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Insurance against patent litigation

Red alert.png What this entry documents is not a solution.
This practice may be ineffective or useless in the long term.
ESP's position is that abolition of software patents is the only solution.

People sometimes suggest that insurance companies could protect software developers against the astronomical and unpredictable costs of patent litigation.

Misses the point

This idea assumes that it's ok to add a price to software development and distribution. This ignores the reality that a lot of software development is done with no price directly attached to the act of development or distribution. Free software is an obvious example.

This confusion probably originates from people who look at industry-only activities such as mass production of cars and pharmaceuticals. In those fields, adding one more cost is an economic decision. But in software, there is no inherent cost, so adding a cost removes a lot of current software developers from being able to continue to participate in software development.

Economically non-viable

Standard insurance policies for small software companies exclude all liability for patent infringement, whether intentional or unintentional. This is almost certainly a deliberate decision by the insurance companies. Taking such insurance would make the small company an immediate target for infringement claims which are currently not worthwhile to pursue. This leaves the small company open to the risk that if it starts to irritate a larger competitor, it will be targeted and will be unable to defend itself.

The 2004 EU study


Hints for further researching this topic

According to a study on patent risk management[1], attempts have been made to create various types of patent insurance by: "AIG, Lloyds syndicate participants, Chubb, Hartford, and Swiss Re".

(And if you do research this topic further, please contribute your findings to the wiki! Thanks)


Similarly, software distributors and developers cannot honestly provide indemnification, as explained by CEO of Best Practical, Jesse Vincent, in the documentary Patent Absurdity ([21:41 - 22:49]):

We will get consulting customers or support customers, who add indemnification language to our standard contract or need us to sign theirs. And it says that - you know: the standard legalese - it's going to say something like: we indemnify and hold them harmless and agree to pay their legal fees and sacrifice our first-born if something happens and someone discovers that our software is violating a patent, is violating somebody else's patent. It's very very rarely the case that we end up signing something that has that kind of language in it, but it eats up a lot of legal fees.

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