Covering Patent infringement risks in

technology transfer agreements

A.S.Rao

asrao@alpha.nic.in
Department of Scientific and Industrial Research, Technology Bhawan, New Delhi 110 016

A clear trend is visible in industry-institute co-operation in India. They are on the upswing. A good number
of them end up with transfer of technology from lab to industry. Technology transferred may be patented
by the lab or not, but in all cases the lab is required to take the responsibility for any patent infringement
liability. No lab would willfully sell another’s patented technology as their technology, but in the era of
submarine patents and software backed patenting strategies, the risk of infringement is real. How prepared
are we? How far away is the 1st suit against our lab? Considering the amounts decided by the US courts ,
even a small ( by US standards) penalty could financially cripple an average Indian R&D institute.

This article analyses the emerging scenario; closing gaps between Indian lab transactions and
state-of-art, liberal interpretation of patent infringements by US courts, aggressive patenting strategies of
MNCs, globalisation of operations by Indian licensee’s and advocates a mechanism to convert
`uncertainty’ into `risk’ and covering of `risk’ with insurance.

Introduction
Although patents are generally a more expensive form of intellectual property protection than copyrights
and trade secrets, patents afford a much stronger legal monopoly to the rights holder. In particular,
independent development, which is a defense to both copyright and trade secret infringement, is not a
defense against patent infringement. And patented technology may not be lawfully appropriated through
legitimate reverse engineering, as trade secret protected technology may be. Patents have also become
increasingly attractive (in USA) as a means to protect software-related inventions in addition to copyrights
in view of the facts that a copyright cannot protect the functions per se that are implemented by the
software, whereas a patent can.

From a business perspective, there are at least three reasons to seek patents:

1. Offensive Reasons. Patents may be used "offensively" to protect one’s technology or markets. A
patent holder may use its patents offensively either to stop others by injunction from practicing its patented
invention or to "tax" its competitors who practice the invention by granting a license in return for some
form of compensation.

2. Defensive Reasons. Patents may also be used "defensively" against others who hold patents in a
number of ways. For example, in the event a plaintiff asserts a patent infringement claim against a
company, that company may gain a stronger position in the dispute if it is able to assert some patents of its
own back against the plaintiff. Alternatively, such patents may be traded as a "bargaining chip" in some
form of cross license to settle the dispute (or to avoid a dispute in the first instance), or to reduce the
amount the defendant has to pay the plaintiff to induce a settlement.

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3. Market Reasons. Finally, there are various market reasons, for example being able to state in
marketing and promotional literature or advertising that a product is patented may increase the perception
in the customer’s mind that the product is particularly innovative or cutting edge, and therefore perhaps
more desirable than a competing product. A good patent portfolio can affect favourably, the market
valuation of a company.

In the last couple of years, companies have been filing a phenomenal volume of patent
applications with the U.S. Patent & Trademark Office (PTO), and the PTO has been issuing patents in
record numbers. During fiscal 1998, the PTO processed an estimated 203,000 patent applications, and
issued a record 154,579 new patents. Kevin Rivette in his book `Rembrands in the Attic’, attributed the rise
in patent applications in USA to factors like relaxation of federal anti-trust laws, establishment of a
specialized Court of the Federal Circuit (CAEC), US Courts decisions upholding Business practice patents,
the rise of the Internet; and greater patent savviness among companies.

Closing gap between `state-of-market’ and `state-of-art’ technologies

Globalisation has the inevitable consequence of driving the demand for production technologies to near the
`state-of-art’. Technology generating R&D institutions like CSIR had to take the plunge and some of them
came out successfully as globally competent sources. Mobil Oil Corp., USA has taken Indian Institute of
Petroleum Technology for Lube Oils, Nova Nordisk engaged Central Drug Research Institute for diabetes
therapeutic, Taneja Aerospace had flown the aircraft `Hansa’ developed by NAL and NRDC licensed
several new technologies like Glucose bio-sensor, bio-degradable plastic. In-house R&D units of Indian
industry have developed technologies like 6-Hi Rolling mill, 500 KW Low cost gas turbine, Guyed type
transmission tower. The focus no longer is harvesting mature technologies on their way out, but developing
technologies around dominant designs/ patented processes. One cannot ignore patents when working in the
introductory/growth phases of Technology Life Cycle.

