Freedom to Operate

A patent gives its owner the right to exclude others from the invention claimed in it but does not give the owner the right to make, use, or sell that invention in the marketplace. Whenever a company plans to develop and launch a new product, there is always a risk that commercialization could be blocked or severely limited by a competitor who holds a similar patent or a patent on a contributing element of the new product. Freedom to Operate (FTO) is thus an essential consideration for companies wishing to minimize their patent infringement liability risk.

What Is a Freedom to Operate Analysis?

The purpose of an FTO analysis is to ensure that the production, use, or sale of a new product does not infringe the patent rights of others. When preparing an FTO opinion, a patent attorney begins by identifying existing patents that cover technologies similar to the client's and then assessing the risk of patent infringement litigation they pose. Many patents can be "cleared" as posing little or no risk of litigation, but if the search uncovers patents that appear to cover the company's product or elements thereof called "high-risk" patents those can limit the company's freedom to operate.

There are several courses of action available to overcome the risks posed by high-risk patents, including:

• Designing around the patent
• Licensing the patent
• Purchasing the patent
• Challenging the validity of the patent
• Delaying commercialization until the patent expires

Advantages of Freedom to Operate Opinions

There is no legal requirement for a company to obtain an FTO opinion before taking a new product to market, but doing so can nevertheless provide a number of advantages to companies both large and small. Most important, obtaining an FTO opinion can aid in defending a company against charges of willful infringement (and the possibility of treble damages) by competitors. It can also assuage investors' concerns about the marketability of a product by minimizing litigation risks. Indeed, many investors often require an FTO analysis as a condition of investment. And if an FTO opinion uncovers high-risk patents, a company's research and development teams can then steer product design around them.

When to Obtain a Freedom to Operate Opinion

FTO opinions can be particularly useful for companies in certain situations, such as:

• Companies raising a financing round in which investors will be putting significant sums at risk
• Companies launching products in markets that are particularly crowded, competitive, or litigious
• Companies that would suffer severe financial harm if infringement litigation resulted in an injunction

However, obtaining an FTO opinion does not guarantee that a company will not be sued for patent infringement; it only minimizes the risk and identifies patents of concern. FTO opinions can also be costly, depending upon the complexity of the product and the industry in which the company operates. When deciding whether to obtain an FTO opinion, companies should consider the expected value of the product and their ability to tolerate risk the higher the profit margin or the investment required, the more prudent an FTO opinion becomes.

Bottom Line

Launching a new product always poses unknown risks for any company, but an FTO opinion can identify at least some of those risks and provide the basis of a strategy for mitigating them.