Issue: May 2014


Protecting intellectual property in a global marketplace



by Esther Francis





Intellectual property (“IP”) infringement, for example the sale of counterfeit parts, plagues the automotive industry worldwide. A second major IP-related problem plaguing the Auto Industry is patent “trolls,” where a non-practicing investment company/ entity (“NPE”) purchases an overly simple patent, then serially demands royalty payments from multiple legitimate practicing businesses – and threatening expensive litigation if they don’t pay. The automotive industry is fighting back, but litigation is very expensive, whether allegations are legitimate or frivolous. 

In fact, IP litigation is among the most expensive events that can impact a company. The average patent lawsuit costs each side approximately US $2.5 million in legal fees and expenses through trial, not including damages and/or settlements. “Whether it is about defending your products against predatory business practices of others, maintaining your place in the market, or enforcing your IP rights to prevent others from copying your ideas and stealing precious market share, IP litigation is expensive and time-consuming,” says Robert Fletcher, President of Intellectual Property Insurance Services Corporation (“IPISC”). 
“It is important for the auto industry in particular to understand that IP litigation can be a significant risk, yet many participants in the auto industry have not been advised about the availability of IP insurance. Assessing IP risk, and ensuring that the right insurance protection is in place for this costly and potentially devastating exposure is essential to any company’s overall financial survival,” says Fletcher. All companies face the risk of intellectual property infringement litigation, whether they are making, using, offering, selling or importing goods. Companies must be able to protect their IP rights, or they risk being compelled to pay burdensome licensing fees, or being forced out of business.

IPISC has been in the business of managing IP risk and protecting the value of IP assets for over 23 years. Having developed specialized expertise in these areas, it remains the market leader in the field of IP insurance. “Given its established track record of success, only IPISC offers the market a full scope of IP-specific coverage including Defense, Abatement, Multi-Peril and Unauthorized Disclosure policies on a worldwide basis. IPISC has helped ensure that funding and litigation support have been available for policyholders to sustain IP litigation to a successful conclusion,” says Fletcher. 

Automotive Industries (AI) asked Fletcher how big is the problem of intellectual property violations for the automotive sector. 

Fletcher: Intellectual Property infringement is widespread in the automotive sector. According to the most recent PricewaterhouseCoopers 2013 Patent Litigation Study, the automotive/transportation always ranks among the top 10 industries with the most patent suits filed, and that ranking is trending upward. Non-practicing entity (NPE) or “patent troll”- generated IP litigation is increasingly common. However, the automotive sector has fared moderately well, as the industry is overall more successful than the patent trolls in litigation, having a success rate of approximately 33% as opposed to 17% success rate of the patent trolls. Nearly 62% of all patent lawsuits are filed by patent trolls, outpacing legitimate practicing entities in total damages awarded over the past several years. No company is immune to charges of infringement brought by patent trolls, however, and responding and resolving the threat can be very expensive. 

AI: What are some of the areas in which this issue is most rampant? 

Fletcher: Innovative, rapidly emerging technology is characteristic of the automobile industry. The industry continues to invest heavily in new product development and continues to rely significantly upon the value and importance of its intellectual property. Automotive technology today is high-tech and sophisticated, for example, paint coatings, internet and phone communication, sound systems, fuel economy and safety systems. 

AI: How does an automotive manufacturer get redress when IP violations occur in an overseas country – for example China? 

Fletcher: The automotive manufacturer must have filed and been issued patent rights in China, for example, to receive any redress there in the event of an IP violation. While seemingly the odds are stacked against the non-resident, there is a shift beginning to take place in developing nations such as China. The fundamental IP laws enacted in the early to mid-1980s were quite well done in many ways, but enforcement was lax. However, since their own people are becoming innovators, the Chinese are paying more attention to enforcing their own IP laws. IP protection is becoming important to them. 

AI: What are some of the international solutions IPISC offers auto firms? 

Fletcher: IPISC offers coverage on a worldwide basis, which is the solution for international IP risks. IP insurance enables the policyholder to fund the litigation to enforce IP rights and/or defend against charges of IP infringement worldwide. This insurance ensures the policyholder has the funding to fight an IP lawsuit on the merits of the case, so the outcome does not depend upon who has the deeper pockets. IP insurance is the best risk management solution for potential litigation expense. The alternatives are stockpiling funds internally, or asking attorneys or commercial institutions for an investment or loan. However, litigating firms are generally unwilling to accept an IP litigation case on a contingency, whether offensively or defensively, without being certain that their client is entitled to high damages. Lending institutions and investors don’t tend typically loan or invest money to fund litigation. General commercial insurance no longer covers most IP risk, so IP insurance fills the coverage gap resulting from restrictive changes in commercial insurance policy forms. 

AI: How successful has your firm been in prosecuting IP violations? Especially outside of the United States? 

Fletcher: IPISC has been very successful at helping policyholders fund and successfully litigate IP litigation. IPISC offers litigation management services to help manage the time and expense associated with IP litigation. These services alone often save a policyholder more money than their insurance policy cost them. IPISC personnel are available to help monitor progress of litigation and assure associated legal expenses are reasonable, and fall within the negotiated billing rates and guidelines. This collaboration with counsel significantly contributes to the efficiency of the litigation, which equates to money savings to the policyholder. These litigation management services also facilitate reliable and expedient payments to litigating counsel. IPISC also offers Early Intervention (EI) Services, where IPISC’s litigation management department sends a letter to put a suspected infringer on notice of a policyholder’s IP rights, and the fact that they have insurance. 

AI: What needs to be done to minimize IP infringement across the world? 

Fletcher: More thorough examination of patent applications is the key. There is no debate as to the value of an IP protection system. There is no stronger stimulant to an economy than innovation fueled by the promise of individual reward. Problems arise when applicants are granted rights to overly broad or simplistic patents, when their actual contribution to the field is minimal. These grantees are given all of the powers of protection that are afforded to pioneering contributors to science and the useful arts. NPEs primarily are indigenous to the U.S., and possibly Japan, and the good news is that the supply of poorly issued patents diminishes as those patents expire. 

AI: What in your mind will be the result if effective steps are not taken to tackle this NPE menace? 

Fletcher: If the NPE problem is not addressed, the cost of production of goods and services will increase, demand for these goods and services will diminish as a result, and consequently, original research and development will suffer. The incentive to invent may be stifled. The NPE problem could lead to the U.S. having a diminished role as a world technology leader, unless it successfully addressed. Perhaps the best way to address the problem is through another U.S. innovation, IP insurance  





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