Patent Infringement

Patent Infringement occurs when an unauthorised person or business "makes, uses, or sells" a patented
invention. The language of the Patent allows the patent owner to prohibit this action. Because the right
conveyed by a Patent is the right to prohibit a certain action related to the invention, most patent
infringement occurrences must be settled by filing a suit against the party who is violating the Patent rights.
The typical intellectual property infringement suit involves allegations of free-riding on a trademark,
trading on another’s goodwill, misappropriation of an invention or literary work, or other unfair
competition.
In India as per patent second amendment bill of 1999, after section 104 of the principal Act, the
following section is inserted, namely:--- “In any suit for infringement of a patent, where the subject matter
of the patent is a process for obtaining a new product, the burden of proving that a new and identical
product is not made by that process shall be on the alleged infringer if a substantial likelihood exists that
the identical product is made by the process, and the proprietor, of the patent or a person deriving title or
interest in the patent from him has been unable through reasonable efforts to determine the process actually
used: Provided that the proprietor of the patent or a person deriving title or interest in the patent from him
first proves that the product is identical to the product directly obtained by the patented process.”. Another
clause 52 amends Section 108 of the principal Act " The court may also order that the goods which are
found to be infringing and materials and implements, the predominant use of which is in the creation of
infringing goods shall be destroyed without payment of any compensation.'' Yet another important change
is omission of section 112 of the Act(Patent Act 1970) which relates to restriction on powers of the court to
grant injunction in cases of infringement of patent endorsed or deemed to be endorsed with the words
"Licences of right''.

Under U.S. law, the liability associated with patent infringement extends to anyone who without
authority of the patent holder "makes, uses, offers to sell, or sells any patented invention, within the United
States, or imports into the United States any patented invention" as well as to anyone who "actively induces

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infringement of a patent" or who may be liable as a contributory infringer. The scope of liability for patent
infringement is quite broad, reaching even users, many of whom do not have the financial wherewithal to
finance the adjudication of a patent’s validity. The reach of the patent statute extends to all participants in
the commercial economy, from original manufacturers and product suppliers, to participants in the
distribution channels for the product, to the final purchasers or users. Component parts suppliers and parties
who may be held to have actively induced infringing activities are also included within the group of
potentially liable parties.

Infringement is bound by national laws but integration of Indian economy with global brings
Indian players into the orbit of US law by their direct and indirect acts like exporting, supplying
components, providing services etc.

Indemnification
Broadly defined, indemnification is the relationship in which one person agrees or is required to protect
another person against the legal consequences of his own misconduct. Indemnification is an obligation of
one party to make good a loss or damage another has incurred. A typical broad form indemnification
provision will read essentially as follows:
"The indemnifying party hereby agrees to defend and hold harmless the indemnified party, from
and against any and all claims incurred or to be incurred by the indemnified party arising out of or resulting
from the infringement by the product of any copyright, trademark, trade secret, or other intellectual
property right or similar rights of any third party."

Technology transferring R&D institutions are required to indemnify the buyer of the technology
against any possible claims of infringement by a person who stakes his right as the owner of the intellectual
property. To that affect a suitable clause is inserted in the technology transfer agreement. Model agreement
of ESCAP recommends the following article: “ the supplier covenants that it does not know and has no
reason to believe in the existence of any patent or other industrial property right belonging to any third
party that the receiver would infringe by using the technology. If, however, a third party claims that the
Receiver’s use of the technology infringes any such industrial property right, and if an action is raised
against the Receiver on these grounds, then the Receiver shall immediately inform the supplier. The
Supplier shall assume full responsibility for defending the action and the Receiver shall accord the Supplier
all possible support in defending the action without cost to the Receiver. In the event that the action brought
against the Receiver establishes the infringement, then the Supplier is to compensate and save harmless the
Receiver for the Receiver’s costs in defending the action, as well as for any award of damages or costs
made by the court against the Receiver.

The general perception is that it is a harmless clause. Is it really so? Case history in India is still in
its infancy, we will look at the scenario in US.

How serious is the problem?

In reality, the patent system encourages companies to design around existing patents. Since the patents
often rest on small distinctions, companies base non-infringing products or designs on similarly small
distinctions. Analysts noted the perception of jurors who assume that the (US) Patent Office awarded the
patents based on large distinctions and they distrust a company's attempt to distinguish its product or design
based on small distinctions.
The increased importance of intellectual property assets and the greater willingness of the courts to
entertain efforts to enforce patents, trademarks and copyrights, has led to an increase in the number of
infringement actions that have been threatened and filed. Some cases are well known but more worrisome
are what are called patents with nuisance value.

