03 September 2005

IP Insurance: Does it Work?

Yesterday, I discussed the very real obstacles to access to justice for individual inventors and other intellectual property owners resulting from the abolition of legal aid for matters arising out of the carrying on of a business by para 1 (h) of Schedule 2 of the so-called Access to Justice Act 1998. I considered some of the things that can be done one of which was insurance. That is certainly something the government encourages (see the article "Insurance to protect IP rights" on the DTI's Intellectual Property website).

Not everyone agrees that insurance is a panacea (see Professor William Kingston's report for the EC Commission "Enforcing small firms' patent rights") and I have heard patent agent after patent agent sneer that insurance is a waste of money. The problem is that without cover the small man or woman has nothing. A part of Professor Kingston's report that always comes to mind is his observation at page 61 that most decisions about whether or not to challenge a patent or simply seek a licence are taken "by middle managers who are primarily concerned with their career-paths within an organization." The professor observes that they are much less worried about how much any decision will profit their firm (since the firm's shareholders will gain most of this) than they are about how well they themselves are 'covered' against being blamed if it causes a loss."

He continues:

"In present circumstances, therefore, when faced with a decision whether or not to infringe the patent of a small firm, the balance of advantage for alarge firmirm middle manager is to recommend infringement and intimidation. The odds can be seen to be overwhelmingly against the small firm having the resources to defend itself through appropriate legal action, especially if this could go to appeal. Even if it had these resources, the rational course for it is not to use them in this way because of the risk attached. If the large-firm manager were to recommend taking a licence from the small firm instead of ignoring its patent, he could be considered as throwing away a valuable asset which the firm possesses in its power to intimidate. Throwing away assets and committing the firm to the additional cost of royalties on licensing a patent will not be seen as the best road to promotion."

Insurance can and does work sometimes. At an LES meeting in London in January 2004 I asked one of the authors of the DTI's Innovation Report about a section of his report that promised a scoping study for a "Patent Enforcement Project". He told me the following anecdote. When he was a senior manager of a major UK motor components company, he had come across a patent for a really useful invention. It was one of those inventions that appeared with the benefit of hidsight to be so obvious that it seemed almost certain that someone must have anticipated it. He instructed his patent agents to look for prior art, but they could find none. He invited the inventor to a meeting. The inventor proved to be a very affable gentleman. However, one of the first things he said after the plesantries was that if the large company was minded to challenge or ignore his patent, he had taken the precaution of taking out IP insurance. Not surprisingly, this very large motor components company negotiated a licence.

Related Link
nipc Invention "IP Insurance" Discussion of the market and what's available with links to other reading matter.

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