The RPX Approach to Patent Litigation Insurance – an Interview with Paul Scola

In 2013 we wrote about the RPX Corporation patent litigation insurance product, then offered using a Risk Retention Group approach (see for the summary of that Report).  Although we were unable to include RPX’s Patent Litigation insurance product in our Intellectual Property and Media Liability Insurance Market Survey 2015, we reached out to Paul Scola, Senior Vice President at RPX and head of RPX Insurance Services for an update.  RPX is a patent risk management company that helps protect its clients by acquiring patent assets and rights and licensing/sub-licensing their use, thus reducing their risk of patent litigation from NPEs (non-practicing entities, also known as patent trolls).  The number of NPE-related patent infringement cases continues to be high, and such cases can be expensive, so RPX offers an insurance solution. 

What follows is my interview with Paul.

Rick Betterley: Paul, RPX wasn’t founded as an insurance company. Can you explain the company’s core business model?

Paul Scola: That’s true. RPX was formed in 2008 to help companies reduce the cost and risk of being sued by non-practicing entities—also known as NPEs, more commonly known as patent trolls. We provide a variety of services to our clients, but in a nutshell, our core service is defensive patent acquisition, where we aggregate our clients’ annual fees and use that capital to acquire potentially problematic patents on behalf of all the participating companies.

It’s a simple and effective approach: mitigate patent risk by removing its source. We buy patents before they wind up in the hands of NPEs. We also buy patents out of active litigations, which clears our clients from lawsuits before their legal costs can pile up. Doing this as a network allows us to clear the risk related to these patents far more efficiently than the companies could on their own. Importantly, we only buy defensively, meaning RPX will never litigate or assert the patents we own. And our clients receive a license or sub-license to everything we acquire.

When we launched RPX in 2008, we went to companies that experienced the most risk, and that’s where we demonstrated how effective the model was. Larger technology companies might see upwards of 20 or 30 patent litigations a year and can easily accrue tens of millions in legal costs and settlement expense annually. Those same companies can spend $5 or 6 million dollars with us, and our network buying clears patents that would otherwise have cost them $10 or $15 million or more to fight and settle.

RB: So why did you add insurance to your service offering?

PS: Our core defensive patent acquisition service is highly cost-effective for companies that face a relatively steady stream of patent troll attacks—say two or three patent assertions every year or so. But, not all companies are facing threats on a regular basis. Hundreds do, but there are thousands of other companies that only face one or two attacks every 24 to 36 months.

That said, even this irregular threat is not something to take lightly. Overall, companies spend more than $10 billion every year in NPE-related costs, and the cost to defend a single lawsuit can run from six figures to tens of millions of dollars. For a small or medium-sized company, this kind of unexpected expense can be damaging or even catastrophic. For larger companies, the price tag on litigation can often be higher than average.

We realized that these companies, still facing significant financial risk, needed to be able to transfer their risk through insurance. It’s an ideal and affordable way for companies with less regular NPE risk to cap their exposure, reduce their burden, and manage patent risk efficiently and cost-effectively.

 RB: RPX has been offering patent litigation insurance since 2012. Tell me about the current offering.

PS: Our insurance offering is a by-product of the risk mitigation service afforded by our core business. As you can imagine, through our involvement in the patent marketplace, we have been able to amass an extensive amount of data on patents and patent transaction costs.

Using this data, we have built an actuarial model that allows us to tailor individual policies to each company’s unique risk. We have a very sophisticated understanding of what NPE litigations cost companies. Our first-generation product was a policy we offered via a Risk Retention Group (RRG). That structure let us launch quickly and build a book of policyholders so we could validate our underwriting model and claims-paying systems.

Our underwriting assumptions and claims management worked extremely well, so about a year ago, we migrated to the Lloyd’s platform. The RRG was not rated by AM Best and required an investment in addition to the policy premium. We knew that model would not scale, so we found a solution with broader market appeal. Our policies are now written on A-rated paper and are accessible to the broker market through a few direct retail appointments and a partnership with wholesaler CRC. We have also rolled out a series of related products to complement our standard policy, including an offering for start-ups and an indemnification solution, where companies can purchase coverage for themselves and their customers.

