As the landscape of patent litigation continues to evolve, a new player is stepping into the arena: the insurance industry. Traditionally, patent litigation has been dominated by outside investors who pump significant sums into lawsuits in hopes of securing a share of any favorable verdicts or settlements. In 2022 alone, litigation funders invested approximately $513 million in patent cases, according to a report by Westfleet Advisors.
However, recent developments suggest that insurance products designed specifically for patent monetization could disrupt this well-established dynamic. Insurers are now offering policies that set a floor value for patents and guarantee a portion of what patent holders expect to earn through infringement lawsuits or other monetization efforts. This makes it more attractive for institutional investors, who may have previously been hesitant, given the binary nature of litigation funding.
Gaston Kroub, a partner at patent consultancy Markman Advisors, highlighted the cost advantages of such insurance, stating, “There’s a wider network of institutional investors that will dabble in litigation funding if there’s insurance involved because it becomes less binary.”
While this new form of insurance could make it easier for patent holders to secure outside funding, it is not expected to completely replace traditional litigation financing. Michael Gulliford, managing partner and co-founder of Soryn IP Capital Management, elaborated on the potential implications, noting, “Some funders may not be able to invest at the lower rates, creating a new layer of competition in the space.”
The appeal of these insurance products is heightened by the lessons learned from past experiences with other types of litigation-related insurance. For instance, Liberty Mutual’s substantial loss on a policy linked to a $1.6 billion judgment against IBM has prompted insurers to focus on portfolios rather than individual cases. This shift aims to mitigate risk and is already a common practice among litigation funders.
Megan Easley, senior vice president of contingent risk insurance at CAC Specialty, pointed out that patent monetization insurance serves as a cost-effective alternative for intellectual property holders. Easley noted, “This serves as a really good alternative for folks with valuable intellectual property who are looking for lower cost financing and using insurance to bring down the cost of borrowing is just a very attractive solution.” CAC Specialty placed its first patent monetization insurance policy last year, and the industry is keenly watching its impact on the broader market.
As insurance brokers curate and review patent portfolios to make them appealing to insurance providers, the dynamics of patent litigation funding are set to shift significantly. While the full impact remains to be seen, it’s clear that the intersection of litigation finance and insurance could add a new layer of complexity and opportunity to patent suits.