Freedom to operate conundrum
By Dr. Madelein Kleyn, Innovus, Stellenbosch University, South Africa
Abstract:
Growing a patent portfolio by protecting the innovation derived from research and development investment is merely the beginning to the creation of value.
Freedom to use, sell and otherwise exploit the invention is the challenge.
This is so often misunderstood.
Introduction
A patent grants a negative right to its owner, i.e. the right to exclude others from making, using, exercising, disposing, or offering to dispose of, or importing the invention as claimed. A patent does NOT grant the right of use.
For a business to be able to practice its intellectual property rights, it will be necessary to secure freedom to operate (FTO).
FTO is the ability of a business to develop, make, and market products without legal liability or risk concerning the infringement of third party’s intellectual property rights.
FTO analyses are relevant in circumstances where a new product or technology is developed and the business wishes to ensure that it will be free to manufacture and market the new product or technology so as to inform research strategy and to avoid pitfalls such as payment of royalties to third party IP owners for license fees; or to avoid costly IP litigation. FTO is often conducted as part of the intellectual property due diligence prior to an investment in acquisition of a business as a condition of closing a deal. This is even more so in deals where the acquisition or investment is mainly IP-focused, and the value of the IP assets is determined part by the ability to practice the claimed technology and a clear FTO assessment can provide confidence and reassurance to potential investors or shareholders.
Most appropriate time to conduct an FTO
The early bird catches the worm! It is advisable to conduct an FTO in the initial phase of a development cycle of a new product, or process or technology. The benefits of an early IP search are that it may provide opportunities for the early identification of existing technology that could potentially be licensed or co-developed through collaboration or deal-making.
Early FTO searching avoids the threat of future time-consuming and expensive litigation; or it may provide opportunity for design around in the early stages of the project; or the decision to change the research strategy before wasting time and/or money on a product or process which cannot be seen through.
How to conduct an FTO
To obtain the required degree of certainty that the business has FTO, it is necessary to conduct a search to identify the relevant IP. The most obvious and available are the registered rights such as patents, design, and trade marks. Other IP rights such as copyright are more difficult to identify.
Most IP databases for patents and trademarks are freely available to the public, but there are also very sophisticated IP search engine and databases available at reasonable cost.
IP rights are territorial rights, as such the scope of an FTO search should cover all of the countries or jurisdictions in which the business intends to conduct its activities, or plans to make, use, sell, or import the new product or process.
A thorough FTO search is complicated and costly. It is best to use a professional practitioner practised in the art of IP searching.
In order to minimize risk and maximize value, initially limit the searches to countries in which the business intends to be commercially active and specifically focus on key competitors, key technology, and key markets.
Balance is important. A business should consider the product or service being launched or acquired in terms of its value to the company. This includes considering the existing or projected revenue. If it is a high-profit, high volume, and high-margin product, they are most likely to lead to high damage awards if third-party IP infringement is found, and as such worth taking the extra mile in securing FTO for such products or services.
Define a clear and property search strategy. The IP identified will depend on the quality of the search, and the degree of relevance of each IP form will be subject to interpretation. Some IP may not yet be in the public domain and thus unpublished at the time of the search and therefore not identified during the FTO search.
The search results are analysed to identify and quantify the risk considering the scope and validity of the IP right.
No FTO analysis is ever 100% accurate or a guarantee that the business is absolutely secure to be commercially free and won’t be sued.
It’s all in the Claims
In the case of patent infringement, it is critical to remember that a prior art search is not the same as an FTO search. Prior art searches are conducted to confirm that your invention is novel and inventive; or that the third party risk patent is not. In prior art searches the assessment is whether the subject matter of the invention is new, or contains some features that have not been disclosed to the public. Prior art searches do not provide any assurances on whether it would be secure for you to sell your invented products or services. Just because your invention might be patentable does not mean you would be free to make, use and sell your patented product.
FTOs are all about claims, because it is the claims that define the scope of the exclusive rights granted to the patent holder. In contrast, a prior art search is not limited to claims, but encompass all of the prior art.
