Abatement Insurance: A Great Way to Help Pay for Patent Enforcement

April 11, 2017

Small technology companies often lack sufficient funds to enforce their valuable patents and other intellectual property rights. But one little-known solution is abatement insurance. An abatement policy, sometimes called an enforcement or pursuit policy, reimburses litigation expenses to enforce patents, trademarks and copyrights against alleged infringers.

Abatement policies frequently include a self-insured retention (SIR) limit akin to a deductible that the company must pay out-of-pocket before the policy kicks in. In addition, there is a co-insurance obligation, typically 10 to 25 percent of litigation costs. Policy terms typically range from one to three years with limits ranging from $250,000 to $10 million or more, and the SIR paid by the company does not reduce the policy limit. One provider offers $2 million of coverage at an annual premium of only $15,200 for one patent (or $22,400 for two patents).  If enforcement is successful, the insured must reimburse the insurance company for its expended litigation funds, but the company keeps the rest. Moreover, the policy holder is in complete control of the litigation. It can make or accept any settlement offers it wants, and can select its own counsel; attorneys need only adhere to the insurer’s litigation and billing guidelines.

In addition, counterclaims for invalidity of the asserted patents are automatically covered under the standard abatement policy. According to a recent survey by the American Intellectual Property Law Association, the average litigation costs of an infringement lawsuit through trial is $2.5 million, which makes abatement insurance an attractive option for technology companies who want to enforce their intellectual property at lesser cost.  More importantly, abatement insurance drastically shifts the power structure in the typical David v. Goliath battle between small and large technology companies because with abatement coverage, small companies can withstand a battle to the end if necessary and the Goliaths know it.