An article by By Anton Blijlevens (AJ Park) and published in The ICEHouse newsletter of April 8th, 2014
I’ve been to a few investment events recently where the elevator pitch touches on the company’s intellectual property (IP) position. The typical approach in the IP section of the pitch is that ‘a patent application has been filed so the IP box can be ticked’.
I also often hear ‘we have freedom to operate because the international patent office has confirmed that we have a unique, and hence, patentable invention’. Unfortunately, Freedom to Patent (FTP) does not mean the same thing as Freedom to Operate (FTO). It’s important that entrepreneurs and investors understand the difference because the consequences are big.
As a company seeking investment, misrepresentation of your FTO position can create legal liability and affect your credibility and market strategy. As a potential investor, you want to know that the company pitching to you can actually sell its products or services in its target markets. The statement ‘we have freedom to operate because the international patent office has confirmed that we have a unique, and hence, patentable invention’ does not tick the FTO box.
Depending on the individual circumstances (and budget) of the company, we recommend searches are done to determine (a) the ability to secure the right IP protection and (b) if a product can actually be made, sold or used in the target markets without infringing the IP rights of others.
Explaining freedom to patent
To get a granted patent, your invention needs to be sufficiently new compared to the current state of the art. Let’s say, hypothetically, bicycles have never had any form of suspension on them, and you have invented a front suspension for a bicycle. For an investment of between $1,500 and $5,000, your patent attorney can conduct a search to determine whether anyone has patented any form of front suspension system for bikes. If no-one has, this effectively means you should be able to get a really broad patent for bicycle suspensions. However, the search has only looked at whether suspension on a bicycle may be old and hence not patentable. But it may be that someone else still has a patent for the wheel, a tyre for the wheel, a seat for the bicycle, bicycle gears, or any other component you may wish to include in your bicycle. So despite being eligible for a patent for bike suspensions other aspects of the bike may already be covered by someone else’s IP rights. This can potentially mean that you can sell bikes with front suspension, as long at you don’t put wheels or a seat on it. This is where FTO searches come in.
Establishing freedom to operate
An FTO search will give you an idea of whether you will infringe anyone else’s patent should you commercialise a product in a country where a relevant patent may be in force.
By conducting an FTO search early on in a technology development stage, you can also consider necessary product design changes prior to launch in order to avoid the IP rights of others. You can also identify who may need to be approached for a licence if you cannot easily design around another’s patent.
Before you ask your patent attorney to conduct an FTO search for you, ask yourself:
- Are all the product features going into the first commercial release?
- Are these features the main selling point of the product?
- Can these features be easily changed if someone does assert a patent?
- Are any features ubiquitous and/or been around for 20 years plus and hence unlikely to be covered by any patents?
- What are the must-have features in the proposed product that are mission critical (both commercially and techically)?
Many other commercially relevant factors may need to be taken into account in deciding on the scope of an FTO search.
FTO searching is often done in stages depending on budget, state of product development, business risk exposures and other reasons.
A general international FTO search covering many countries can be done as a first step to look for low-hanging fruit. This may include looking for patents of known competitors. If this doesn’t yield any relevant patents, and greater certainty and lower business risk is desired, then the next stage is to drill deeper in the search to find relevant patents. The deeper you drill the more certainty you get around FTO risks but costs go up as well. Sometimes your patent attorney may recommend no FTO searching is done. This may be a valid strategy if the costs of taking a product to market are a few thousand dollars. The business exposure in such cases is not high and the proportional cost of FTO searching cannot be justified.
Depending on your business and market strategy FTO searching can be an expensive exercise though so it pays think it through before you launch into it.
Government funding may be available to help pay for some of these costs. Your IP lawyer should be able to assist you in exploring this option.
Because situations differ, the above must not be used as a substitute to seeking professional legal advice.