Many businesses are making costly mistakes because they do not have a strategy for undertaking Freedom to Operate assessments.
“Freedom to operate” (FTO) is lawyer terminology. In short, it refers to the ability to commercialise a product without infringing existing intellectual property (IP) rights. Basically, if you have Freedom to Operate you can sell your product without stepping on other people’s toes.
FTO can be assessed in any given market. This is a two stage process. 1. Search for existing IP 2. Analyse relevant search results. After analysis you can then manage the threat the existing rights pose to your business. For example you could work around them, challenge their validity or even walk away from the project.
So you should always do a search for existing IP before commercialising in a particular market, right?
Deciding whether to do Freedom to Operate searching is a commercial decision that, like any commercial decision, should be weighed up carefully. Four key factors that should always be considered are:
- The costs of analysis
- Your risk tolerance
- The competition
- The degree of investment to launch
The cost of analysis
The FTO search is not the end. Any relevant results should be analysed by a competent professional so that the scope of the IP rights and how they will affect your business is certain.
Further to this, simply identifying the search results can be a liability. If you are found to infringe a patent or design that had been previously brought to your attention, you are vulnerable to being found to “willfully infringe” in court proceedings. This is particularly relevant in the United States, where treble damages may be awarded in cases of willful infringement!
One of the safest ways to minimise the risk of a willful infringement finding is to obtain a well-reasoned opinion that the IP is either invalid or is not infringed by your planned commercialisation.
So, why would you not do this? In a word: costs. The value of such well-reasoned analyses is reflected in the costs to prepare them. In crowded spaces this may need to be done for a number of patents. This is not something smaller businesses (or even large organisations) are used to budgeting for.
Overall, if you don’t currently have the funds to have relevant search results analysed you need to reevaluate whether FTO searching is right for you.
Your risk tolerance
Essentially, if you are going to commercialise your product even if the FTO search identifies relevant IP, you might as well skip the search and invest your money elsewhere.
If you’re prepared to walk away if the results are unfavourable then FTO will be more valuable for you.
How competitive is your market?
If you’re thinking of operating in a highly competitive market you may be wise to check out your FTO before making a move. More so if the market is dominated by big players and if there is a high frequency of litigation.
The degree of investment to launch
If your business requires a large amount of capital or time investment before launch you will need to start thinking about FTO well ahead of time. Otherwise, you may find yourself out of pocket.
On the other hand, if your product requires minimal investment the cost of withdrawing from a particular market will be lower, so FTO may be less valuable for you.
A note on ‘worldwide’ FTO
Business owners should be wary of “worldwide” or “high level” FTO exercises.
Patent rights are territorial. Therefore the results of a FTO search in one country cannot be extrapolated to any other country. The costs for doing a comprehensive FTO search is multiple countries would be considerable. Further, in non-English speaking markets in particular, reliance on outside counsel and translation requirements quickly add to costs.
In addition, completing a “worldwide” FTO search (comprehensive or otherwise) without further analysis of potentially relevant results is a very risky move, due to the potential liability of insufficient FTO exercises (as discussed above).
To be clear – we are not advocating bypassing FTO assessments altogether. While it may avoid willful infringement, ignorance is not a defense to patent or design infringement.
What we are advocating is the need for a strategy!
Please let your IP specialist know if you are concerned about FTO – we can help you develop an educated plan that complements your business model and financial circumstances.