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6

IP Insurance as IP Monetization Business Model

Jose A. Esteves

Skadden, Arps, Slate, Meagher & Flom LLP

The views expressed herein are those of the author and do not necessarily express the views of Skadden, Arps or its clients.

If you find this article helpful, you can learn more about the subject by going to www.pli.edu to view the on demand program or segment for which it was written.

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Jose A. Esteves
Partner
Skadden, Arps, Slate, Meagher & Flom LLP
Intellectual Property and Technology

New York
T: 212.735.2948
F: 917.777.2948
E: jose.esteves@skadden.com

Jose A. Esteves is a partner in the Intellectual Property and Technology Group. Mr. Esteves focuses on assisting clients in maximizing the value of their intellectual property and technology assets, including through strategic stand-alone transactions such as collaborations, joint ventures, outsourcing arrangements and other complex technology transactions; stand-alone and mergers-and-acquisitions-related development, licensing, supply, marketing and support arrangements; and through IP monetization and financing transactions. Mr. Esteves advises a diverse group of clients from the U.S. and abroad, including Europe, Asia and South America. Mr. Esteves also handles intellectual property and technology aspects of traditional mergers and acquisitions, financings, public offerings and commercial transactions. Intellectual Asset Management magazine, the leading trade publication focused on IP monetization, includes Mr. Esteves on its list of the “IAM Strategy 300—The World’s Leading IP Strategists.”

Representative transactions and clients during the past few years have included:

IP Monetization and Finance:

•

MIPS Technologies, Inc. in its simultaneous patent sale to AST and sale of its operating business to Imagination Technologies Group—ranked among the top matters in the “Lawyers to the Innovators” category in the Financial Times’ 2013 “US Innovative Lawyers” report;

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•

Goldman Sachs and Bank of America Merrill in securitizations of bundled pharmaceutical patent royalty streams;

•

Theravance, Inc. in a $450 million royalty securitization;

•

IPXI in connection with certain structuring matters and in connection with a ULR patent license exchange offering;

•

Amylin Pharmaceuticals, Inc. in structuring an innovative synthetic $1.2 billion revenue interest with Eli Lilly relating to the take-back of two drugs;

•

ABB Ltd. in a strategic patent transaction.

•

various clients in unannounced patent monetization transactions, royalty interest purchases and IP-collateralized loans; and

•

a biotech company in structuring an innovative, tax-efficient monetization strategy for its drug discovery technology.

Complex Technology Transactions:

High-Tech:

•

Nokia Corporation in its merger with Alcatel Lucent, renegotiation of strategic JV and a strategic product-line acquisition;

•

BlackBerry Limited in its 2013 strategic review and in certain strategic IP transactions;

•

PMC-Sierra in connection with its sale process, and a strategic product-line acquisition and associated development and supply agreements;

•

IMAX Corporation in licensing in technology and negotiating collaborative development and supply arrangements for next-generation movie projectors, and in its global reorganization.

•

a buyer in the acquisition of an automobile manufacturer, with a simultaneous automotive joint venture with a third party, and supply, technology licensing, IT services, product distribution and transitional services arrangements; and

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Pharma/Biotechnology :

•

Pfizer, Inc. in its proposed merger with Allergan, Inc., the sale of its consumer products business to Nestle and in certain strategic and certain drug development collaboration/co-promotion transactions;

•

Regeneron Pharmaceuticals, Inc. in several drug collaborations with large pharma companies; and

•

Shionogi & Co., Ltd. in a part-entity, part-contractual global joint venture with SmithKline Beecham Corporation to develop, manufacture and commercialize HIV drugs.

Outsourcing:

•

Kingfisher Airways in a master licensing and hosting contract with Sabre Airline Solutions for a suite of core airline software;

•

PHH Corporation in various mortgage origination and servicing outsourcing agreements; and

•

Getronics NV in its business/platform reorganization and divestiture of its U.S. outsourcing business, and related subcontracting.

Energy:

•

ExxonMobil in the structuring of a technology R&D and licensing joint venture with Rosneft;

•

Vitol in the acquisition of Royalty Dutch Shell’s downstream oil business in Australia, including trademark, supply and product marketing and distribution agreements;

•

Westport Innovations in the renegotiation of its natural gas engines JV and supply agreements with Cummins; and

•

Organic Fuels in a JV with the University of Texas and the licensing of technology related to renewable fuel from algae;

•

Entergy Corporation in several strategic transactions.

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Media/Content/Consumer Products:

•

Yankees Entertainment Sports Network (YES Network) in its licensing of media rights to New York Yankees baseball games;

•

an online social networking site and technology start-up in a development, licensing and hosting relationship with a major media and entertainment company;

•

cross-marketing, distribution and services agreements among Avis/Budget, Wyndham International, Century21 and Travelport in connection with the separation of Cendant Corporation;

•

Acorn Holdings in a coffee products JV between its D.E. Master Blenders business and Mondelez International, including ancillary technology and brand licensing and transitional services and supply arrangements; and

•

Gama Healthcare Ltd. in a trademark license and marketing and distribution agreement with a major consumer products company.

Mr. Esteves is the founder and chairperson of PLI’s annual IP Monetization conference (now in its 8th year). He routinely presents at seminars and conferences, including on the acquisition and transfer of IP, IP monetization and finance, and complex transactions.

Prior to law school, Mr. Esteves worked as a computer design engineer for three years at IBM.

