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NEWS - PLANNING
New insurance to help SMEs protect IP
4/3/2002
A specialised form of insurance has emerged to protect companies forced to defend their intellectual property in court. Patent protection insurance is designed mainly for small to medium-sized companies who are likely to lack the deep pockets needed to fund a prosecution of IP infringement or to defend such a claim.
This type of policy can apply to all forms of intellectual property including copyrights and patents as well as exposures arising from licensing agreements.
The specialised cover is offered by only a handful of insurers in the UK, Europe and the US. There is also a Queensland-based broker, Stathearn Insurance Brokers, with access to London underwriters which can source IPP.
Those involved in formulating early examples of such policies say it has not been an easy sell, either to target companies or underwriters.
However, more companies are likely to be advised to explore such cover as the risks in patenting continue to multiply, according to Anna Sharpe, a partner at Clayton Utz in Brisbane.
"The risks associated with patenting have increased," Ms Sharpe said. "This is not through any inherent change in the patent system but because of the proliferation of patents over recent years.
"The more the number of patents in a given field, the greater the likelihood of patents and technological, scientific and industrial endeavours coming into conflict.
"PPI is not advisable for every patentee, but it should certainly be on the agenda for companies whose asset base consists of key patents or for investors in such companies. We will certainly be advising our clients on PPI in appropriate cases."
The ASX-listed broadband technology group QPSX has already found its own way to Lloyd's of London to secure enforcement cover for its intellectual property.
QPSX, which is backed by billionaire businessmen Kerry Packer and Richard Pratt, is a Telstra spin-off with intellectual property that includes broadband technologies now being harnessed by telcos around the world.
Since its ASX listing in December 2000, QPSX has pursued a carrot-and-stick approach when talking to telcos that the technology supplier believes are infringing its patents.
The company's determination to take what it views as repeat offenders to court is being tested in Germany, where it is embroiled in legal action against Siemens and Deutsche Telekom.
The legal action was kicked off a year ago. A few months before, QPSX secured a patent enforcement policy from Lloyd's of London.
QPSX paid an insurance premium of $US300,000 ($564,000) to secure around $US4 million in cover.
Under the terms of the policy, Lloyd's will pay 80 per cent of the litigation costs. The $US4million is expected to cover three litigations in Germany and the UK.
If QPSX wins, Lloyd's gets its costs back, plus 30 per cent. The insurer went to some length to assure itself that QPSX will come out on top. Besides six months of due diligence which traced the company's technology path back to 1997, Lloyd's spent three months researching the German case before giving QPSX the green light to embark on the litigation.
"We could have looked at self funding, but it is a matter of diversifying risk and cost exposure. We are pretty happy with the structure of that particular transaction," QPSX chief executive officer Graham Griffiths said.
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