John van der Luit-Drummond

With the number of patent suits on the rise in the US, the case for intellectual property insurance is more compelling than ever. Up to now, though, because the costs of patent litigation can quickly exceed coverage limits it has remained a niche area. But a recently published report in the Insurance Journal suggests that insurers now recognise IP as a valuable asset; something that is leading to more products and competition in the market.

The potential in IP insurance may best be illustrated by the identity of one of the latest players to enter the fray: RPX, the defensive patent aggregator. RPX’s core business is focused on companies that may be vulnerable to multiple patent lawsuits each year. The firm acquires patents and then licenses their use to its members, so reducing their risk of litigation exposure. Its new offering, RPX Insurance, is available to the firm’s members and provides coverage for the cost of litigation initiated by an NPE.

One of the attractions of the RPX insurance is that it provides a level of cover against patents that the firm has not been able to obtain. Furthermore, it validates a member’s overall patent position: it tells the world that RPX – an entity which knows a lot about patents, patent evaluation and the patent marketplace - has decided that the member is a low risk insurance proposition. In other words, a plaintiff strategy of asserting with a view to the target quickly folding and agreeing a settlement is unlikely to work – especially as the insurance is there to fight a case if necessary. What’s more, the cost of the insurance package is considerably less than defending a case through to court.

According to Seeking Alpha in June 2013 RPX had 19 policyholders and the potential to double that by the close of the year. With a policy costing between $150,000 and $250,000 that means that RPX could make up to $8 million from its new line of business by the end of 2013.

In 2012, RPX earned $197 million and generated profits of $39 million. What Seeking Alpha calls conservative calculations suggest that the firm may generate $90 million in additional revenue through its insurance business. But as always, RPX’s future is linked with the perceived threat posed by NPEs. While they continue to operate, RPX will continue to protect. And profit.