Industry Insights

A strong knowledge base can give you a real edge over the competition, but are you taking advantage of all the available information streams? Freedom to operate searches are an extremely useful, yet chronically underutilised, tool for gathering information. FTOs are like reconnaissance missions, allowing you to scope the field of development and your competitors. Used effectively, they provide guidance on where to direct your R&D work – and can help you anticipate and avoid problems well in advance. A small investment in an FTO at the beginning of a project can make an enormous improvement to the return you see on your R&D budget.

Freedom to operate searches

An FTO is a literature search of published patents and applications, and is conducted using keywords. You can search broadly for inventions within a field of technology or that do a certain thing, or narrowly for inventions that function a particular way. You can also search for Australian patents, patents in selected countries or worldwide.

Conducting an FTO is an excellent way to identify development opportunities that your business can target. An FTO will identify any published patents and applications for inventions matching your keywords. These results will give you a good picture of the patent landscape. You may find gaps in that landscape – needs that the existing patents don’t adequately address or new ways of providing existing services that will best the competition. These gaps represent development opportunities that you might be able to exploit.

You may find fledgling ideas in patents that you can build upon. You might find patents you can purchase and commercialise, or use as a base for further R&D work.

Sometimes inventions are protected in some, but not all, countries. Let’s say an invention is protected in Europe, but not in Australia. You’re free to commercialise that invention in Australia. If the Australian market is negligible, you could conduct in Australia all the development work needed to bring the invention to market, including real world trials, so you can launch a perfected product in Europe as soon as those patent rights expire, getting a jump on the competition.

FTOs provide an insight into what competitors are working on. This can provide you with helpful intel on their upcoming products and allow you to anticipate, and make early moves to combat, their latest innovations.

Finally, FTOs allow you to anticipate and avoid disputes by determining whether something is already protected. There’s more on what you can do if you identify a problematic patent in the next section.

Ideally, FTOs should be conducted before beginning a project. From the outset, the FTO should be part of the matrix of information you draw upon to tailor your strategy. There’s nothing worse than spending valuable time and money developing an idea only to find out that it will be launched into a thicket of products and patents, and that you’ve missed a more promising area for investment.

What to do if you find a relevant patent

If your FTO identifies a patent that might get in the way of your plans, you have a number of strategies available. You might:

  • Do something different – take steps to work around the patent
  • Do a deal – negotiate with the patentee
  • Do it anyway – proceed with the project and deal with any legal issues later
  • Do you slowly (aka Paul Keating) challenge the patent rights, or
  • Do something else – shut down the project altogether.

Do something different

A workaround is often the most cost effective way to avoid a dispute. A workaround can be as simple as using a different part, or doing things in a different order. A workaround needs to make both commercial and legal sense. So, find out how much the workaround will cost (to identify, develop and implement), and whether the market will accept a product without the patented feature. You should also ask how much it improves your legal position. There is a big difference between modifications that clearly – versus arguably – avoid a patent. While having a non-infringement argument is of course better than having no argument, it may not be enough to keep you out of court – or bring you legal success.

Do a deal

A deal could be anything you can imagine but it usually involves some sort of licence to, or assignment of, the patent. A licence gives you permission to use the invention, while an assignment means you now own it. Which of the two options is more advantageous will depend on the circumstances.

Deals don’t always involve money changing hands. Patents are difficult to value, which gives you flexibility in what you bring to the table. Tech-transfers or cross-licensing, where both parties license technologies to the other, is common. Your IP might make the invention better. The patentee might need your expertise to get the invention to market or improve it. You might also be able to help them with something completely different.

Deals tend to be cheaper where you haven’t already begun using the invention. This is because you’re free to walk away and do something else. You’re like a customer – which is a much stronger bargaining position. If you have infringed, you require a licence to avoid litigation. The patentee has you over a barrel and the licence fee could be higher. This is one reason why it’s important to recognise problematic patents early.

Do it anyway

Ignoring problems usually makes things worse, but sometimes it’s an appropriate strategy. The project could drift away from the patent organically. There may be a very low chance of the patentee raising the issue, either because they have no appetite for litigation or they’ll never find out you’re infringing.

