Freedom To Operate/Clearance

A Clear Path to Present and Future Market Access

Corporations developing their patent portfolios often soon realize that patenting their inventions is only the beginning.  The ability to actually use their inventions in the products and services that they provide is essential to their business decisions to invest in research and development, product creation and marketing, intellectual property protection and enforcement, acquisitions, etc.

Interestingly, there are a few patent players in the market that have been able to take advantage of the intellectual property missteps of a few corporate behemoths who, while obtaining patents and maintaining hefty patent portfolios, failed to generally note that they would not be able to use their products in the market since they contained inventions considered to be covered by a patent holders’ technologies (e.g., see WiLAN vs. the Giants). 

Patentability and Freedom to Operate:  Complementary Tools Separated and Defined.

Patentability of an invention is a determination separate and different from whether one can make or use the invention without infringing dominant third-party patent rights.  Patentability focuses on the likelihood that the requirements for a patent will be met – i.e., the invention is appropriate subject matter, useful, new, and non-obvious in view of the prior art at the time of invention.   In contrast, freedom to operate involves the question of literal infringement -- do all of the elements of a claimed invention exist in an allegedly infringing product or process?  

Because these are different questions, a patentability analysis performed by an intellectual property expert alone will not typically address right to use.  Analogously when the U.S. Patent Office examines a patent application, it typically will not consider whether the patent applicant has the right to use the invention without infringing third-party rights.  If a patent application meets the requirements of patentability, the USPTO will issue a patent grant for the corresponding invention.  Thus, patentability analysis and patent grants cannot be used to determine “freedom to operate.”

More particularly, a United States patent grant provides the patent owner with a right to exclude others from making, using, offering for sale, or selling the invention in the or importing the invention into the U.S.  Because the patent grant provides the right to exclude, and not the rights to make, use, sell, or import a claimed invention, having a patent does not guarantee that the holder can exploit the invention.  The danger here is that third parties may have patent coverage that dominate the patentee’s position, and this type of dominant patent coverage often is indispensable for making or using certain types of products and services, or for meeting certain technical standards. 

A Freedom to Operate (FTO) analysis should bolster a corporate IP strategy by providing a sound basis against a finding of willful infringement or Rule 11 violations for baseless filings, and thereby, should reduce the chances of increased damages in a patent infringement suit.  Recent decisions from district courts in the context of willful infringement have shown that non-infringement opinions can defeat a charge of willfulness.  Moreover, in the context of induced infringement, district courts have directed that a jury can consider the lack of an opinion of counsel in concluding whether or not the accused intended for infringement to occur – i.e., an opinion-of-counsel "may reflect whether the accused infringer knew or should have known' that its actions would cause another to directly infringe."[2]

Enter the New Patent Exploiters and Monetizers.

Without prior authorization of the patent owners, the risks of a company being accused of infringement are extremely high.  Ever since the recent market downturn, there has been a 30% increase in patent litigation[3]. One reason for this trend may be that sophisticated non-practicing entities (NPEs) have identified and exploited a niche for business models based mainly on patent monetization. 

NPEs, with no actual products or services, exist solely to acquire and enforce patents.  New players in the IP litigation landscape also include Patent Licensing and Enforcement Companies (PLECS, e.g., Acacia, IPCom, etc.), single inventor assertion firms (e.g., NTP, RAKL, Lemelson Foundation, etc.), litigation financiers (e.g., Rembrandt, Altitude, etc.), brokers/litigator models, and private wealth launching initiatives. 

NPEs filed 467 patent infringement lawsuits in 2009 – representing a 500% increase in NPE activity since 2001[4].  NPEs typically do not approach operating companies prior to filing litigation -- this business type is generally unwilling to compromise litigation strategies by early approach and sharing of infringement analysis.  Moreover, because NPEs by definition are non-practicing entities, there is generally little or no room for cross-licensing negotiations. 