Education

J.D., Yale Law School, 1995
M.S., Columbia University, 1992
B.S., New Jersey Institute of Technology, 1989 (magna cum laude)

Bar Admissions

California
New York
United States Patent and Trademark Office

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1. Introduction

As the field of IP monetization continues to evolve, new business models continue to be developed and implemented. One model getting increasing attention from IP monetization entrepreneurs and investors is IP insurance products intended to de-risk patent litigation risk. We explore two such insurance products in this article.

2. RPX Insurance Offering1

(a)

RPX Corporation (“RPX”) is a company that focuses on providing products and services to manage patent risk for operating companies, particularly risk arising from patent licensing and enforcement activity by non-practicing entities (“NPEs”).

(b)

Among RPX’s more recent product offerings are certain insurance products intended to manage NPE litigation expense risk.

(c)

RPX Patent Litigation Insurance: Key Terms and Characteristics.

(i)

Underwriting. The insurance policies are written on A rated paper (AM Best), backed by a Lloyd’s syndicate.

(ii)

Litigation Matters Covered:

(1)

Coverage is offered for both NPE and company-to-company patent lawsuits filed in US federal district court in which the insured is named as a defendant.

(2)

The policy will cover declaratory judgment and reexamination, inter partes review and covered business method review actions, when approved in advance by RPX.

(3)

The policy will cover, in most instances, previously disclosed assertion letters that mature into suits after insurance is placed.

(4)

RPX does not cover lawsuits in which the plaintiff NPE has previously sued the insured.

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(iii)

Basic Coverage Terms:

(1)

Claims-made coverage. The insurance policy is of the claims-made type. RPX provides reimbursement of litigation expenses and approved costs to resolve the litigation.

(2)

Coverage Limits. Insurance coverage limits can be set as high as $10 million annually, with a retention of at least $25,000.

(3)

Contribution Percentage. There is a requirement that the insured contribute at least a certain percentage of the amounts that are otherwise reimbursable under the insurance policy. An example given by RPX set the contribution percentage at twenty percent (20%). The contribution percentage can be thought of as a deductible set at a percentage of the insured claim amount. According to RPX, this requirement is essential to maintaining alignment of interests among RPX, the insured and defense counsel.

(4)

SIR. There is an additional requirement that the insured be responsible for the first portion of insurable claims up to a specified amount. Referred to as self-insured retention (“SIR”), this appears to be essentially equivalent to a deductible under other types of insurance policies. Policies include a minimum SIR generally under the policy, and a per claim SIR. According to RPX, this requirement is also essential to maintaining alignment of interests among RPX, the insured and defense counsel.

(5)

Tailored Pricing. Coverage and price for each policyholder is individually set based on an actuarial model that leverages RPX’s litigation and settlements database.

(iv)

Covered Costs and Expenses:

(1)

Litigation expenses, including outside counsel fees and special services providers;

(A)

The insured selects counsel but RPX must approve the selection, and such counsel must agree to a budget and to adhere to RPX best practices.

(B)

Invoices are analyzed against the budget, the insured’s policy and the RPX best practices.

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(2)

Approved reexamination, inter partes review, covered business method review, counterclaim and declaratory judgment expenses; and

(3)

Settlement payments (settlement amount and agreement must be approved by RPX).

(v)

Procedural Requirements:

(1)

The insured must report claims, reportable events and resolution events within 30 days.

(2)

The insured must submit litigation expenses for reimbursement on a monthly basis.

(d)

Specialized Policies.

(i)

Emerging Risk Insurance.

(1)

Designed for early-stage companies that are just starting to face patent risk.

(ii)

Standard Protection Insurance.

(1)

For companies that have already begun to face some threat of infringement litigation.

(iii)

Volatility Risk Insurance.

(1)

Provides coverage for companies facing variable frequency and spikes in patent litigation.

(iv)

NPE Indemnification Insurance.

(1)

Allows technology providers to extend their infringement liability coverage to customers. Variations include:

(A)

Basic extension of the insured’s coverage to the insured’s contractually indemnified customers;

(B)

Subsidized insurance that allows the insured to extend coverage to customers and partners instead of contractual indemnification; and

(C)

Buy-up insurance that allows covered customers to cost-effectively expand subsidized insurance.

(v)

Portfolio Protection Insurance.

(1)

Specialized patent risk coverage for companies in venture capital and private equity portfolios.

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3. Athena Fee Shifting Protection

(a)

Introduction. Athena FSP, LLC offers a product, Athena Fee Shifting Protection (“Athena FSP”), to protect against fee-shifting awards in patent lawsuits.2

(b)

Basic Product Characteristics.

(i)

Athena FSP will pay a patent owner or law firm, as the Athena FSP client, up to $3 million of a Section 285 fee shifting award.

(ii)

There is no upfront fee. Athena FSP receives a fee only if the related litigation or licensing generates revenues. If the underlying litigation or licensing campaign is successful, Athena FSP is entitled to a percentage of the proceeds up to a fixed amount, with a small residual interest thereafter.

(iii)

The approval process takes 10 days or less. Protection for amounts greater than $3 million are available in certain circumstances. Athena FSP’s commitment lasts for the life of the litigation or licensing campaign.

(iv)

The patent owner and counsel retain 100% control of the litigation or campaign.

1.

See RPX Corporation, Services, Patent Litigation Insurance; http://www.rpxcorp.com/rpx-services/rpx-patent-litigation-insurance/ (last visited Mar. 4, 2016).

2.

See generally Athena FSP, LLC, Patent fee shifting protection to protect patent owners under Section 285 and proposed congressional reforms; http://www.athenafsp.com/ (last visited Mar. 4, 2016).