Wednesday, 26 January 2011

IP litigation, insurance and game theory: an opinion

IP Finance is hosting this little opinion piece from Bob Knock (Consultant, FirstAssist Legal Protection).  Do please feel free to comment on it.  For the record, Bob is an enthusiastic believer in litigation as an insured risk and in the delicious pleasures of game theory.  He writes:
"Fuel consumption statistics are a key consideration when purchasing a car -- presumably because a driver wants to understand how much it will cost to make practical use of the car. Are such considerations made when a party is obtaining an intellectual property right? For example, how much it would cost to enforce a monopoly in the case of a patent or exploit and defend a reputation if a trade mark is obtained? How much protection do intellectual property rights provide? Without the ability to litigate are they a toothless lion?

It was suggested in Lord Justice Jackson’s Review of Civil Litigation Costs in England and Wales that SMEs could enjoy access to justice by subscribing to before-the-event (BTE) legal expenses; BTE was an active consideration in the impact assessment pertaining to the Patents County Court consultation.

There are a small number of providers of specialist IP legal expenses insurance. These policies can indemnify legal expenses if a party needs to pursue an infringer. Having BTE in place demonstrates that the custodians of a company have risk management strategies in place and obviates the need to hold large cash reserves or seek finance to pay legal fees.

If SMEs can litigate more easily by virtue of BTE, will this change behaviour and attitudes towards intellectual property rights? House prices are a frequent reference in some journalism. It is, however, interesting to consider that these prices are set by the > 1% of housing stock which may be on the market at any one time. Are there parallels with commercial behaviour and the extent to which IP strategies could be influenced by the small number of cases which are litigated or the likelihood of litigation?

In many income-based IP valuation models, litigation support is a factor. Measures could be taken of how well protected a market is and how difficult it is for competitors to encroach or the likelihood of damages being recovered if there is an infringement. Calculations made, allowing for different levels of litigation protection, could quantify the benefits of a legal protection policy in terms of the value of the company, much of which may vest in intangible assets secured by IPRs.

Insurance should allow SMEs to pool resources so that, when a potentially catastrophic event occurs, they can be afforded protection. This involves the insurer maintaining a reserve of funds that will be used to indemnify the legal expenses of whichever businesses’ IPRs are infringed. In order for a fund of appropriate size and containing appropriate risks to be maintained, membership of the pool, or purchase of a policy, must be attractive and commercially rational. To achieve this end it is important for underwriters to understand the views of IP owners and practitioners.

Burton Malkiel, in his book A Random Walk Down Wall Street, hypothesised that share prices follow a random walk. If an analogy can be supported between a share becoming popular and going up in price and an IPR becoming popular and then being infringed it may be erroneous to price a book of IP protection business on claims histories. We are, therefore, influenced in our underwriting approach by game theory.

It is interesting to note that game theory can be used to demonstrate that the chances of a response being posted to a blog article should diminish if there is an obvious response".
Comments, anyone?


Robert Cumming said...

In a brand clearance exercise, the cost of obtaining and enforcing trade mark rights should always be taken into account. A distinctive and unique brand with no similar marks may be harder to come by and perhaps incur greater front-loaded development costs to create and identify, but any cost saving made by the selection of a mark with low disrinctive character is eroded entirely by the back loaded costs of registration and enforcement.

It is therefore a false economy to select a descriptive mark, even if its marketing is given an initial advantage because consumers interpret the term as having a meaningful connotation.

Unknown said...

Hey Great post. Really a very nice piece of information.IPO Procedure