Patent Liability Insurance

Wed May 16 14:41:41 UTC 2007

-----Original Message-----
From: Radcliffe, Mark [mailto:Mark.Radcliffe at dlapiper.com] 
Sent: Monday, May 14, 2007 8:32 PM
To: Marc Whipple; Bruce Alspaugh; License Discuss
Subject: RE: Patent Liability Insurance

>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

While I agree that patent searches of the level which would be prudent
for, say, the release of a major new commercial product are expensive
and time-consuming, I still think that a competent individual can
perform a basic search on their own initiative. I agree that software
patents are ridiculously difficult to interpret at times (not unique to
software patents.) It is my fervent hope that the recent USSC decision
in KSR will pitch about ninety-five percent of them to the curb.

>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

Technically true but logically, a reason never to do anything at all. I
don't think you'd agree that the fear of submarine patents should
prevent all commercial activity. Hadn't you rather know than not, if you
could?

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

It's true that in some circumstances you are better off not knowing than
knowing. However, if you don't know, and commit major resources to a
product that cannot be sold, the fact that you avoided treble damages
may be cold comfort for the fact that your product is still a bust,
you've still wasted time and resources, and, if you made a major
commitment to the product, your company is now in serious financial
trouble. 

>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.

Ah, perhaps I was overly precise. None of these are defenses to patent
*infringement.* They are attacks on the patent itself. Obviously if the
patent is void, you can't infringe it. However, if the patent is good,
there is no defense to infringement, unlike, say, copyright infringement
where independent creation is, under US law, a complete defense. The OP
was talking about that issue and so I answered in that context. I agree
that if you successfully attack the patent, the *result* is logically
equivalent to defending an infringement claim - IOW, you will not be
liable for damages or subject to injunction.

>The problem
>is that proving these defenses is very expensive. 

You said a mouthful, there.

>I am not aware of any
>company or project with patent insurance because it is expensive and
>coverage is limited. 

I am, but they are multi-billion dollar corporations (and not all
corporations in their industry do: some of them self insure. It depends
on what their beancounters tell them the odds play is.) None of them are
computer software makers (which doesn't mean that no CSM have insurance,
I just don't know about them.)

M

-----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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