What is “Freedom to Operate”?

One of the most fundamental concepts of the patent system is that a patent is a negative right. It is surprising how often this is forgotten and it can take newcomers to the patent system a while to fully appreciate.

Many new clients want patent “protection” as though it grants them immunity from being sued. Of course, other clients expect that they will be suing competitors as soon as the application is filed, but that is a different story. Even savvy clients sometimes voice a fear that narrowing claims might limit their own activities.

In practice, many clients are so focused on their own innovations that they rarely think about other companies’ rights and prior intellectual property (IP). Of course, that can be for the best, since if they spend too long thinking about the risks then they may never get off the ground. At that stage it can be better to ignore the speed bumps down the road, rather than never try in the first place.

As these companies grow, however, Freedom to Operate (FTO) can become unavoidable. Companies simply cannot cope with having a product taken off the shelf or having to fund expensive court proceedings. Indeed, at a certain size the biggest risk becomes the poor publicity and loss of face if you are seen to be the bad guy. So, let’s take a closer look at FTO.

What is “FTO”?
The term FTO means different things to different people. Sadly, for an R&D team it is often seen as a process step or hurdle – an inconvenience that will get resolved in due course. For small companies looking to be bought, it can just be a tick-box exercise to satisfy investors or purchasers. For a large company with established procedures, it is often a milestone step in cautious product design and product launch. In truth, an FTO project is just a risk assessment – an assessment of the potential IP risks that a project might face.

Another term that is often used for FTO is “a clearance search” or “product clearance”. I do not like this term. I think this is often a term used in boardrooms, far removed from the fine technical details. Rarely does an FTO truly make all the issues clear. Rather, it flags up the most likely and obvious risks so that they can be addressed or designed around.

What limits an FTO?
The primary constraints on an FTO project are information, time and money.

“Information” is about the intended product or process, as well as the countries where it will be manufactured, sold and used. Sometimes a project is at an early stage and the exact details of the final product are unknown. An FTO project can still be sensibly conducted, but it will be a landscape search, trying to find the most obvious risks across a larger area.

“Time” is about when the risks will first arise – when is the product launch or potentially infringing activity? This timing will limit how much the search team can do. With only a few weeks to spare, there may not be enough time to conduct a thorough search and review, let alone take action or redesign. Time constraints are particularly tight when using overseas counsel, particularly in jurisdictions where FTO is less common-place. On the other hand, if launch is a few years away, then it may be best to perform a wide but cheap initial project to try and mind the most serious issues and then top-up later.

Lastly, “money” is the available budget. The more thorough the FTO the more it will cost. You can always spend more looking for further risks, but beyond a certain point there are diminishing returns. There is a need to strike a sensible balance when determining the budget to ensure the key risks are found and that the costs do not outweigh the importance of the product.

So, what does an FTO involve?
In general, for a product launch, we are talking about patent risks (although not always and designs can easily follow the same approach).

Typically, an FTO project has the following steps:

• identifying a new product or a new market for an existing product;
• identifying the aspects of the new product that give a perceived risk – what is new and what might be clever?
• designing a search strategy, getting quotes and settling on a suitable cost/scope balance;
• getting the search results;
• reviewing the search results to assess the risks; and
• potentially taking action to reduce the risks (design around or challenge the patents).

The FTO search typically involves finding patents either with keyword searches, or checks through patent classifications, or both. Every time a patent examiner picks up a new application for examination they classify the patent according to the nature of the inventive concept. The IPC and CPC classification systems used by the examiners are complex (and beyond the scope of this article), but in brief, they result in a series of nested “buckets” of patents defined by subject matter. When you perform a classification-limited FTO search you are selecting the “buckets” to look through and then checking the claims of everything in the bucket to see what might be relevant. The more “buckets” you choose to check, the higher the costs!

The search will also be limited by jurisdiction – you will want to look for risks where a method is being carried out or a product manufactured, as well as its key markets. The more countries you look at, the higher the costs and the selection of certain countries can add complexities. As EP attorneys we are often tasked with looking at International (PCT) applications, European and GB/DE/FR applications and patents, but we can also be asked to skim through results for other countries. This adds a degree of uncertainty, particularly when relying on machine translations, but also because of intricacies of local law. Anything that looks close should typically be run past a local agent and local opinions may be desirable (especially for the US with potential triple damages).

At the end of the FTO search you have a list of the results found. Any cases that have lapsed or were never pursued in the key jurisdictions can be dismissed. Any cases that are not relevant for technical reasons after their claims have been reviewed can be dismissed (with a written reason so it can be double-checked). Those cases that remain need to be watched, if not-yet granted, or discussed further. Granted patents can often seem relevant in this first review, but may be dismissed once looked at in more detail.

After the review you now have a list of the main issues for further consideration.

Risk appetites
How you proceed with the main issues depends on the risk appetite. Risk appetites do vary and there is a huge spectrum. At one extreme, if you do not want to potentially infringe the claims of a pending application then your ambitions may be thwarted by the broadest, totally un-grantable claim. At the other extreme, some companies may be determined to go ahead, even in the face of a granted competitor patent (in which case an FTO may not really be required).

Typically, a sensible strategy avoids infringing granted claims and takes a view on pending applications in the light of search reports, exam reports and your own known prior art. It is important to make sure that everyone involved is working to the same risk-appetite as this minimises surprises down the road.

