Protecting Your Insurance Patent,
Or, Millions Of Dollars For Your Thoughts
By Tom Bakos and Mark Nowotarski
Remember when new ideas in the insurance industry were a dime a dozen? If someone offered you a penny for your thoughts, you were getting a tremendous deal. Thats no longer true. Now, you might be able to get a couple million dollars.
The first significant challenge to an insurance patent has just been overturned. Bancorp Services, LLC won a significant victory in the U.S. Court of Appeals for the Federal Circuit involving its patent, US 5,926,792, “System for Managing a Stable Value Protected Investment Plan.”
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On March 1, 2004, the Court of Appeals reversed a lower court ruling that held its patent was invalid. As a result, Bancorps prior settlement with the Hartford Financial Services Group for alleged misappropriation of trade secret and patent infringement was bumped up another $10 million to almost $80 million dollars (pretax).
The Court of Appeals ruling revives Bancorps patent lawsuits involving MetLife and Sun Life Financial (Canada). And, if these cases result in settlement or judgment, the value of their ideas could go well beyond $100 million.
Fed Chairman Alan Greenspan has noted that the fraction of the total output of the U.S. economy that is conceptual rather than physical has been rising. This is due, in part, to the fact that miniaturization has reduced the demand for materials in the goods we manufacture. However, whatever the reason, there has been an accelerating shift to ideas as a major contributor to value creation. With this shift a greater emphasis has been placed on the need to protect intellectual rather than physical property rights.
And, if that is true in general, it is true to the nth degree in the insurance industry where our products are created out of at least 99% idea and less than 1% paper. Insurance is a business that provides financial instruments for dealing with the cost of risk. Its products and services involve finding ways to manage the financial impact of risk, first, through quantification and, then, through the introduction of pooling, offset, or transfer mechanisms designed to minimize the financial uncertainty of a risk event on any single entity. If it were easy or obvious, everyone would be doing it. But it is hard, often not so obvious and requires the application of specialized skills.
The application of these skills to research and develop risk solutions in the insurance industry quite often results in invention. An “invention” is an idea that has a practical, technological implementation. Invention in the insurance industry, for the most part, had been freely shared with others in the past. But competition has become more spirited and margins have become tighter so that insurance companies need every advantage they can get to remain profitable.
An individual inventor or a small group of entrepreneurs are more likely to recognize the value in what they create and take steps to protect their intellectual property, as Bancorp did, with a patent. But no one can really afford to continue to throw open their vaults. Thats effectively what you would be doing when you convert your cash dollars invested in R&D into potentially successful ideas and then just give those ideas away.
Enterprise risk management (ERM) has become a hot topic in the insurance and other industries. ERM focuses on all risks to which an enterprise is exposed–financial, accidental, operational or otherwise. The recognized need to address this issue in a unified and organized fashion has resulted in the creation of a new position, Chief Risk Officer, in many companies. Some guidance may be taken from how the issue of risk is being addressed within corporations on an enterprise level and applied to protecting the value in intellectual property.