Maybe you’ll get sued, but it could be better if the project is up and running and contributing to your cash flow – a successful project could fund the litigation. Or maybe you’re just willing to leave open the possibility that the patentee will leave you alone, rather than commence proceedings and definitely end up in court now.

If the patentee does sue you for infringement, and succeeds, you may be forced to withdraw your product from the market and pay the patentee compensation for any sales you made in the meantime. So, if you do decide to run the risk of future legal action, just remember to start putting contingencies in place now, so you can minimise the damage if the worst-case scenario plays out.

Do you slowly

There’s often no advantage to proactively challenging a patent unless you need to know whether you’ll infringe it before launching your product. As challenges are generally defensive in nature, it’s usually better to see if the patentee takes action against you (though there are exceptions).

There are many litigation options available – and each has its advantages and disadvantages. The decisions you make early on are critical to your ultimate success, so you need to be strategic from the very beginning. For example, opposing a patent application before it’s granted is cheaper than court proceedings. Asking the patent office to re-examine a granted patent is cheaper still. However, actions such as these will give the patentee the opportunity to amend their patent to overcome your arguments and you may suddenly find you’ve lost your best defence. You might prefer court because you’re concerned about amendments, or because your case relies heavily on expert evidence.

Shutting the project down

Sometimes your best option is just to shut the project down entirely, and focus your time and money somewhere more lucrative.

Combining Strategies

These strategies are not mutually exclusive. For example, there’s merit in investigating a workaround and seeking a deal – if you do identify a workaround, the deal may become a lot cheaper. It may be worth litigating and negotiating. It can get you a better deal, since the patentee is facing a serious threat. It may make the deal worse or impossible, since the patentee will often be aggravated and paying legal fees. You should also re-evaluate your strategy over time – as circumstances change, you might find your strategy requires adjustment.

Deal vs Litigation

If your heart is set on a project and you can’t find a viable workaround, and don’t want to take the risk of being shut down in a subsequent legal challenge, you’ll need to decide whether to approach the patentee for a deal or to take legal action. Deals have a number of advantages over litigation. First, there is fast commercial certainty. Many deals can be hammered out in a day. Litigation can take years to complete, and you won’t know how it will end. That uncertainty can affect your business internally, as well as your external reputation and relationships. Will customers continue purchasing a product that’s being litigated? Will it affect partners’ willingness to work with you?

Second, litigation can be extremely expensive and time consuming for employees. The in-house legal team and board need to keep on top of all developments, technical employees may need to assist with evidence, and discovery is a nightmare for everyone.

Third, the remedies available at the end of litigation are limited. A deal is limited only by the parties’ imagination and capacity to agree – you can extract more value from a creative deal than a win in court.

Fourth, where litigation has winners and losers, a deal often lets both parties walk away better off.

And finally, deals are usually confidential – which means that your competitors need not know anything about it, while litigation is conducted in public.

Conclusion

FTOs are an excellent tool for identifying promising development opportunities, gathering intel on the competition and identifying IP risks. If you do identify a problematic patent, there are numerous approaches available to you. You can turn the situation into a chance to do a deal with the patentee that benefits all parties, innovate around the roadblock, stay the course while putting contingencies in place to minimise the risk to your business, start a legal challenge or simply move on to greener pastures. Evaluating all of the circumstances, and taking a creative, commercial approach will allow you to identify your best strategy.

To help you decide what to do, there are a number of questions you should ask yourself – such as:

  • How similar to the project is the patent? What is the infringement risk?
  • How existential is the threat? Does it go to the core of the project, or can steps be taken later on to work around it?
  • How flexible or unpredictable is the project? Could the issues resolve themselves as the project proceeds organically?
  • Can the project easily steer clear of the patent, even if it’s legally unnecessary? This might be cheaper than taking other action.
  • How strong is the patent? Are there any invalidity issues?
  • Who owns the patent? What’s your relationship and experience with them? What’s their business model?
  • What is your potential market worth?