Big bang stories

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 In 1969, Kodak launched a renewed, all out research effort code named `Project 130’ to develop
instant cameras and film but given the failure of its previous research and clear superiority of Polaroid
technology, Kodak apparently felt it had little choice but to pursue technologies that arguably bore atleast
some similarities to those already successfully developed by Polaroid. Within 7 days of Kodak launching
its new line of instant cameras and film, Polaroid slapped legal notice for infringing 12 of its instant
photography patents. First phase of trial took 9 years. Court held Kodak, its officers, agents, servants,
employees and attorneys and those persons in active concert and participation with them (must) stop
manufacturing , using and selling (instant) cameras and films. Final verdict came in 1990. Total cost to
Kodak was payment to Polaroid $925 million in damages, lay off 700 workers, spend $ 500 million to
buyback the 16 million instant cameras it sold between 1976 and 1985, legal fees during these court case
$100 million and decade long R&D effort to be completely abandoned.
Teasers
40,000 software patents awarded in this decade providing countless opportunites for the "threaten/sue
everyone on the Internet using a questionable software patent" lawsuits. Freeny/EData patent that has been
talked about much in the press, mostly because its stock price seems to be rising each time it makes some
announcement. In July of 1985, Charles Freeny was issued a patent, 4,528,643, "System for reproducing
information in material objects at a point of sale location". A simplified view of the patent is that it claims
secure electronic commerce, which given the endless talk about secure electronic commerce on the Internet
today, makes it not surprising that the current patent holders are sending out infringement notification
packets to 70,000 companies. Like many of the 40,000+ software patents to be issued in the 1990's, the
Freeny patent cites no non-patent prior art, even though before the effective priority date of January 1982,
there was much written about electronic commerce and/or encrypting business communications. The patent
has been reassigned five times, and expired/reinstated once, and is currently owned by EData. In mid-
April, the price of EData stock was about $1.50, though by mid May after a flurry of announcements, the
stock was over $11.00.

Submarine patents
These are patents applied for but not known to the public. They surface at a much latter date. India signed
the Patent Cooperation Treaty of June 19, 1970(PCT) and has become 98th member of PCT with effect
from 7-12-1998. The PCT allows an inventor to file a patent application in his home country, which seeks
patent protection in several PCT member countries thereby avoiding the need to file applications in each
individual country in which protection is sought. This international patent application has the effect of a
national patent application in those PCT contracting states which the patentee `designates’ in his
application. The granting of a patent remains the responsibility of the national or regional offices. In other
words an inventor can file a international patent application in India( patent office, Calcutta) and obtain
patent protection in all the countries `designated’ in the application, provided the invention is entitled to
patentability under laws of such countries.

The date of priority in the international patent application can be the date of filing. In case the
applicant already filed for an patent in one of the convention countries as per Paris Convention then he has
the right to claim that earlier date as the date of priority for this international patent application. Indian
applicants who have filed for an national patent can thus claim that earlier date as date of priority for the
new international application provided the international application is filed within 12 months from the date
of national patent filing date. Similar facility is available to others also; ex: an American MNC which has
filed for a patent in US 11 months back, can now file an international patent application designating India
as one of the country and in the event India grants patent to this MNC as per its rules, the date of priority
will be the date the MNC filed his application in US some 11 months back. Further the applicant gets a
total of 30 months time to complete his payment of fees to different nations. When an international patent
application has been filed, all national procedures in the designated states are delayed until the end of 20th
month from the priority date. No designated office shall process or examine an international application
prior to the expiry of 20 months from the date of priority. If, international preliminary examination is
requested before the end of the 19th month from the priority date, then national procedures in the designated
states are delayed until the end of the 30th month from that date, If the applicant has elected India within the

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19 month time period, then the international application will be processed only after the expiry of 31
months from the priority date.

Software enabled patent strategies

Kevin illustrates use of IP tools like IP landscape, patent hit report, Innovation cycle speed report, patent
citation tree in enforcing patent enhanced strategy of grow- fix-sell. He explains the strategy of fortifying
product with product and process patents to reinforce the product differentiating features and control the
process choke points. Case of Gillette sensor shaver illustrates the point.

