Infringement Insurance

Abatement InsuranceAmericans are reputed to be more litigious than the people of other nations, including Canada.  A number of our firm’s clients have been involved in legal actions in the United States.  These legal actions generally occurred when our client had commercial success, or was on the verge of having success, in the United States.   In some of the lawsuits, our client was the defendant, that is, our client was being sued for patent infringement.  For example, a client with a natural gas control product was taking substantial business away from a major company in the field.  The major company sued the client asserting infringement of a group of patents, including a claim for “convoyed” sales.   “Convoyed” sales are sales of non-patented products (wire, tubing, etc.)  sold along with infringing products, the thinking being that such convoyed sales would not have occurred except for the infringement.   In other lawsuits, our client was the plaintiff, that is, our client was suing for patent infringement.   For example, a client in the field of   non-destructive testing had patented technology for checking for gas leaks that used a non-toxic vapour that carried a dye.   When the client starting taking substantial business away from the industry leader in gas leak detection technology, the industry leader copied the technology to avoid a further erosion of its market share.  This forced our client to bring legal proceedings in the United States to enforce its patent rights.    Our client spent well over a million dollars in legal fees before finally achieving success in the litigation.  However, in order to avoid a repetition of such an expense, the non-destructive testing client subsequently purchased a policy of infringement insurance.  There are two types of infringement insurance, defensive policies to protect you when you are sued and abatement policies to protect you when your intellectual property rights are infringed.  The cost of the policies depends upon industry sector, gross revenues and other factors.  There is generally a minimum 10% co-pay requirement.  The important take away is that infringement insurance exists.  It is provided by specialized insurance companies and not by general commercial insurance companies.  Since acquiring infringement insurance, the non-destructive testing client has become involved in five U.S. patent lawsuits.  They estimate that having the infringement insurance has saved them at least 2 million dollars.  There is a further benefit in having infringement insurance.  For example, not too long ago, we sent a “cease and desist” letter to an alleged infringer, and received a very aggressive and belligerent response.  We notified the infringement insurance company.  After receiving a letter from the infringement insurance company, the attitude of the alleged infringer changed completely.    Presumably because the presence of infringement insurance demonstrated to the alleged infringer that our client had the financial backing to litigate the dispute, the alleged infringer got in touch with our office and the matter quickly settled. If your company is having commercial success in the United States that is at least in part based on your intellectual property rights, or you are operating in a field in which other players have intellectual property rights, you may wish to review your circumstances to determine whether infringement insurance would be beneficial for you.