Wherein We Liken Patent Trolls To Winnie-the-Pooh

Oh yes, I went there.

I really hope this article from Law 360 isn’t paywalled because it’s just terrific.

Serendipitously, my recent guest post on Article One Partners’ blog talks about patent litigation insurance as one of the Patent Risk Management options available.  High-five to Law 360 for timing.

James Morando of Farella Braun & Martel LLP gets right out in front of the obvious train and hops in the conductor’s seat:

“The impact of one or two patent troll suits can be significant for smaller and medium-sized companies,” he said. “These suits can create a legal expense that is unbudgeted and unpredictable, and they can have a big impact on a company’s earnings and where it’s going.”

So if you’re in any business that relies on patents for it’s products and don’t have a legal expense budget for patent infringement lawsuits then may I please ask where your rock is, the one you’re hiding under?  Because that’s plum irresponsible not to put aside some money to fight off the trolls.  I mean, it isn’t as if the news about them isn’t pretty much everywhere.

This statement I don’t quite get:

Meanwhile, IPISC’s insurance defense product relies on actuarial data, which helps anticipate what industries are more likely to be sued by patent trolls than others, he said. IPISC has offered IP insurance since 1988.

I had said in my post over at AOP that there really aren’t actuarial data that you can rely on.  I’m guessing what they mean here is litigation data, where you can go see what patents are sued over and that makes sense.  Still not sure that it’s going to help you arrive at the right premium, but OK.

From the “oh, but one is coming” department:

Another challenge is that companies looking to provide this insurance still don’t have a good predictive model to determine when a policyholder is likely to be sued by a patent troll, according to Gauntlett.

Oh, but one is coming.  It’ll be here, better than before.  Yesterday’s gone, yesterday’s gone…  What?  Sorry.  A little Fleetwood Mac on the iPod this morning, my bad.

Here’s the crux and hold onto your hat:

Under federal rules of civil procedure, any defendant has to disclose insurance that might be applicable to the lawsuit.

Dern those federal rules of civil procedure all to hell, this can’t  be good.  And sure enough, it’s not:

“If you set an open jar of honey on the back porch, you are going to attract some bees*,” he said. “If a plaintiff learns defendants have insurance policies set aside for cases brought by nonpracticing entities, it might drive a harder bargain to settle for a larger amount because it knows that in addition to company funds, there are insurance funds. In addition, nonpracticing entities and their lawyers may talk amongst themselves and trade information on companies that have insurance, making those companies a more inviting target.”

And there it is folks, in one black and white paragraph:  buying patent infringement insurance makes you a potentially bigger target for the trolls and also?  Trolls are gossips.

*That’s where Pooh comes in…because he likes pots of honey too, which you would remember if you’d get out of your office for a few minutes a day, borrow a five year old, and read to it.

I’m not a fan of insurance because it shields the price that anyone actually pays for anything and if you ever actually have to use it?  Your rates go up which is just mean.  But in the case of patent litigation insurance with respect to trolls in particular, it’s even more difficult to see the upside because once you buy it?  Your honeypot is showing.

Just sayin’,


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