First challenge in developing the sensor was to map the patent landscape surrounding the shaver’s
key performance attributes; its ability, owing to twin independently moving blades, to deliver a closer and
more comfortable shave. The technology behind this innovation was called floated angle geometry and
involved mounting tiny springs to twin blades within a cartridge in such a way that each blade could move
independently along the contours of a face. The engineers came up with 7 different designs so that they
floated and Gillette patented al. In the end they chose a design that potential competitors would have most
difficulty getting around. Floated angle geometry design is first among 22 patents incorporated into the
sensor shaver. To build a patent wall around products key differentiating features, Gillette patented key
design features in the cartridge , the springs, the angle of the blades. There were also patents covering the
handle and some of its characteristics. Gillette was also adept at patenting the methods most critical to its
products success. They key processes involved in manufacturing the floated angle geometry design of the
sensor shaver were patent mapped and then protected. These included the high speed photography
techniques used in photographing the act of shaving, which were embodied in a device capable of resolving
images 1/1000th of a millimeter, Gillette called them `whisker cam’.

Mach 3 was later version of Sensor. Gillette first patented the Mach 3’s core technology, a coating
process called DLC (Diamond Like Coating) that produced blades ten times thinner and harder than those
used in the Sensor. Likewise, the company patented the Mach 3s principal design features; the use of 3
staggering blades, each getting progressively closer to the skin; a new forward pivot design that position the
blades in an optimal shaving position; a rubberized contour grip for better handling, an indicator strip that
signals when the shave is no longer experiencing `the optimal mach 3 shave’ and the `single point’
cartridge loading system that makes it impossible to attach Mach 3 blades upside down. Much of $750
million spent in the development of Mach 3, went toward inventing nearly 200 pieces of equipment and
technology needed in the manufacturing process. Each of these manufacturing processes was patent
mapped and chosen. Among the manufacturing process patented is @20 million vacuum chamber in which
the revolutionary DLC blade coating is applied. Thirty five patents protect Mach3’s core technology, key
product features and critical choke point methods .

What is the response of industry to this deluge of patent infringement suits ?

Corporate responses
1.Due diligence
First is patent search before taking up any innovation activity. Title to recordable rights (patents,
trademarks, copyrights, etc.) should be verified by searches. Any licenses, assignments, government rights,
and liens (secured or unsecured) also should be verified by searches. For intellectual property rights not
identifiable as an issued patent, a registered trademark or a registered copyright, detailed listings and
explanations also should be provided. Such rights may include trade secrets, know-how, common law trade
names, trade dress (unique appearance), trademarks and unregistered copyrights. For each of these, the
inventors, authors and uses of the rights should be identified and the dates of first use recorded.
If intellectual property rights are not identified and careful due diligence is not performed, it is clear
that the value of a business or the risks of the business may not be properly assessed. Failure of the buyer,
as well as the seller, of a business to perform proper due diligence on the intellectual property rights of a
business can therefore give rise to diminished value in a business deal or result in some very nasty surprises

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for the buyer after closing the deal. To manage that exposure, the indemnifying party would need to
conduct due diligence adequate to determine what, if any, exposure there actually exists on such potential
infringement claims. Certain intellectual property rights, such as patents, however, do not lend themselves
to perfect due diligence. For example, there may be "submarine patents," that no amount of due diligence
would uncover. Therefore, it is impossible to be sure that there are no lurking infringement claims.
2. Coverage Under The Comprehensive (or Commercial) General Liability Policy

As the number of intellectual property infringement cases increased during the 1980's, more and more
companies( in U.S. A) who found themselves as defendants in these suits began tendering the defense of
the cases to their insurance carriers. The policies which have been the most often targeted by policyholders
are Comprehensive General Liability policies, and in particular the Advertising Injury endorsements to
those policies.
A substantial body of case law has now been developed around the Standard ISO CGL
Advertising Injury wordings in all three major areas of intellectual property infringement litigation: patent,
trademark and copyright. CGL policies are intended to protect insured from liability arising out of their
business activities. Typically, they provide an indemnity for loss to third parties' property or third party
personal injury. They also provide defense costs to the insured in the event of a suit. These policies also
typically contain language that protect a company from loss arising from injury to more incorporeal
interests -- including certain intellectual property interests. This coverage is known as "advertising injury"
coverage, and it was added to the standard CGL policy through an endorsement in 1973.
Advertising injury means injury arising out of one or more of the following offenses:

(i) Oral or written publication of material that slanders or libels a person or organization or
disparages a person's or organization's goods, products or services;

(ii) Oral or written publication of material that violates a person's right of privacy;

(iii) Misappropriation of advertising ideas or style of doing business;

(iv) Or Infringement of copyright, title, or slogan arising out of advertising activities."

