More patent armour for pharma

By Kirsty Barnes

- Last updated on GMT

Related tags Patent application

The damages caused by a patent dispute can sometimes wipe out the
assets side of a company's balance sheet - a potential death
sentence for small or medium companies - many of which aren't doing
enough to protect themselves, according to a recent report by
iPrex Solutions, an Indian-based provider of
Intellectual Property Rights (IPR) services.

The pharma industry is engaged in a billion dollar war on intellectual property, with the number of patent infringement lawsuits filed annually in the US skyrocketing, having increased over 110 per cent in the last six years.

American Intellectual Property Law Association estimates the average cost of a patent litigation to be $0.5m (€0.42m) to $5m for each of the warring firms, and in some cases, the costs could also go as high as $500m.

This is bad news for an industry that is already battling with dwindling pipelines, increasing price sensitivities and a generic onslaught.

Recent high-profile cases include Cordis vs Boston Scientific, with a cost of $271m and 3M vs Johnson & Johnson, to the tune of $107m.

"Whether or not a patent is truly infringed, it costs $3m on average to defend a patent lawsuit, and that is only the attorney's fees and associated expenses, not the jury award,"​ said patent attorney Dan Ravicher.

In addition, fighting an infringement can also result in the loss of many man-hours, not to mention the beating the company's business and image may also take as customers and investors lose their confidence when a lawsuit is filed.

In today's business scenario, risk management is a key focus area, and Patent Liability insurance is the only effective protection available for a product portfolio, according to iPrex Solutions strategists M. Qaiser and P. Mohan Chandran.

Though these insurance policies have been in the international market since 1995, it is only recently that more and more companies are opting for them with an increase in the number of patent lawsuits being filed.

This concept of patent insurance may seem odd, given the fact that by definition, a patent itself is a kind of insurance, being an exclusive right granted by the government to make, use or sell the patented products.

However, patent insurance is a protection against infringement of patents and the costs associated with it, and consists of two types: Patent Liability Insurance and Patent Pursuance Insurance, the report explains.

Patent Liability Insurance is a defensive instrument, which helps the insured fight an infringement lawsuit filed by a rival company, covering part of the legal expenses incurred and/or the damages to be paid.

Patent Pursuance Insurance on the other hand, is an offensive instrument, which aids the insured's fight against a patent infringing company by paying a portion of the legal expenses incurred by the company.

Premiums for patent insurance depend on the patent and/or the product being protected although they usually range between 2-5 per cent of the insured amount.

Damages of up to $1bn are covered under the insurance, while claims of $20-30m are common. Insurance limits up to $15m coverage per patent are available, said Ravicher.

The factors that determine the premium rates are the past records of the firm, the care taken in patent research to prevent infringement and the firm's own research and development work.

The iPrex strategists believe that effective management of intellectual property basically involves creating, maintaining, and safeguarding a patent portfolio, apart from strategic planning of risk management.

This requires constant vigilance for any infringement by competitors. The company also needs to be cautious in its research and development work while expanding its portfolio, so that it does not infringe on others' patents.

Every company - small, medium and large - that manufactures or markets products with any new technology, design or functionalities must cover its risk by obtaining patent insurance, warns the iPrex report.

In short, if you have your own patents, you must have Patent Enforcement Insurance. If you don't have patents on your product line, you must have Patent Liability Insurance - it's as simple as that.

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