Source: Shanghai Financial News

For a long time, the greatest worry of SMEs as they grow their businesses has been competitors infringing on their patents and making knock-offs of their products, something that is even more worrying to SMEs than issues related to product quality, sales or marketing. Infringement and the creation of knock-off products results in massive losses for this SMEs as they are unable to protect their products form such actions in a timely and reasonable manner. Patent insurance products have been created to help businesses deal with infringement. The scope and types of protections currently offered by these products is increasing. It is recommended that businesses purchase a policy according to their needs; the costs of purchasing a policy will lower the costs borne by businesses as they defend themselves against infringement and knock-off-making.

Owners of smaller firms have been likely to find over the course of attempting to defend their patent rights that it is difficult to enforce a patent, difficult to ascertain the time an infringing action occurred, likely that their patents will be infringed upon multiple times, their compensation from winning a suit is lower than costs of litigation, that the costs of defense are high and that the results of a suit are difficult to predict. In recent years, Chinese insurance companies have packaged many different policies aimed at protecting the intellectual property rights of SMEs. These policies cover as many potential risks as possible so as to reduce the impact of infringement on SMEs.

Patent insurance is a new type of commercial insurance that focusses on the protection of intellectual property rights where the insured unit's patent rights are what are being insured. During the insurance period, should the insured unit's rights be infringed upon, the insurance company will, according to the terms stipulated by the policy, reimburse the legal expenses of the insured unit such as attorney’s fees as well as due diligence costs that the insured unit may incur during a patent enforcement.

In August of 2017, Ping An Insurance and the Shenzhen Municipal Intellectual Property Office announced the unveiling of a patent insurance product, entitled Shenzhibao. Using model that “combines service with insurance,” Shenzhibao aims to ease the difficulties faced by small entities in their efforts to protect their patent rights. The Shenzhen Municipal Government also just published the Provisional Operating Procedures Concerning the Establishment of a Special Fund Reserved for Intellectual Property Projects for Rendering Shenzhen as Small Entities’ Base of Innovation and Starting-up (hereinafter referred to as the Provisional Operating Procedures). According to the aforementioned Operating Procedures, small entities taking out the Shenzhibao insurance policy are eligible for a full subsidy from the Shenzhen Municipal Government.

The person responsible for product development at Ping An Insurance Group stated that Shenzibao has the following characteristics: one, the policyholder does not have to wait for the disbursement of court-ordered compensation from an infringing party. Two, where another party submits a request of invalidation, a reasonable amount of compensation covering costs during the period of invalidation proceeding can be payable so long as the patent is held valid eventually. Where the compensation awarded to a policyholder is lower than the policyholder's legal costs, the policyholder may list clearly the difference, whereupon the policyholder will be awarded compensation covering the amount of the aforementioned difference. The insurance period can be extended from one to three years and in principle can include the period in which a patent infringement suit has been initiated. Furthermore, where multiple incidents of patent infringement occur and the compensation limit has not been reached after one lawsuit, the residue amount of compensation allotted to the plaintiff may be used for other patent infringement cases.

A noteworthy feature of the insurance offered by Ping An is that upon receiving a report of patent infringement from a policyholder, Ping An will use the information provided by the policyholder when the latter submits a claim to compile a risk indication report. The focus of the report will be the quality of patent stability and the risk of litigation after a patent claim comparison. Furthermore, the policy entails that Ping An will provide the policyholder with a list of recommended legal experts in a gratuitous manner to assist the policyholder during patent litigation.

The policies offered by Chinese insurance companies to help businesses avert patent-related risks have made a marked impact in the past few years. In August of 2017, CET Inc. took out a policy from Suzhou's China Continent Property & Casualty Insurance Company Ltd. (hereinafter referred to as China Continent Insurance) entitled Intellectual Property Rights Protection Expenses Insurance. What makes this transaction notable is that CET is a nationally-recognized High and New Tech Enterprise. The policy entails that China Continent Insurance will bear the costs incurred by the insured in the course of the latter party defending itself from patent infringement. The aforementioned insurance policy seeks to reduce the stress borne by the policyholder over infringement issues by providing an effective safeguard for the policyholder's legal rights to his or her patented technology.

In March of 2017, Tianjin Sea-Gull Watch Company (hereinafter referred to as Sea-Gul) signed an insurance contract with People's Insurance Company of China Tianjin Branch, thus becoming the first Chinese company to take out the Legal Expenses Arising from Patent Disputes in Overseas Exhibitions Insurance policy. Thus, should Sea-Gul enter into a patent dispute with another entity while attending an overseas exhibition and choose to resort to legal means of solving that dispute, Sea-Gul will have the ability to obtain compensation through its insurance policy.

Legal Expenses Arising from Patent Disputes in Overseas Exhibitions Insurance is an insurance policy tailored for technology companies who own independent intellectual property rights. The policy entails that the insurance company will disburse compensation for any legal fees such as attorney’s fee and due diligence cots for suits arising from disputes in which the policyholder has sent a cease and desist letter to an infringing party or requests that customs or a responsible judicial or administrative organ which deals with patent issues take compulsorily enforceable measures against the infringing party after policyholder’s overseas supplier finds that the infringing party exhibits infringing products in an overseas exhibition.

Protecting intellectual property rights is a difficult task in any county. Collecting evidence of infringement and filing infringement lawsuit is often so complicated for small entities that the entire ordeal is traumatic. With this in mind, in August of 2016, the State Intellectual Property Office (hereinafter referred to as SIPO) began a 3-year pilot program for patent pledge financing and patent insurance project in ascertained 72 areas and units nationwide.

An inordinate number of small entities face patent infringement by other parties as they upgrade or revamp their products. These businesses can face dire consequences if they do not give enough attention to the protection of their intellectual property. Fortunately, the Chinese market is already filled with insurance policies that afforded to cover the aforementioned risks. It is critical that businesses take advantage of these policies and choose policies depending on what their specific needs are. In doing so, businesses can better guarantee their own future development.