IP Insurance by BlueIron
All of your intellectual property - patents, trademarks, copyrights, trade secrets - can be protected with affordable insurance products.
Enforcement insurance gives you the power to go after infringers who steal your patented invention or copy your trademarks. Defense insurance protects you when someone sues you.
Startup companies especially do not have the money to spend on patent enforcement, and could be put out of business with an incoming lawsuit. These insurance products protect the company and are essentially pre-paid legal fees for these special cases.
Many startup companies operate in very perilous intellectual property regimes. They may be unknowingly stepping on patents held by a big competitor or by a nefarious patent troll.
Disruptive startup companies who are breaking new ground WILL have copycats. That is why you get patents to cover your innovations.
Patent enforcement insurance will give you pre-paid legal fees so that you can go after those infringers. You have full control over the enforcement, and you can get a license, have them cease and desist, or do take some other action as you - and only you - decide.
In general, the effective interest rate for a patent loan will be in the neighborhood of 12-18%.
The patent loan insurance product has a premium that is paid out of the loan proceeds, as well as due diligence fees and insurance premiums for the required enforcement and defense insurance.
When you include interest that is paid back to a lender, the effective interest rate of the loan will be approximately 12-18%.
Please note that this rate is much lower than angel or venture money, which is typically 50% or more. By taking a loan against the assets you already created, you can get much further without having the negative effects of selling your equity to investors.
No. The patent loan program does not normally require a personal guarantee.
We provide an insurance product that will guarantee a lender in case of a default. However, a lender may still have the final say as to whether or not to require a personal guarantee.
We prefer to provide loans to revenue generating companies, but we will consider pre-revenue companies in some cases.
The loan program is a loan, after all, and we will evaluate your company to see if we believe that you will be able to repay the loan. Taking out a loan is much different than selling equity, and our focus is on real revenue generation.
Pre-revenue companies need to show that they are very close to revenue. In general, we want to see that the company is addressing a real need in the market, that there is economic value in the product or service being sold, and that the cost of goods leaves a solid profit margin. We also want to see that the cost to acquire a customer is known and that there is a delivery pipeline to satisfy that customer.
In short, we want to see that there is a legitimate business opportunity in your company.
Please note that we want to have real data to support the assumptions, such as experiments in customer acquisition methods, quantified analyses of the costs to build the product or supply the services, procedures for after-sale support, or whatever is appropriate for your business. We are looking to loan money to those companies who can really put the money to use, and we are less likely to provide funding for the experimental or developmental phases of building your company.
A patent loan will come with several other components, including insurance for patent enforcement and patent defense.
Because a patent loan is specifically designed to help you expand your business, we want you to focus on generating revenue, not litigation. Therefore, we require that you maintain at least $2,000,000 in patent enforcement insurance and patent defense insurance.
The due diligence process for the loan program will include due diligence for the other insurance products.
The patent loan program requires several items about your patents and your business plan. This is not a complete list.
100% ownership of your patents.
Your patents must be completely unencumbered and must be owned by the operating company. Some investors will attach liens to intellectual property, which is a non-starter. In many cases, the inventors may have “forgotten” to assign their rights to a company. There are countless ways that a startup company may not have full, unrestricted rights to “their” IP, but we will require that this be completed before applying for a loan.
The patents must be of the highest quality.
Everybody believes their patents are good, but sadly, at least 95% of all patents are worthless. Patents fail our due diligence for many different reasons, such as being over-broad, not having any prior art references, being poorly written, mistakes in patent prosecution, and countless others.
One of the biggest ways patents fail is that there may be other ways to solve the same problem. If the patent does not capture the single best way to solve a problem, your competitor will just use the alternative solution and never need to take a license from you.
The business needs to be at the right stage.
A good loan candidate can put capital to use – but must be able to repay the loan. Startups that are in the ‘idea phase’ are not good candidates because they probably have not built out their manufacturing, marketing, and sales pipelines.
A good candidate has tested a marketing and sales funnel and knows their Cost to Acquire a Customer, along with a projected Lifetime Value. They have developed enough sales to know what works and what doesn’t, and they can put a large amount of cash to use to generate revenue quickly.
Another type of candidate needs operating capital, such as to purchase inventory for an existing order or for ongoing expansion. These companies typically have access to small amounts of capital, but a collateralized loan will give them much more.
