alarming.  Shell companies – owning patents – are bringing suits against companies whose operations or products may infringe upon the patents these shell corporation have.  Lawsuits by the PAE firms have tripled in the last two years.  Estimates put the amount of companies threatened by a PAE lawsuit at 100,000.  Most lack the funds to fight such claims.

Patent cases are also brought by active corporations and remain around the 2,000 lawsuits per year.  It has been this way for the past six years.  However, 2012 has brought the first year where PAE lawsuits are coming in greater numbers than non-PAE lawsuits, as seen in the graph below:

PAE lawsuits

 

The risks are clear to firms.  Even if a company is unknowingly violating a patent or other intellectual property, a lawsuit could be brought with the sole purpose of extracting money from the company.  While the President has issued executive orders and made legislative recommendations around these findings, lawsuits are still being filed at an alarming rate.

The safest and most immediate answer for firms may be to transfer the risk of such legal costs off of their balance sheet and onto an insurance policy.  Intellectual Property Defense Policies (IP Defense) are specifically designed to protect a company in the event they are sued for violating a patent, copyright, trademark or trade secret.  The average amount spent on such lawsuits range from $216,000 for a low-level copyright to $5,900,000 on a high-profile patent case.

While most firms do not set aside the capital to weather such a storm, IP Defense policies can be a way firms can protect themselves from bankruptcy or lost revenue from discontinued product lines.  It is important to explore the options available and to make sure that the gaps left in a standard General Liability insurance policy are filled when it comes to these scenarios.

Contact a licensed broker to discuss whether this policy may be right for you.