The FTO search is to determine whether the business new product or process would infringe any granted and in force patents. As such, the FTO search is focused on the claims of issued patents, and sometimes, the claims of published patent applications, depending on the desired scope of the search. The aim is to confirm that the new product or process are different, or omits at least one element of each independent claim in the patents retrieved in the search.
Validity search
A validity search is a hybrid prior art search, in the sense that the purpose of a patent validity search is to identify prior art that against which the validity of the claims in a granted patent may be tested by looking for prior art references disclosing the claimed elements. Typically, a validity search is directed to finding new prior art that was not cited during the course of the patent prosecution.
A validity search is used to test the validity of the business new patent claims, as well as identifying prior art that can invalidate the claims of a risk third-party patent.
FTO Search Strategies
Once a business has decided to commission an FTO for a particular project, (such as the development of new products, processes, methods, or devices), it is critical to provide the IP specialist (typically the IP attorney) who will conduct or supervise the FTO search as detailed a view as possible of what the methods or devices will be.
If the FTO is commissioned early in the development of the project, it is a good idea to update the FTO, as appropriate. For example, early FTO searches may have discarded third-party IP identified as not relevant or only marginally relevant. If the invention underlying the development of new products, processes, methods change over time as it is advanced and refined, then updated FTO searches and analyses is advisable prior to marketing. This is so because third-party IP previously discarded as not relevant may become relevant if changes to the invention bring the invention within the scope of third party IP claims previously determined to be not relevant.
It is necessary to include any pending patent applications identified in a search of which the claims are identified as potentially relevant, to be placed on a “watch list” to monitor how the claims change during prosecution, and what form the claims take if they are ever granted.
FTO Analyses
Once the FTO search has been completed, and the IP attorney has had a chance to analyze the results feedback is provided.
This will entail a claim-by-claim analysis comparing the claims to each element of the new product, process, method, or device to be marketed.
It is best to provide a verbal (as opposed to written) report to the business. During the verbal feedback report, the presence of technical personnel most familiar with the new development is highly advisable.
In most countries’ communications in lieu of potential litigation between the IP attorney and the client are protected by the Attorney-Client Privilege, which acts as a shield to prevent discovery should litigation arise. Such Privilege can be waived, for example, by disclosure to certain third parties. It is a best practice to keep written communications between the IP attorney and the business to a minimum. Discussion of the results of the FTO search, and analysis of potentially relevant third-party IP, should be conducted verbally.
FTO Strategy
In the event that third-party IP rights are identified that pose a risk to the business there are various strategies to consider, it is not necessarily the end of the road. Strategies include:
- Take no action: This is the passive approach in simply waiting out the actions of the IP owner. In the case of a weak third-party IP right, or a non-core product or technology, this strategy could be workable. Else not. that Do nothing
- License: approach the IP right owner and obtain a license. This would require royalty payments.
- Invalidation: If the third-party IP is weak and possibly invalid, consider invalidation proceedings. This is however a costly and time-consuming strategy.
- Acquisition: Buy the IP right, or the business that owns it. If your business is financially string and the IP right is complimentary, or even essential to the new development, it is a good strategy.
- Design around: This means changing the product sufficiently to no longer infringe on the third-party IP right. Depending on the nature of the business product and technology, this could be an option early on in the development phase, but costly for progressed development.
- Cross-License – an agreement lets companies share IP rights with each other so as to allow FTO to each other.
Conclusion
In creating new IP, take early steps to identify third-party IP that could affect your business and mitigate or avoid the risk timeously. If it is not possible to avoid or mitigate, adopt an FTO strategy that best suits your business
Author:
Dr. Kleyn is the Director of Technology Transfer at Innovus, Stellenbosch University and the CEO of Mad K IP Consulting (Pty) Ltd. She is a registered patent attorney and RTTP and specialises in intellectual property commercialisation. She often authors academic and business articles and is the co-editor of the Lexis Nexis publication International Pharmaceutical Law and Practice. She is a director of LES SA and the Chair of the LES International’s Patent and Technology Licensing Committee
