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Resurgence of Intellectual Property Insurance. Only Why Now?

by: Tom Hochstatter, President

I’m not entirely sure when one has officially “spotted a trend” but yesterday’s announcement by International General Insurance (IGI) alerting the world to their entrance into the world of intellectual property insurance was at least enough for me to have seen “enough” - and therefore inspire a blog post.

IP Insurance

While IP insurance is not a new concept, I am spotting bigger and bigger players enter the market here in the US and Europe - and now apparently MENA. What is driving firms to jump into the IP fray and to do so now? Would you consider them early to a new wave of business opportunity or way-late to a well played game?

Well, I’ll take a short Texas two-steps back and give you my two cents: we have seen what amounts to hundreds of millions being pouring into litigation finance here and here and here too, over recent months and now the insurance sector wants in on the fun and games, but to what (calculated economic) end? Is this a truly a calculated study or herd mentality “pile on” or FOMO? What is undeniable is the amount of recent new capital that is flowing into litigation finance.

 
[Of 177 lawyers surveyed] The vast majority (77%) say litigation finance is increasingly important to the business of law. Of those who haven’t yet used it, most (70%) expect to use it in the next two years.
— Burford Capital December 2018

Litigation Finance

So, billions invested or committed, but patent litigation is on the down trend. Couple that with surprisingly little (relative) investment going into direct patent investment funds - which, mind you, are still marred by the burning down of the PIPCOs and a string of underfunded, unscrupulous hoards that exacerbated the “patent troll” narrative well past its prime. So what is actually going on in terms of the investment community meeting the IP community? The easy money would be in the buying and transacting of patents directly.

Source: Unified Patents website

Source: Unified Patents website

 

Patent Investing

One would expect a major uptick in traditional patent licensing in both deal volume and number of deals as well as a surge, or at least upward trend in patent litigation which would lead to an uptick in financial settlements. The above chart doesn’t reflect that and I am quite close to the patent investment side of things to know trends are not “up and to the right” like one would expect with all of this adjacent capital flowing in.

Here’s a little color from Richardson Oliver Insights 2018 Brokered Patent market results; up about $50M YoY. Mind you this is only a piece of the overall IP/patent transactions; however, it’s only up 17%.

IP Insurance Announcements

For IP insurance, and litigation finance for that matter, to flourish the market demands vastly more transaction actors and pure patent investment capital - billions to be exact - to undergird traditional licensing and litigation monetization volumes if they, as adjacent/enabling industries, expected to thrive. Otherwise, the IP insurance sector may be stuck screaming “patent litigation (threat)”…in a crowded movie theater…just to justify their policies when one (threat) might not actually exist.

The more recent and notable IP insurance announcements and investments I’ve come across over the past 4 quarters or so:

  1. Great American Insurance Company and RPX Announce Relationship - April 2018

  2. Aon Launches Insurance Solution for Intellectual Property Liability - June 2018

  3. Marsh Launches Comprehensive Intellectual Property Insurance Solution - February 2019

  4. BIBA launches intellectual property insurance scheme with Opus Underwriting - April 2019

  5. International General Insurance Holdings (IGI) is set to expand into intellectual property - May 2019

I will keep digging to see what I am missing on the rejuvenation of new capital and risk products coming onto the scene ahead of standard, pedestrian investment capital to monetize patents the old fashion way…

Let me know your thoughts. And, if I’ve missed any big announcements (which I’m sure I have) also let me know. In the meantime, I’ll bet the patent marketplace would do much better to have billions of net new capital enter the market to buy, sell, invest in patents, thus rising the tide for all investment vehicles - from litigation financing to IP insurance risk products to spawning all new IP investment ideas yet to be invented.