Intellectual property (IP) disputes are a growing concern in the technology sector, with global patent litigation costs estimated to exceed $3 billion annually, according to data from Lex Machina.
For tech firms, especially smaller startups, the stakes are higher than ever, as these disputes can quickly escalate into existential threats. Speaking to Insurance Business, Michael Loeters (pictured), senior vice president of commercial insurance and risk management at PROLINK Insurance, said that the complexities of these challenges mean companies need proactive measures to mitigate risks.
“When you're talking about intellectual property disputes, it is often a fight to the death,” he said. “Whoever loses could potentially be out of business. Their wings are going to be significantly clipped in the marketplace, both from a reputational perspective or because of the amount of research and development they might have to do to engineer around a patent.”
Globalization has only compounded these risks. Research from Statistia found that the global insurance market was valued at approximately $6 trillion in 2022, with projections indicating it could reach nearly $10 trillion by 2028. What’s more, between 2017 and 2023 globally, gross written premiums worldwide increased from around $5.6 trillion to approximately $6.8 trillion, with forecasts suggesting they may approach $9.8 trillion by 2028.
However, as Loeters told IB, intellectual property is more regional – and thus more complex.
“When you’re filing a trademark or patent, it’s country-specific or region-specific. Global collaboration significantly increases the risk. A Canadian technology company might just be trying to establish itself in the local market. Spending money to determine if they infringe on IP in the US, Japan, or the EU is not even on their radar at that point.”
The rise of artificial intelligence (AI) has added another layer of complexity. According to research from Vaultinum, the global AI market was valued at approximately $136 billion in 2022 and is projected to grow at a compound annual growth rate (CAGR) of 37.3% between 2023 and 2030. What’s more, by 2025 global revenues from AI in enterprise applications are expected to rise from $1.62 billion in 2018 to $31.2 billion. However, that doesn’t necessarily mean AI can help you master IP.
“AI doesn’t do intellectual property checks for you,” Loeters said. “It just grabs information that’s readily available and delivers it. You can do with it what you want, but it increases the potential for inadvertent infringement. Globally speaking, to spend money trying to figure out whether this could potentially infringe upon the IP of somebody in the US or Japan or Australia or the EU, it’s really not even on your mind at that point in time. That’s a risk a lot of technology companies just very intentionally kick down the road, [thinking] we'll deal with it when we get to it.”
This, combined with the rise of patent trolls – non-practicing entities that exploit the patent system to target smaller firms – has made navigating IP issues even more treacherous. According to The Hill, patent trolls have been responsible for a significant portion of patent litigation. In 2012, they accounted for 61% of all patent cases. By 2014, this figure had risen to 67%. What’s more, Apple filed two amicus briefs to the Supreme Court claiming to be the main US target for patent trolls, having faced almost 100 lawsuits in just three years.
For Loeters, the disproportionate challenges faced by small tech companies when they disrupt markets dominated by larger players is a cause for concern too.
“Technology companies disrupt the marketplace – that’s how they break in and gain attention,” he said. “But that often puts them at odds with bigger, well-capitalized incumbents whose interest lies in maintaining the status quo. It’s not a fair fight. IP disputes are not about right and wrong; they’re about who has more money. The bigger players will simply outspend you.”
And for startups, these risks are particularly concerning when seeking investor support. Studies indicate that over 60% of venture capital-backed startups encounter legal disputes during their lifecycle, many of which involve intellectual property. As such, investors are naturally wary of allocating resources that could be siphoned off into litigation.
“If a private equity firm is putting $3 million into a company, they don’t want that money used for legal fees to fight IP disputes,” Loeters said. “They want it to go into R&D, growing the sales team, or marketing. If that investment ends up funding litigation, it jeopardizes the company’s ability to raise future rounds.”
To address these challenges, Loeters advocated reframing IP insurance as an investment rather than a cost – something that’s clearly indicative of the market. According to Business Research Insights, the IP liability sector was valued at around $5 billion in 2023 and is expected to grow to $9 billion by 2032, with a CAGR of approximately 10.2%.
“Companies already invest in training, IT security, and other measures to avoid big, unpleasant costs. IP insurance is just another small investment to prevent a potentially catastrophic expense,” added Loeters.
Here, Loeters shared an illustrative case study of how IP insurance can be a game-changer – where a client developing advanced robotics technology was targeted by a large US competitor after disrupting their market share.
“The competitor first tried to buy our client, but their offer was declined. Then they attempted to license the technology, but that was also refused. Finally, they launched an IP lawsuit,” he said. “As soon as the lawsuit was filed, we reported the claim, and the competitor realized they were now dealing with an insurance company. They didn’t know how much insurance the client had – whether it was $100,000 or $100 million. After some back-and-forth, they dropped the lawsuit and decided to compete in other ways.
“When the bigger player realizes they’re not fighting your balance sheet but that of an insurance company, they may rethink their strategy. They might realize that spending hundreds of thousands on litigation isn’t going to crush you as they’d planned.”
The broader implications for companies, however, go beyond immediate legal protection. IP insurance helps safeguard a company’s reputation and valuation, particularly in high-growth phases.
“It helps you operate with greater confidence,” Loeters said. “It gives your investors’ confidence, protects your ability to raise funds, and safeguards the valuation of your firm as you scale.”
Essentially, Loeters is keen on stressing the importance of educating clients on the value of IP insurance through data.
“We share claim stories and real-life experiences to help clients understand the risks and quantify their impact,” Loeters said. “This enables them to make informed decisions about managing or mitigating those risks. As brokers, our role is to help clients identify, prioritize, and address their unique risks.”
The technology sector, with its rapid innovation and disruption, will continue to face heightened IP risks. However, as Loeters told IB, a proactive approach can make all the difference.
“Whether you’re dealing with unintentional infringement, poor risk management, or outright bullying, the financial implications can be enormous. IP insurance isn’t just a safety net – it’s a strategic tool that levels the playing field and allows smaller firms to compete confidently.”
