Chinese companies seek IP insurance for safe global expansion

China’s Jiangsu province-based Wuxi Little Swan Co., Ltd. (小天鹅电器有限公司), a wholly-owned subsidiary of electrical appliance manufacturer Midea Group, on May 10 bought an insurance policy provided by China’s largest non-life insurer PICC Property and Casualty Company Ltd. (PICC P&C) to cover losses incurred by first-time non-willful infringement litigation claims or the likelihood of such claims asserted by plaintiffs against its one patent granted outside China. With its other four Chinese patents covered to complete an insurance portfolio, Little Swan shall be entitled to a total sum insured of 1.04 million yuan ($156,000) against the five intellectual assets.


Per an incentive policy on intellectual property (IP) insurance, half of the premium payable on Little Swan, as Wuxi city’s first ever user of the overseas IP infringement liability insurance product, has been subsidized by the Wuxi municipal government. 37 IP insurance policies were purchased by 20 local companies with total coverage of 2.15 million yuan ($320,000) in exchange for aggregate premiums of 51,600 yuan ($7,700) in the first three months of 2022.


In April, Guangzhou Chengxing Intelligent Electric Cars Technology Co., Ltd. (广州橙行智动汽车科技有限公司), New York Stock Exchange-listed electric vehicle (EV) maker XPeng Motors’s parent company, bought an overseas IP infringement liability insurance policy provided by PICC P&C with coverage of no more than over 10 million yuan ($1.5 million).


Generally speaking, there are two basic types of IP insurances—infringement defense and abatement enforcement coverage. Infringement defense, as the most popular type of IP insurance, covers policyholders for infringement claims brought against them, while abatement enforcement coverage gives IP owners—the insureds—the financial resources to enforce their IP rights and pursue infringement claims. Additionally, there also exists troll defense insurance against patent trolls, or patent assertion entities (NPEs), which don’t practice their asserted patents but attempt to enforce patent rights against accused infringers far beyond patents’ actual value through hardball legal tactics. A large number of patent lawsuits are filed by trolls every year.


So far, what Chinese companies with global presences such as Little Swan and XPeng Motors seek the most has been infringement defense insurance for their business outside China, considering their not so extensive IP portfolios and unfamiliarity with international law and practice. Little Swan-branded washing machines are being sold in over 160 countries and regions, with the overseas revenue accounting for 23% plus of its total revenue.


The China National Intellectual Property Administration (CNIPA) began to develop IP insurance products, including overseas infringement liability insurance products and IP licensing insurance products, with PICC P&C in 2011, and ended up both parties signing a strategic cooperation agreement with product basics and operational procedures formulated in 2014. Two Guangzhou city, Guangdong province-headquartered companies, high-performance material maker Kingfa Sci & Tech Co., Ltd. (金发科技股份有限公司) and telecommunications device maker Comba Telecom System Holding Co., Ltd (京信通信系统控股有限公司), on May 14, 2020 bought China’s first overseas IP infringement liability insurance policies provided by PICC P&C with a total sum insured of 7.25 million yuan ($1.1 million).


China’s first IP insurance center administered by PICC P&C to specifically serve the companies based in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) was launched in Huangpu district, Guangzhou city, on October 27, 2021.


Another Chinese major insurer China Pacific Insurance (Group) Co., Ltd. (CPIC) has developed IP products, including IP infringement liability insurance, patent enforcement insurance targeting technologically and scientifically driven companies, short-term loan performance guarantee insurance for technologically and scientifically driven small- and medium-sized enterprises (SMEs) with IP assets pledged as collateral, and patent application fee insurance. Since the inception of CPIC’s IP pledge insurance product in 2017, 56 SMEs had secured credit to loans of 114 million yuan ($17 million) through CPIC’s IP pledge insurance as of the end of March.


A pilot program on the promotion of overseas IP infringement liability insurance products on May 18 was announced by the IP authorities of Beijing municipality. Subsidies have been promised to offer to Beijing-based companies to purchase insurance policies between May 20 and July 10.