Esteban Burrone, Consultant, SMEs Division, WIPO1
In September 2003, three pharmaceutical companies, Cambridge Antibody Technology, Micromet AG, and Enzon Pharmaceuticals, announced that they had signed a non-exclusive cross-license agreement. In the agreement, all three parties obtained substantial "freedom to operate" under some of each others intellectual property, to conduct research and develop a defined number of therapeutic and diagnostic antibody-based products2.
Agreements of this kind have become common practice in certain sectors, as companies seek to ensure that their products, processes and services do not infringe on patent rights of others. Patent litigation can be an expensive, uncertain and risky affair, and, as the saying goes, prevention is always better than cure.
Planning for the development, production and launch of a new product is as much a matter of forecasting future market developments as it is of minimizing risks. A major risk for any company, particularly companies in technology sectors in which there is extensive patenting, is that the commercialization of a new product or technology may be blocked by a competitor holding a patent over a technology that is incorporated in the new product. In extreme scenarios, there may be "essential patents" that are indispensable for developing certain types of products or for meeting certain technical standards.
In such cases, without prior authorization of the patent owners, the risks of being accused of infringement are extremely high. This is why many companies, prior to launching a new product, and often even prior to initiating a new line of research that may lead to the development of a new product, seek to minimize the risk of infringement by securing their "freedom to operate" (FTO), i.e. ensuring that the commercial production, marketing and use of their new product, process or service does not infringe the intellectual property rights of others.
It is important to point out at the outset that absolute certainty in regard to "freedom to operate" will never be attainable, as it is a matter of degree. However, there are ways of minimizing risks that could save a company significant resources. A good patent search may provide a company with some indication that a new product is unlikely to infringe on third party patents, but no patent search is perfect or full proof. There is a practical limit to the time and money that can be spent on a search.
An FTO analysis invariably begins by a search of patent literature for issued or pending patents and obtaining a legal opinion on whether a product, process or service may be considered to be infringing existing patent(s) owned by others. Many companies rely on private law or IP firms that offer FTO analyses as part of their legal services to clients. Some national IP offices may also offer such services for a fee (see, for example, the Swiss Federal Institute for Intellectual Property).
In conducting an FTO search and analysis, it is important to bear in mind some of the limitations of patents that offer potential opportunities to the firm conducting an FTO analysis.
- Patent protection is territorial. Companies generally make strategic decisions about the countries in which they will seek patent protection. In many cases, technologies may be protected in a companys main markets but may be in the public domain in other countries where commercialization is less likely. In the latter countries, no permission (or license) will be needed from the patent owner to commercialize the product.
- Patents have a limited duration. Patent protection lasts for a maximum period of 20 years, provided the patent is "maintained" for the entire period by timely payment of maintainance fees to the patent office concerned. After the expiry of the term of protection, a patent is considered to be in the public domain and may be freely used by any one. This is the case, for example, of the famous patent on transistors. It is estimated that less than 25 % of all patents granted through the European Patent Office (EPO) are maintained for the maximum term of protection of 20 years, implying that many patents are in fact abandoned by the patent holders (by not paying the maintenance fees) before the 20 years have lapsed, leaving a large number of useful technologies in the public domain.
- Patents have limits of scope. Probably the most important part of a patent document is the claims. The claims determine the scope of the patent and all aspects of an invention that are not covered by the claims are not considered to be patented. It is important to bear in mind that it is not always easy to determine the scope of a patent. It requires considerable skills and experience in interpreting the claims, the written specification (as the claims are often interpreted in the light of the specification) and the prosecution history (i.e. the history of the application process).
An FTO analysis based on the search of patent literature is in many ways just the first step. If the patent search reveals that there are one or more patents that limit your freedom to operate, your company will have to decide how to proceed. Assuming that the blocking patent(s) are valid, some of the most common strategies for having freedom to operate are the following:
- Purchase the patent or in-licensing. Licensing implies obtaining a written authorization from the patent holder to use the patented technology for specified acts, in specified markets and for a specified period of time. The convenience of such an agreement will depend largely on the terms and conditions of the proposed license. While there is a risk of a potential loss of autonomy determined by the terms and conditions of the agreement and the patent holder will require a lump-sum and/or periodic royalty payments, it may also be the simplest way of clearing the grounds for the commercialization of your new technology or product.