You need to apply.
We are anxiously waiting your phone call. Please contact us and discuss your situation. In many cases, we can process a loan in 2-4 weeks.
We provide an insurance policy that will guarantee a lender (typically a bank) using the patents as collateral.
The Collateral Protection Insurance product is similar to mortgage insurance, where the bank has protection if there is a default on the loan.
The CPI product requires investment-grade patents and a solid business plan. The patents must be litigation-worthy, but must also capture real economic value.
Your patents and your business plan will undergo a due diligence analysis, where the patents will undergo a “patent busting” search, looking for any weaknesses. Your business plan will also need to show the use of funds and the way you are going to put the money to use.
As part of the patent loan program, we require at least $2,000,000 in patent enforcement and patent defense insurance. We want you to spend the loan proceeds by growing your company and generating revenue – not by litigating the patents in court.
Your patent attorney is probably a good, well-meaning person who wants to do the right thing, but they have some inherent problems that prevent them from giving you good advice.
The conventional patent attorney has two duties to their clients: a fiduciary relationship and an agency relationship.
In a fiduciary relationship, the attorney is required to give good advice. If the attorney gives bad advice, they can be sued for malpractice. So what do most attorneys do? They make you decide.
Attorneys are taught to explain all the options and make you decide which one is best for you. Have you ever noticed that your attorney is always reluctant to tell you which is the best option? This is because they don’t want to get sued if you have regrets down the line.
The other side benefit of explaining all the options: the attorney gets to bill you for all the time spent explaining all the nuances. (It also makes them look really smart.)
In the agency relationship, the attorney is required to do whatever you want, provided it does not violate the law. If you want a patent on a perpetual motion machine, the attorney must write it up and send it to the patent office – no matter if the invention is completely worthless, and no matter if the attorney knows the patent office will reject it.
Never ask the barber if you need a haircut.
The attorney has an inherent conflict of interest. They need to get paid. It may look like they are selling patents, but they are really selling hours. The more hours they can sell you, the better off they are.
Think about the liability aspects of giving advice to a patent client.
If a client comes with a terrible invention and the patent attorney knows it, the patent attorney may suggest that they file a patent application anyway. If the attorney is wrong and the client sues because of the bad advice, the attorney is liable for the cost of getting a patent. The US average cost for a patent is about $60K, which is well within the attorney’s malpractice insurance coverage.
If a client comes with an invention and the attorney says do NOT get a patent, and it turns out that the advice was wrong, what is the liability exposure? The client could sue the attorney for all their lost profits – in every country of the world – for the next 17 years.
The attorney’s exposure to bad advice in this case is absolutely unbounded.
This is one reason why BlueIron does a lease-back arrangement. With this arrangement, we eliminate the conflict of interest and put BlueIron’s objective exactly aligned with yours.
BlueIron is taking several risks when financing a patent.
BlueIron is taking the risk that the patent will even issue.
BlueIron is making an investment in researching the invention, writing the patent, and getting the patent through the patent office. If BlueIron fails to get a patent, you can walk away from the deal at any time, and BlueIron loses its investment.
BlueIron is taking the risk that the patent will have value.
BlueIron is also assuming the risk that the patent will be valuable. If you walk away from the deal, BlueIron is left holding the patent and will need to liquidate the patent. We will probably try to sell the asset to someone in the field, auction off the asset, or try to find someone who might license the asset.
Why is it important that BlueIron assume these risks?
As a company who has intellectual property, you need to rely on those assets when you are making business decisions. A conventional patent attorney cannot really tell you the truth about your patents. They have an inherent conflict of interest: don’t ask the barber if you need a haircut.
By taking ownership of the patents and leasing them back, BlueIron has the exact same interest as you do: solid, investment-grade patents.
With every BlueIron patent financing program, you always have a buyout option.
The buyout option allows you to buyout BlueIron at a predetermined price at any time. Some people exercise the buyout after three months, some at three years, and some people choose to keep paying.
The buyout option is at a predefined price. You will know exactly what the buyout price will be at any time. We do NOT take a percentage of the “value” of the asset or anything like that.