Patent infringement can, arise from advertising in several ways. The advertising can cause another
to use components in such a way that another’s patent is infringed or, the advertising may induce others to
use a process to make a patented product. Thus, instruction sheets and advertisements directing buyers to
the infringing product gave rise to a covered patent infringement claim. Alternatively, the advertisement
itself may involve the demonstration of a use of a product in such a way that it infringes a patent.
Numerous patent decision construing the "offers to sell" language establish that it encompasses advertising.
On the other hand, several courts have ruled that standard commercial liability policies do not cover patent
infringement. Furthermore, during the past decade many insurers have revised commercial liability policies
to expressly exclude liability for patent infringement.

Technology Insurance Products

The insurance industry has responded to the potential gaps in coverage under traditional policies for
intellectual property and technology claims by making specialized technology liability insurance policies
available. The oldest technology policy, historically designed for hardware manufacturers, is an "Electronic
Errors or Omissions" policy. The policy typically covers "damages the insured becomes legally obligated to
pay for any claim arising out of a negligent act, error or omission, by or on behalf of the insured resulting in
the failure of electronic products to perform the function or serve the purpose intended after installation
and testing." Unlike a traditional CGL policy, an Electronic E&O policy covers certain economic damages
and intangible losses, including loss of data, business interruption, and loss of revenue claims asserted by
customers. A newer product providing substantially similar coverage is a "Computer Software and Services
Errors or Omissions" policy, which provides coverage for "damages the insured becomes legally obligated
to pay for any claim arising out of a negligent act, error or omission by or on behalf of the insured in the
performance of or failure to perform electronic data processing other computer services or in the failure of

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software products to perform the function or serve the purpose intended." The term "other computer
services" is defined broadly to include hardware and software consulting, analysis or design, computer
hardware maintenance for others, and the distribution or sale of computer hardware. The newest technology
insurance product is a "Multimedia Liability Insurance" policy. The policy is generally written on a specific
perils basis to cover claims arising out of specified offenses "committed in the course of multi-media
activity by or on behalf of insured ." "Multi-media activity" is broadly defined in the policy as "creating,
producing, distributing, exhibiting, broadcasting, advertising or publicizing matter," defined as "printed,
verbal, numerical, audio or visual expression, or any other form of expression, fixed in software or any
other medium." The covered offenses include copyright and trademark infringement, plagiarism or
unauthorized use of titles, formats, ideas, characters, plots, performances of artists, or other program
material, invasion of privacy, libel, slander, and "other forms of defamation."

3. Safe Harbor Provision

Do the governments have any role in restricting infringement action! As per patent act of 1970, patent
rights are not infringed when used on foreign vessels etc temporarily or accidentally in India. A new
clause inserted with 2nd amendment ensures that the act of making or using a patented product for the
purpose of development and submission of information to a regulatory authority regulating marketing
approval of the product, shall not constitute an infringement. This provision is proposed to ensure that
generic drug should be available in Indian market immediately after the expiry of the term of the
concerned patents. Also importation of patented product from the person who is duly authorised by the
patent holder shall not constitute an infringement. This provision is proposed to ensure availability of the
patented product in the Indian market at minimum international market price.

Under a similar provision in USA, the use of a patented invention is not infringement if that use
is "reasonably related" to obtaining federal approval to market pharmaceutical or veterinary products. This
section creates a "safe harbor" and reads: “It shall not be an act of infringement to make, use, offer to sell,
or sell within the United States or import into the United States a patented invention ... solely for uses
reasonably related to the development and submission of information under a Federal law which regulates
the manufacture, use, or sale of drugs or veterinary biological products”.