- Cross-licensing. Cross-licensing is when two companies exchange licenses in order to be able to use certain patents owned by the other party. This is the case of the example mentioned at the beginning of this article about the three pharmaceutical companies. Cross-licensing requires that your company has a well-protected patent portfolio that is of value to potential licensing partners.
- Inventing around. A third alternative for your company is to invent around the invention. This implies steering research or making changes to the product or process in order to avoid infringing on the patent(s) owned by others. For example, if your freedom to operate is limited by a process patent, then your company may be able to develop an alternative process for arriving at the same or similar end result and thus be able to commercialize the invention without the need to pay a licensing fee to someone else.
- Patent pools. A patent pool is one mechanism by which two or more companies practicing related technologies put their patents in a pool to establish a clearinghouse for patent rights. A well-known example of a patent pool is that formed by Sony, Philips and Pioneer for inventions that are essential to comply with certain DVD-Video and DVD-ROM standard specifications.
If the patent search reveals that there appear to be no patents blocking your access to market and your new technology is likely to meet the patentability criteria, you may wish to seek patent protection for the new technology to ensure a greater degree of freedom to operate, instead of keeping it as a trade secret. The patent will provide your company with the exclusive rights over the new technology ensuring that nobody else can use it without your prior authorization. It will also ensure that no one else will be able to obtain exclusive rights over the technology in the future.
Nevertheless, it is important to point out that there is a clear limit on the extent to which a patent owner has the freedom to operate or use such a patented invention. A patent by itself does not provide you the right to commercialize the protected technology but only the right to exclude all others from commercializing it. While the difference may seem subtle, it is a crucial distinction that needs to be made. A third party may, for example, have an even broader patent that encompasses the subject matter of your patent.
Therefore, in order to commercialize a given technology you may need to use technology patented by others. In biotechnology, the Cohen-Boyer patent on recombinant DNA is a classic example where, for many years, almost any new technology in that area required the use of the technology developed by Cohen and Boyer and the payment for obtaining the relevant license. In addition, there may be overlapping or complementary patents owned by different parties that are mutually blocking the access to market. Finally, there may be additional government regulations that are not directly concerned with intellectual property that may restrict the access to market of a patented invention (e.g. regulations for food or pharmaceutical products).
Despite the above, it is important to stress that "freedom to operate" is one of the reasons why a number of companies apply for patent protection. While the above analysis shows that the grant of a patent is not sufficient to clear the way for the commercialization of the new technology or product, it is certainly a useful step and strategic business decision that may prevent problems at a later stage.
There are many reasons why a company may wish to avoid patenting a given invention, ranging from the understanding that the invention may not meet the patentability criteria to a willingness to avoid the costs of patenting. An alternative that is increasingly used by many enterprises is that of "defensive publishing" or technical disclosure, in sharp contrast to keeping it as a trade secret.
Defensive publishing implies disclosing an invention to the public in order to ensure that nobody else is able to patent it. This will ensure that nobody has the right to exclude others over the use of the invention, providing some degree of freedom to operate to all. An important point when publishing defensively is that the disclosure is done in a well-recognized technical journal or other publication that is likely to be consulted by patent examiners who will be checking the literature while examining future patent applications. There are journals devoted to defensive publishing some of which have become respected sources of technical information that are included as part of the PCT minimum documentation for International Search Authorities2. Defensive publication is generally never done for a major breakthrough in technology or a core technological invention that is or will be the core strength of an enterprise.
Some large corporations rely on their own technical disclosure bulletins (e.g. Xerox) which are widely disseminated in order to disclose inventions that are not patented. In the US, the USPTO enables applicants to request the publication of a Statutory Invention Registration (SIR) of a filed patent which is effectively a technical disclosure of an invention for which a patent was applied. In registering an SIR, the applicant abandons the prosecution of the patent, in exchange for the disclosure of the invention by the patent office.
Whatever manner is chosen to limit the chances of facing potentially risky and expensive patent litigation, all technology companies are well-advised to look into the matter early on in the research and commercialization process. In some cases, minor product adaptations, or payment of a small licensing fee to the patent owner may be sufficient to avoid future disputes. Systematically evaluating your freedom to operate prior to launching a new product is, therefore, a way of minimizing (but not eliminating) the risk of your product infringing the patents owned by others. It will also improve your chances of finding business partners and attracting investors to support your business development plans.
1The views expressed in this article are those of the author and do not necessarily represent those of WIPO. Comments, suggestions or any other feedback concerning this article may be sent to firstname.lastname@example.org