Timing Your Freedom To Operate Analysis To Maximize Your Benefits

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By France Côté and Marie-Éve Bérubé-Côté

A patent provides its owner with the right to exclude others from commercializing a product covered, in part or in whole, by the patent. However, a patent is not a right to commercialize. A company should therefore always consider conducting a freedom-to-operate ('FTO') analysis prior to investing in a new project. An FTO is an essential part of securing a company's assets and evaluating the liability risks of its current and future projects.

An FTO is basically a preventive analysis of the patent landscape. The purpose is to ensure a company that its commercial production, marketing and/or use of a product, process or service, will not infringe the intellectual property rights of others. The FTO also enables a company to minimize the risks of being confronted by third party rights when commercializing a new product or service.

The commercialization of an invention can, in some cases, be blocked by a third party holding a patent covering the invention, or one of its components. In these circumstances, the company may move to request a license from the patent owner. An FTO greatly diminishes the risk of infringement by focusing the company's efforts in a direction where infringement is unlikely or avoidable. However, there is a balance to be kept in mind between both the time and money that can be invested in the analysis and the degree of effectiveness that can be reached.

An FTO consists of a search for existing patents or patent applications in a given territory, which cover a potential product and/or service that a company is concerned could be infringed. The scope of the search is dependant on several factors including, the geographic commercial market for the product being analyzed for clearance. Furthermore, the FTO consists of a search through available patents and patent applications. It is important to note that the search will not access all pending patent applications since there is an 18 month period of secrecy before publication in most countries. It is therefore recommended to readdress the search monthly to monitor any new or upcoming publications, and to update the FTO if necessary. In addition, in rare cases, there is the possibility of "submarine patents" within Canada and in the United States. Submarine patents occur when an application is filed under an act prior to the application publication system coming into force, which results in it staying secret until the issuance of the patent after pending for many years. The term of these submarine patents is 17 years from the date of issuance.

When is a good time to do an FTO?
In order to determine the best time to execute an FTO it is essential to perform an evaluation of the degree of development and refinement of the company's invention, as well as the company's precise development intentions.

In an 'ideal world', a company would have a clear idea of the essential features of the invention it intends to launch on the market, but this is rarely the case. A practical example of this situation would be the commercialization of an invention based on an antigen-antibody system. In such a case, a good time to execute the FTO would be at the onset of the project. Obviously, a company in this situation should not invest money in further refining its products before assessing the results of the FTO. The company will then have enough information about the product it intends to manufacture in order to effectively focus the patent literature searches. In addition, if the company conducts an FTO early in the process, it provides the opportunity to later proceed to a design-around. A design-around allows a company to make adjustments to a questionable patent claim in order to avoid infringing the claim. Conducting an FTO at the start of a project means that these modifications can be made before a large investment has been poured into the development and manufacturing of a potentially infringing product.

A company armed with a clear picture of their desired product, plus the results of an FTO conducted early on, can to try to redirect its money, time and efforts into adapting the product's characteristics taking into account third party patents in order to avoid infringement. This scenario results and prevents losing money and time on fully developing a product that does not have freedom-to-operate. If a design-around is not possible, other solutions are available for challenging the patent(s) causing the problem. Strategies such as requesting re-examination or court judgments of invalidity, obtaining licenses, or getting a non-infringement opinion to verify if the company's invention is really infringing or simply avoiding wasted investment, can be implemented.

Prior to investing in an FTO, it is advisable to have a clear picture of the future features and possible materialization of the invention. The manufacturing of a sequencing device can be used as a good example of this, as even when the scientific process behind the invention is well known and the materials, methods and results are clear to the inventors, there is actually more to the features of the final product being sold than just the attributes of the biological reaction. Therefore, a good approach in this situation would be to invest half of the time and money allowed for the project into further developing and improving the new product before requesting an FTO. The FTO is therefore better oriented and more focused when it is executed and the results are more realistic since the search was established on more specific grounds and points of interests.

It is very important to have an FTO to present to a potential investor when assessing a company's products and patent portfolio. This type of document helps to demonstrate a company's strength in comparison to its competitors and reassures investors that the marketing of its products will not be compromised. An FTO is therefore a key element of a due diligence evaluation of a company's patent portfolio. Since no patent search is perfect or foolproof, the timing of the FTO is a variable that can be controlled and which should be closely evaluated, as it is an essential complement to a company's IP rights. Also, in the event of a patent infringement lawsuit, a favourable FTO opinion from a U.S. attorney may be admissible in a U.S. court as evidence that a company requested legal advice prior to commercializing a product and did not willfully infringe.

France Côté is a partner with Bereskin & Parr and Marie-Éve Bérubé-Côté is a student, they both work out of the firm's Montréal office.