Such statutes insulate pre-commercial activities reasonably related to the development of

pharmaceutical products from patent infringement actions. Based on an expansive reading of specific uses
that are "reasonably related" to seeking FDA approval, a wide range of activities fall within the safe
harbor clause such as: “Using the drug product to raise capital, authorizing publications describing product
features, circulating study results to potential licensees, demonstrating features of the drug product at
scientific meetings and trade shows, acquiring import approval from a foreign government, arranging
importation into a foreign country, performing clinical studies for foreign regulatory agency clearance as
long as the trials also relate to obtaining FDA approval, obtaining foreign patents, manufacturing a
product to generate data and creating stockpiles, selling a product to clinical investigators at a hospital,
selling a product to international distributors, testing a product in a foreign country by a clinical
investigator , testing by foreign company, demonstrating the drug to physicians and non-physicians,
conducting consumer studies, describing clinical trials to investors and journalists , promoting a product
to customers and shipping a product to a potential commercial partner “.

Medical procedure patents such as surgical incisions or other treatments not associated with a
novel drug or device are like teaser patents of internet. They created problems for physicians with patent
holders demanding royalties for using those medical treatments. In 19996, US government banned
enforcement medical procedure patents against medical practitioners and related health care entities.

4. Plan For Contingencies

A thorough knowledge of intellectual property rights held by a business, as well as those of its competitors,
permits planning for any possible impact on a business position. Part of such a protection program could
include a contingency fund, or a wide range of indemnification provisions could be included in agreements
between the buyer and seller, licenser and licensee, or an investor and the investee in a business.

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 For example, parties to an acquisition could agree to share any costs required to defend a business
against charges of violations of intellectual property rights. Parties could also agree to share premiums for
insurance protection against future unknown patent infringement actions. Such agreements may also
account for sharing any benefits derived from successfully licensing intellectual property rights or receiving
infringement damages in future lawsuits or settlements.

5. Patent Defense Policies

Since approximately 1995, patent infringement defense policies have been available. Typically, "defensive"
patent infringement policies cover both damages and defense costs within predetermined limits, although
some less expensive policies cover only legal costs, but not damages. AIG has a patent defense cost
reimbursement policy it is marketing and Intellectual Property Insurance Services Corp. is marketing a
patent defense cost reimbursement policy underwritten by Evanston Insurance Company. Lloyd’s will soon
be marketing a patent infringement liability policy that provides indemnity coverage as well as defense cost
coverage to the medical device and pharmaceutical industries.

Premiums run between $20,000 to $50,000 (and more) per $1 million in coverage; co-payments
range from 15% to 25%. The more comprehensive policies offer coverage limits up to $15 million in
damages, pre-judgment interest and costs of defense. The annual premiums for a $15,000,000 policy can
cost $500,000. Probably the lowest annual premium on the market is $7,500 for $1,000,000 in coverage for
defense costs only (not damages) with a 25% co- payment.

Since policies have only been available since 1995, the premiums are not widely influenced by
claims history, although some applications require disclosure of prior patent litigation experience.
Generally, insurers will place an applicant in an industry hazard group (e.g., telecommunications) to
calculate risks which have been rated by the insurer.
The insurer will also study the specific procedures a company has in place to protect against patent
infringement prior to putting a product on the market. In addition, the applicant must have a qualified
intellectual property attorney produce an opinion letter stating that the product to be covered does not
infringe any valid patent. The coverage typically includes only legal expenses incurred by the insured to
defend against allegations of Patent infringement of other’s property.

6. Risk pooling
Back to the history in states. The late 1800's, not unlike the present period, was an era when increasing
numbers of patents were issued. As of 1876, it was reported that more patents had issued in the preceding
seven years than had been issued since the beginning of the patent system in 1790. While there were
significant inventions during the late 1800's, there were also a substantial number of patents issued as
improvement patents, based on slight modifications to the basic invention. The increased number of issued
patents led to a corresponding increase in enforcement efforts, through either efforts to negotiate royalties
or the commencement of infringement suits. The number of patent suits filed in the late 1800's, many
brought against purchasers or users of the products, was significant even when compared to the number of
patent infringement suits filed in the present very active period. In 1878, it was reported that there were
some five hundred patent cases that had been filed in the St. Paul, Minnesota Court alone. There were also
reports of up to two hundred suits being filed on a given day in Iowa, many against product purchasers.
These increased enforcement activities resulted in an enhanced awareness of the infringement liability risks
associated not only with the manufacture and sale or distribution of products but also their use by the
ultimate purchaser. As might have been expected, the increased awareness of these risks resulted in the
gathering together of individuals and the formation of risk pooling arrangements such as mutual benefit
protective societies. The mutual benefit protective societies made assessments on their members and bore
all the costs of any litigation that might be commenced against a member, providing counsel free of charge
in the event a member was sued for infringement. The Barbed Wire Manufacturers Union’s membership
was comprised of competing barbed wire manufacturers. The Iowa Farmers’ Protective Association, a
separate mutual benefit protective society, was principally composed of farmers, ranchers and other users
of barbed wire.

