In this article, we'll see that the subject of IP insurance is a murky one with conflicting opinions. Nevertheless, we should be able to find and establish some sense of where things stand and what options one may want to pursue.

According to a 1999 article by Mark E. Miller, an attorney with the law firm of Greenberg Traurig LLP, there are four primary types of insurance coverage that may provide coverage to you for intellectual property violations, including patent infringement:

• general liability insurance policies;
• directors' and officers' liability policies;
• umbrella and excess insurance policies; and
• intellectual property-specific policies

"injury arising out of an offense ... occurring in the course of the named policyholder's advertising activities, if such injury arises out of libel, slander, defamation, violation of right of privacy, piracy, unfair competition, or infringement of copyright, title or slogan."

Policyholders also have sought coverage under their CGL policies by arguing -- with limited success -- that patent infringement is covered under the coverage for piracy; unfair competition; misappropriation of advertising ideas or style of doing business; and infringement of title.

Things got really interesting though in 1986 as the standard language used for a CGL policy changed to delete piracy and unfair competition from the list of offenses that were considered "advertising injury". That change made it much harder to prove a patent infringement was covered as many courts did not consider patent infringement a "style of doing business" or any of the other enumerated injuries (see Intellectual Property Assets Raise Insurance Issues by John Cahill and Timothy Fitzgibbon). Fortunately, another change occurred in 1996 when the Patent Act (Section 271) was changed to include the terms "offer for sale" as part of the definition of patent infringement. But even that is somewhat "iffy" (see Tradesoft Technologies, Inc. v. Franklin Mut. Ins. Co., 746 A.2d 1078 (N.J. App. 2000) or Mez Indus., Inc. v. Pacific Nat'l Ins. Co., 76 Cal. App. 4th 856, 865 n.8).

Other Types of Coverage
As Miller indicated, there are other riders to insurance policies, like directors & officers coverage or umbrella policies that may provide some coverage for patent infringement. More likely though, to be sure to get some type of patent infringement coverage, one will probably have to look at specific intellectual property policies that are being developed and sold by different companies.

One example of patent infringement insurance comes from

American International Specialty Lines Insurance Company, part of the AIG Group. Available for the last 2-3 years, this policy will defend the insured against patent infringement claims and pay damages in the event of a judgment or settlement. Covered defense expenses include legal fees and costs, declaratory actions, injunctions and appeals costs.[A Primer on Intellectual Property Insurance, Ronald C. Wanglin, Bolton & Company]

Another type of coverage that Wanglin covers is a "defense cost reimbursement" policy developed by Intellectual Property Insurance Services Corporation, Inc. It is designed for smaller businesses and the "design of the defense cost policy is to reimburse the insured for litigation expenses incurred defending alleged infringement of patents owned by a third party." Note that it does not include coverage for judgments or settlements like the AIG policy.

This short article, Blanketing Intellectual Risk, by John Mello in the May 2000 issue of CFO Magazine discusses a product offered by Aon Corp. that sounds very much like the AIG policy. It is specifically geared toward IP assets, including patent infringement, and based on the limits of coverage available, sounds like it will probably cover settlements and judgments. With a minimum deductible of $5 million though, it too is probably geared toward larger companies.

Summary
As I think this article shows, insurance coverage for intellectual property assets has been around for a long time. For most of that time, coverage for patent infringement was not very good and to some extent depended on what court jurisdiction you were covered under. Even changes in the Patent Act in 1996 did not do much to resolve the grey area that existed.

However, it appears that things are looking up as several companies have started to develop products in response to customer/client needs for some type of patent infringement coverage. I even managed to find a model policy on the Internet developed by Swiss Re.

A few final thoughts -

• Patent infringement coverage is needed by anyone involved in the software business, whether it is proprietary or open source. You might notice that in the material presented, the insurance products are focused on the act of potential patent infringement and not on any one type of product (e.g. not related to Linux specifically).
• For an interesting blast from the past, check out Patent War Pending? at LinuxPlanet that includes an interview with Lawrence Rosen from 2002. Some interesting stuff in there, especially about the fact that even then Rosen pointed out that Linux and other open source products had never been accused of any type of patent infringement. That's still true today even as we've watched Microsoft continue to be found guilty or settle a variety of patent infringement suits. Rosen also discusses some interesting language that he thought could be added to different open source licenses that might help with the patent problem.
• Somewhere in my materials, though I can't find it now to provide a source, I found some information indicating that only about 3% of patent infringement suits actually go to court. Most of them are settled before that, usually through some type of licensing deal. This could get very tricky for open source licenses.
• I didn't cover it, but some of the cited articles make a point that you need to be sure to notify your attorney that you may have insurance coverage as soon as possible if you are accused of patent infringement. There may be a duty on the part of your insurance carrier to defend you.