That said, risk appetites rarely remain static and indeed a company’s appetite typically goes in cycles. The first time a problem crops up, the idea of FTO first arrives on the radar. After a period of calm FTO starts to look less interesting and less necessary (and, of course, expensive). The company then pursues fewer FTO projects and becomes more relaxed. Then the company gets sued and, given the costs, FTO is back on the radar – it is cheaper than being sued and typically being sued causes a lot of embarrassment for those at the top.

Having understood the risk appetite you can now have a list of those main issues that need to be addressed.

Taking action
So, what do you do when you find a risk that exceeds your appetite? This depends on a lot of factors: primarily the country where the application or patent is pending and whether it is an application or a granted patent.

If the risk is a pending application, then most countries (and also for PCT applications during the international phase) allow the filing of third-party observations. These allow a third-party to throw in some relevant prior art and maybe an explanation and hope that the examiner does a good job.

In some countries the third-party observations can be anonymous. For the EPO specifically, if you file them as a person or entity (i.e. not anonymously), then the subsequent prosecution is accelerated (PACE) bringing matters to a head sooner.

It should be appreciated that if the challenged application still proceeds to allowance, despite your observations, this gives a stronger presumption of validity for the granted claims. For this reason, third-party observations are best considered where you have a novelty destroying document. Anything more nuanced (such as inventive step arguments) should be saved for an opposition or court proceedings.

For a granted patent the options for challenge can be more limited and often more expensive. This can involve an opposition or court proceedings (including the new UPC in some instances). The costs of any such step can be significant and often the first step is simply to gather a data pack of prior art to identify any weaknesses in the patent. If there are no known issues then it will be difficult to knock it out of your way. If the data pack has strong prior art, then that may be enough to proceed, knowing any issues can be dealt with if they arise.

Other options may exist, depending on the jurisdiction of interest. This includes, for example, the UKIPO opinion service – a super cheap, fast but rather toothless system. That said, even if it rarely leads to revocations, it makes it a lot harder to enforce a patent where there is a published opinion saying that the claims are invalid.

After the FTO
Key to a well-functioning FTO approach is watching the risks that you find. There is no point in finding risks, only to then let them progress and develop (through new amendments, or new divisional filings with broader claims). It is a good idea to set up a regular watch to establish progress on any cases you flag. This can be manually performed depending on the number of hits, or there is commercial software that can help here too.

It is a good idea to prepare a technical bundle describing the product or method to be FTO’d at an early stage. This is helpful for the search team and the reviewing patent attorney, but it is also useful down the road when you look back and see what you have FTO’d before. In five years’ time, if something happens on a watched case, you can then have a good idea of what the issues were and what now needs to be done.

Once you have regular FTO processes in hand, another approach which goes hand in hand with them is competitor watching. This is a regular patent watch in your key patent classification groups of known competitor filings and publications. This can help you spot issues coming down the road, even before new projects are finalised and launched. It is always a good idea to know where you key competitors are going next.

Privilege
Be careful about maintaining privilege in any FTO reports. This is an issue that stems primarily from discovery rules (especially for the US). There are key steps that you can take to avoid the risk of documents turning up in court case disclosure. Firstly, do not forward FTO report documents around internally. They should only be provided on emails between counsel and the client. Most importantly of all – avoid putting explicit infringement concerns in writing. There is nothing so much as a smoking gun as an internal email from someone saying “wow, look at this patent, that’s exactly what we’re doing!”.

File your own applications
A really important part of an FTO is identifying the area where you are expecting dangerous IP to lie. That is, which bit of your new product or process do you consider is clever enough to be patented and hence, where do you expect your competitor’s patents to be? The immediate flip side to this is the potential for your own IP. That is, if you think someone else might have patents in an area, why don’t you? FTO and patent drafting go hand in hand. If you have your own patent then, despite the fact it is a negative right it can be an asset. Cross-licencing you own application might help open the door to negotiations with a patent holder, at least lessening the costs of settling.

A few further considerations
There are a few caveats on an FTO report that should always be born in mind:

• databases can have errors or be incomplete – sometimes patent families may be incomplete on Espacenet and nothing publishes until 18 months after filing;
• reliance on machine translations when dealing with foreign jurisdictions;
• your reviewer can only really give a view on patents within their own jurisdiction;
• the potential for broader divisionals, even when narrower claims are being pursued on an application; and
• doctrine of equivalents, or similar, giving a broader than expected scope.

Lastly, it is always worth remembering that even if you consider that an IP right is not relevant, it does not mean that the patentee agrees. That is, they may still fear infringement and, if they are particularly aggressive or aggrieved, they may still come after you. Even if you think they might lose, they do not need to agree! What is therefore required is a sensible approach to searching for the most relevant risks.

Key take aways
The FTO process is a risk assessment that can be undertaken to minimise the risks that a company is taking with a new product launch. You cannot avoid all risks, so it is important to use common sense to arrive at a realistic strategy that suits budget and timing.

When done well, FTO is a continuous process that involves building on previous projects as your product develops and involves keeping a close eye on your competitors. Taking action early and seeking professional advice can save you a lot of hassle in the long run – good third-party observations, for example, can prevent the grant of a difficult case and are a lot cheaper than the alternatives!

Finally, do not forget about your own IP. If competitors are a worry, why not take the opportunity to give them something to worry about as well. A well-drafted patent application can open the door to licencing options that can help resolve other issues as they arise.