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Potential Participants in Risk Pooling Arrangements
• Manufacturers and other product suppliers are the most likely participants in specialized insurance
or other risk pooling arrangements.

• Distributors and other participants in the channel of distribution of goods or services are also
likely participants in specialized insurance programs.

• Ultimate product purchasers or users are equally at risk of patent infringement liability and are
potential participants in risk pooling arrangements as well.

• Service providers are likely participants in specialized insurance programs or other risk pooling
arrangements providing protection for trademark and copyright infringement liability.

Summery
Technology transfer agreements among global players are mostly patent licensing agreements. Their chief
concern is validity of the patent paid for. Each patent transaction closing on the pl-x.com will be covered
by the pl-x’s automatic patent validity insurance program. This program indemnifies the purchasing pl-x
.com subscriber for the price of the patent rights purchased.
For Indian technology transferring organizations the threats of patent infringement suits are real.
Patent savviness as exhibited by Gillette and submarine patents because of PCT bring the threat closer.
Indian manufacturing industry and software service providers have to face similar risks.

US experience points to increasing Patent infringement liability lawsuits in number and cost as
companies move more readily to protect increasingly valuable patent rights with shifting and tightening
markets. Patent Infringement Liability insurance is available, but it is expensive and limited in scope.
While a General Liability policy provides coverage for Personal and Advertising Injury, insurance
companies have modified their policies to restrict coverage for intellectual property suits, some insurers
provide copyright coverage in their Errors and Omissions policies, which is important for Internet
companies. The insurance market is beginning to address intellectual property with new insurance products.
Specialized insurance products will continue to be developed to provide a means for pooling the liability
risks associated with intellectual property.

Insurance can be costly, but the cost of an uninsured claim can run into the millions of dollars.
Businesses in the technology industry simply cannot afford to be unsophisticated when it comes to
purchasing insurance coverage for their potential liabilities. When courts find that you are guilty of
infringement, they are usually not too lenient because they feel the harmed party should get their due.

Technology insurance as a service is currently not available in India. As the domestic IT industry
grows and an increasing number of multinationals set up base here, the demand for service would surge.
Globally Technical insurance is widely utilized by semiconductor, printed circuit board and contract
manufacturers and software developers to cover risks of burglary, hostile takeovers, transit thefts, fictitious
businesses, stealing of trade secrets etc. Losses due to theft of proprietary information alone is placed at
around $24 billions.

India specific insurance packages need to be developed to protect technology generating Indian
firms. Risk pooling arrangement practiced in US in late 19th century may be more appropriate.
Organisations like DSIR can take initiative to form Indian Inventors Forum and provide grants to cover
insurance premiums. This insurance should cover litigation costs especially in affluent economies like US.
With the insurance sector opening, the time is ripe for technology insurance to take –off.

Electronic copy available at: https://ssrn.com/abstract=1121722

 References
American Bar Association Annual Meeting Business Law Section, 1998, Infringement of Intellectual
Property Rights: Do We Need Coverage for This?, Westin Harbour Castle, Toronto, Ontario, Canada ,
August 4,

David L. Hayes, Esq.*, Fenwick & West LLP, Palo Alto ,What the general intellectual property practitioner
should know about patenting business methods , California, Palo Alto

2. Keith D. Parr , Lord, Bissell & Brook.,web page (www.iprm.com)

Kevin G Rivette and David Kline, (2000) Rembrandts in the attic, Harward Business Press, 2000)
Michael S Tracy, (2000), Finally, Potential Insurance coverage for Patent Infringement Litigation,
GrayCary website, www.gcwf.com
Y Brian d. Coggio, and Francis d. Cerrito, (1998),.Immunity for Drug-Approval Process , No
Patent Infringement Under Certain Circumstances , New York Law Journal, March 9, 1998,

Electronic copy available at: https://ssrn.com/abstract=1121722