Patent Liability Insurance

Tue May 15 01:31:51 UTC 2007

Same caveat as below: I am an attorney (although not licensed to
practice before the PTO)and these general statements are not legal
advice. 

Virtually all open source projects and open source companies with whom I
deal do not perform patent searches for the following reasons: 

1) They are expensive and patents are difficult to interpret in the
software market

2) Patent applications are confidential until either publication or
issuance of the patent; consequently a search today may be irrelevant if
the patent application is issued as a patent the next day

3) If you find a relevant patent you are then potentially liable for
willful infringement and, thus, treble damages

I don't agree that you have no real defenses to patent infringement: the
patent may not meet the statutory requirements of novelty, non
obviousness and utility, it may have been filed after the one year
statutory bar and it may not cover your particular product. The problem
is that proving these defenses is very expensive. I am not aware of any
company or project with patent insurance because it is expensive and
coverage is limited. 

The disclaimer of infringement is included because the default
provisions under Article II of the UCC imposes an "implied warranty of
non-infringement" so if you do not include such a disclaimer you are
warranting that the software does not infringe third party rights
(including patent rights). This disclaimer is also included in virtually
all commercial licenses (although commercial licenses generally have a
more limited intellectual property indemnity).

-----Original Message-----
From: Marc Whipple [mailto:MWhipple at itsgames.com] 
Sent: Monday, May 14, 2007 2:57 PM
To: Bruce Alspaugh; License Discuss
Subject: RE: Patent Liability Insurance

Note: While I am an attorney and licensed to practice before the USPTO,
this is not legal advice.

>One of the risks we see in creating an open-source project is the 
>possibility of being sued for inadvertently reinventing someone else's 
>patented idea.  Basic due diligence may be enough to avoid a copyright 
>infringement, but we aren't sure if that is the case for patents. 

That depends on what risk you are looking to mitigate. If you are
worried about the more serious kinds of sanctions that willful
infringement can subject an infringer to, basic due diligence should
suffice. If you perform due diligence and have no reason to believe that
you are infringing a patented invention, you avoid the really killer
sanctions for the most part.

If you are worried about legal sanctions for basic infringement
(ordinary damages, injunctions, etc) then no amount of diligence will
save you. There is no real defense to patent infringement other than not
to do it. If the claim reads on your product, you're done. Due diligence
could help in that it might prevent you from practicing an infringing
device or method, but not in defending such practice.

>Patent searches could prove too expensive for many open-source 
>projects.  

Patent searching has gotten remarkably cheap in the age of the Internet.
In fact, a reasonably competent person can perform some elements of the
initial search themselves, for free, on the USPTO's website. I would
strongly suggest that those who aren't good at reading legalese - by
which I do not mean non-lawyers, I know non-lawyers are good at it and
lawyers who aren't - ask an experienced patent attorney to examine the
results of the search, or, if in the least unsure of how to properly
design such a search, to consult a patent search firm or patent
attorney.

>The cost of defending a patent infringement suit could put 
>many open-source projects out of existence.  Are there inexpensive ways

>open-source projects can mitigate the risk of inadvertently infringing
a 
>third-party patent? 

That depends on your definition of inexpensive. For garage inventors (or
home-office programmers, if you prefer,) the answer is, sadly, "Probably
not." There are just too many patents.

>I understand that is possible to purchase patent liability insurance.  
>How much does patent liability insurance typically cost? 

Like any insurance it depends on the coverage. I looked into a general
policy for the invention studio where I worked many years ago. The
premium for a policy with coverage broad enough and limits large enough
to do any good would have been a significant percentage of our gross
revenues in a good year. It's not cheap.

>How do most 
>open-source projects raise the revenue to pay for this insurance?  Do 
>any of the many foundations that assist open-source projects (Apache, 
>Mozilla, Eclipse, FSF, etc.) offer this insurance for the projects they

>host?

I don't know that. I would be very surprised.

>Most open-source licenses I have seen disclaim any warranty of patent 
>non-infringement and therefore shift the legal risk onto the users.
Are 
>the users of open source software therefore expected to purchase patent

>liability insurance? 

"Expected" may be too strong a word. I suspect that most contributors to
Open Source don't think about whether users should or shouldn't get it
in the first place. However, I will gladly defer to other more
experienced voices.

M

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