RB: What are the coverage details for your NPE liability policies?

PS: For companies with emerging risk, like a start-up, our NPE litigation product has premiums as low as $5,000 for $1 million in coverage. From there, we price premiums according to a company’s risk profile. Premiums for indemnification clients will vary as well, but coverage is extended to $10 million.

For all of our insurance products, retentions range from $25,000 to $500,000. Co-pays can be as low as 10% if panel counsel is used.

RB: What kinds of companies are buying insurance from RPX?

PS: RPX insureds come from a variety of sectors and range in size. It’s important to realize that NPEs threaten companies that aren’t traditional “tech” firms. You only need to be using a patented technology in your product or in your operations. So any company with an interactive website or that provides customers WiFi access or that conducts online marketing or customer support—or really just about any company doing business in the 21st century—could risk being accused of patent infringement.

While that is the unfortunate reality, it is true that companies in some particular sectors face more NPE attacks. Last year, for example, more than 30% of defendants in NPE litigations were companies in the software sector.  But NPEs can be somewhat cyclical in where they turn their attention; we’ve seen litigation in a pretty broad array of sectors, from consumer electronics and digital media to retailing, financial services, and automotive.

RB: I find that many insureds and their patent counsel are concerned about losing the ability to select defense counsel. So, tell me more about your panel counsel program. How does it benefit your insurance clients?

PS: The panel counsel program actually is just part of the overall preferred provider legal services our insurance clients have access to when they file a claim. This assistance with legal defense, by the way, is one of the attributes that we think clearly differentiates our offering from others that sell some kind of NPE insurance.

Through our panel counsel program, our insureds have access to more than 20 pre-vetted, best-in-class law firms with expertise and experience in defending companies against NPEs. Our panel counsel operate in four categories: litigation, licensing, local and IPR counsel, and we have pre-negotiated discounted billing rates, fixed fee arrangements, and other alternative billing arrangements with them. Law firms are invited to apply to our panel counsel program on an annual basis. Insureds may select non-panel counsel to represent them, with those representations subject to our approval.

Many appreciate that RPX makes the claims and litigation management process as turnkey as possible. A number of them do not have in-house patent counsel—or in-house counsel at all—and many have little experience with NPE litigation, or are simply focused on running a profitable business. As such, we do a lot of the heavy lifting, and as much of the coordination of legal resources as the insured wants. This includes providing information, data, and intelligence about the NPE, and its litigation and licensing history; running the counsel selection process, and managing the litigation budget.

RB: So what do you think is the single most important aspect of RPX’s patent insurance offering?

PS: Well, Rick, we think that this is a fairly unique kind of insurance for an equally unique kind of risk.  We think it’s really the best approach to insuring NPE litigation liability. Our insureds benefit from RPX’s core patent buying activities, which give us a unique ability to remove risk before our policyholders face an event. And, we have very efficient claims paying and claims management. When NPE litigations do occur we pay claims up to the insured limit, and if the policyholder needs or chooses to fight on, we make that defense very effective. Through our services, our insureds have seen legal fees reduced by 80% or more.

But if there’s one thing it all boils down to, I guess that would be the data. You can’t price or underwrite any risk without an in-depth and accurate understanding of the associated costs.

The data detailing those costs are incredibly hard to find, but our defensive patent business has made it available to us. These data have allowed us to build a proprietary underwriting model that lets us price this risk very accurately. So we have an underwriting model that is based on actuarial reality, not educated guessing. We’ve got the data. That not only allows us to offer this product that no one has been able to deliver, but it also give us a huge competitive advantage going forward.

Anyone can find more information about our products at and contact with any specific questions. Insurance brokers interested in our products can contact Scott Turkow, Senior Director of Channel Sales and Operations, at

RB: Thank you, Paul.  Patent Litigation insurance should be bought by a lot more organizations.  Efforts like yours and other coverage providers is much appreciated.  We’re looking forward to including you in next year’s Intellectual Property and Media Liability Insurance Market Survey


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