BlueIron’s patent financing is based on financing the cost of a patent at about a 15% interest rate. This is a little cheaper than credit card financing, but much cheaper than angel or venture financing. As you probably know, angel or VC financing is equivalent to 50% or more per year.
By financing the patents with BlueIron, you are spending less money up front, but BlueIron is taking the risk that the patents are valuable.
BlueIron can get a US patent as quickly as six months or less in some cases. However, many times it takes 3 to 5 years.
How do we do it?
BlueIron’s founder, Russ Krajec, had the opportunity to join a startup company where we needed patent assets as fast as possible. In that startup, he was able to experiment with 100 patent applications to find the best way.
The answer: the Patent Prosecution Highway in the US. Using the PCT/PPH, Russ was able to get patents issued in the US within 4-8 months very consistently.
One key to expediting a patent is proper preparation. A patent search is critical to understand the landscape and to make sure that the claims are appropriate: not too broad but directed at an economically valuable invention.
Another key is the right strategy. The USPTO has a program called “Track One” which has several pitfalls, but it costs about the same as a PCT application. It is the PCT application which gets you on the Patent Prosecution Highway, which is much better than Track One. Feel free to give us a call and we can talk about the differences.
The “lease-back” structure is the same as almost all large Fortune 500 companies do with their patents: the patents are in a holding company but the operating company has full control of them.
You don’t purchase an office building when you need office space, do you? No. You lease space from a landlord. The landlord puts up the capital, furnishes the space, and provides all the amenities. Buying the office building outright is a waste of capital for a startup company. This is the same with BlueIron.
BlueIron does the patents on a “lease-back” arrangement. We build the patents to order, and you pay rent on them. You always have a buyout option that can be exercised at any time.
You have full control of your patents while BlueIron finances them. However, just like having a landlord for your office space, BlueIron “owns” the patents.
There is a difference between control and “ownership.” BlueIron “owns” the patents, but you control them.
Having control of the patents means that you get all the benefits of owning the patents without having to pay for them up front. You get to enforce the patents, cross-license the patents, and can even sell your rights to the patents.
BlueIron provides at least $500K of patent enforcement insurance for your patents, so that you always have dry powder to use those patents as you see fit.
Even though BlueIron provides the patents and insurance to use them, you are in complete control of how – and if – you choose to use the patents.
We offer a wide range of patent enforcement and patent defense insurance, however, our main insurance provider is a program manager for a Lloyd’s of London syndicate that focuses on intellectual property insurance.
Absolutely. We know you have good relationships with your attorneys, and we are happy that you want to use them.
Our only requirement is that the attorneys have prior first-chair experience in intellectual property litigation in federal court. If your attorney does not have this experience, we are happy to recommend attorneys who do.
We do offer a discount if you use attorneys who we have previously vetted, but you are not required to use them.
With our patent enforcement insurance policies YOU control all aspects of how to enforce your patent.
Sometimes you may wish to strongly enforce their patent to prevent a specific competitor from operating in your space. Other times, you may want to obtain a license agreement from a competitor. Still other times, you may want to cross license your patent for a technology a competitor may have.
In every case, YOU control how the enforcement proceeds.
Patent insurance comes in two basic forms: patent enforcement and patent defense. Enforcement is where someone infringes your patent and you need to enforce your rights. Defense is when someone else accuses you of infringing their patents. This can be a competitor or a patent troll.
Enforcement insurance typically costs about 1% per year of the total amount of insurance. For example, $1,000,000 of patent enforcement insurance will cost about $10,000/year.
Defense insurance typically costs about 3% per year. $1,000,000 of patent defense insurance will cost about $30,000/year.
These amounts are guidelines, and your actual premiums will only be determined after due diligence and underwriting.
We hope we don’t have any arbitration or any lawsuits, ever. However, our agreements are legal documents, and legal documents are written with lawsuits in mind. As we considered this option, it mainly came down to two things: speed and cost. Litigation is costly and time consuming. After examining arbitration as an option, we decided that it offers a better, more cost-effective, and faster means of adjudicating disputes.
Just like with a mortgage on your house, BlueIron has no ability to affect what you do with the patents you finance. You have full *control* of the assets, even though the title is held by someone else.
We treat your patents as collateral using a conventional commercial “lease-back” model. You have an exclusive license to the assets, and you pay monthly financing to BlueIron.