With the entrance of these players on the market, it is more critical now than ever for companies to pursue a multi-pronged strategy that includes a “freedom to operate” analysis to reduce the risk of and to curtail the expenses and time involved with patent infringement litigation.  A Freedom to Operate analysis is especially appropriate when acquiring intellectual property (IP) assets as an in-license, a part of a larger corporate acquisition, when planning to develop, market, and launch a major product or service, or deciding whether to invest in the IP rights of another company. 

An FTO analysis also generally provides a good understanding of current and future market trends that will affect an invention or product embodying and invention in addition to ability to use the invention.  A major risk for any company, particularly companies in technology sectors where there is extensive patenting, or large companies with perceived deep pockets, is that the launch of a new product, service, or technology may infringe a third party’s patent rights on a technology that is incorporated in the new product or service. 

Importantly, this major risk can be identified, minimized, and managed (e.g., product design-arounds, payment of licensing fees, joining a defensive patent aggregator group, etc.), with systematic evaluations of freedom to operate early in the context of company initiatives. 

Evaluating Your Company’s Freedom to Operate – More Detail on the Process

The objective of the Freedom to Operate (FTO) analysis is to identify any showstopper non-expired patents as soon as possible (i.e., do any third party patent claims read on the target technology, goods and/or services). 

The FTO analysis is based on an IP clearance search for unexpired patents and published applications of others that cover the product(s), services, and intended uses.  The FTO search can start with a large amount of publicly available information from the US and other patent offices worldwide, for example. A FTO analysis begins with a patent and literature search.  While waiting for the search results to arrive, available and known documents are evaluated.  The FTO analysis evaluates: (a) scope of pertinent licenses (e.g., incoming and outgoing licensed of a company targeted for acquisition or purchase of IP assets); (b) any blocking patents; (c) patented improvements (d) potential lawsuits; and (e) indemnifications.  Since IP rights are specific to different jurisdictions, a FTO analysis should relate to particular countries or regions where the company wants to provide the target technology, products and/or services.

Claim construction analysis forms the heart of an FTO and often effectively determines whether there is infringement and whether the claims are valid.  Since claims are the invention, the claims determine the scope of the patent.  All aspects of an invention not covered by the claims are not considered to be patented, but rather donated to the public.  Claim interpretation offers an intricate analysis of all available intrinsic evidence, i.e., the words of the claim, the written description, and the prosecution history (including the prior art cited in history).  

Absolute certainty with regards to a freedom to operate will never be attainable due to inherent limitations and potential deficiencies in a clearance search that may cause pertinent patents to be missed.  There is also a practical limit to the time and money that can be spent on a patent search and freedom to operate analysis. However, a well-considered FTO opinion stating the attorney’s belief that the company’s products or services do not fall within the scope of an otherwise valid and enforceable patent generally will allow the company some reasonable assurance that its conduct will not subject it to infringement liability.  This helps a company minimize risks that could save the company significant resources.

Freedom to Operate as an Instrument for Forward Looking IP Strategies.

Together the patentability and FTO analyses offer different but complementary and important information to the business and IP strategist.  Again, while the patentability analysis provides information and a determination on whether an invention is patentable, a FTO analysis provides clearances to go forward with using an invention.

Moreover, a FTO often will uncover market trends for the future and possible direction for a corporation to pursue.  If a FTO analysis indicates there are no patents blocking the company’s path to the marketplace for certain goods and/or services, the company may desire to file new patents to cover any identified gaps in patent rights and essentially build a fortress around the company’s products and services.  Even in instances where an FTO identifies blocking patents, good reasons to pursue patent protection on the invention(s) nonetheless may exist. 

Not only would these strategies ensure a greater degree of freedom to operate, but the additional patent(s) will provide the company with exclusive rights over the new technology for future tactical and strategic uses, including monetization, limiting competitor access to vital markets, cross-licensing, etc.

[1] It is important to note that in all, WiLAN licenses its patented technologies covering a wide variety of telecommunications and software to over 200 corporations.

[2] Broadcom Corp. vs. Qualcomm Inc., 543F.3d 683 (Fed. Cir. 2008). 

[3] PLI IP Monetization 2010, “IP Aggregators and Intermediaries Panel,” Sources: RPX Research, PACER, Lexis Nexis Courtlink.

[4] Supra.