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What is "freedom to operate" or "FTO".

What is "freedom to operate" or "FTO".




"Freedom to operate" as a concept can be defined as the ability to sell or commercialise a product or service in a specific field and time frame without infringing intellectual property rights owned by another entity. Prior to any key business decision, especially before a new product or technology enters a foreign market, a freedom to operate analysis[1] is essential. Thanks to the analysis of the 'freedom to operate' criterion, it can be determined whether similar or identical products, technologies or know-how are already present in a particular field and whether there is a risk of their infringement as intellectual property rights.

A freedom to operate (FTO) analysis can be carried out at any point in the development of a new product or technology. When the idea for the new product is already clear to the inventor, it is worth checking the patent databases to see if they are trying to re-invent something that is already on the market, or if there is an expired patent that could be used to further develop the new invention. Therefore, if it is planned to enter a new market with a technology already developed, FTO can lead to significant cost savings by also avoiding the presumed litigation on the basis of a request to invalidate a patent or concerning patent infringement claims.

From this perspective, ignoring the FTO analysis may be an unwise step for a variety of financial and legal reasons. One of the most interesting relatively recent examples in this regard is the case involving Mercedes' "Airscarf"[2] technology, used to warm drivers' necks with warm air exhausted from the headrest of convertible cars. On the subject - in 2016 Mercedes lost a lawsuit against German inventor Ludwig Schatzinger, who had patented similar technology ten years earlier. As a result of this patent lawsuit, Mercedes had to temporarily stop(from May 9 to December 25, 2016) selling all of the company's convertible cars equipped with this solution and pay compensation to the patent holder of a significant value of $280,000[3]. It was only due to the expiration of the patent(in December 2016), shortly after this lawsuit, that Mercedes was once again given the opportunity to reinstate the offering of this product for their convertibles, as it became public for use. This example shows that "patent wars" are not only fought between large corporate adversaries like Samsung or Apple, but also between "small" inventors and international companies, and it is never clear in advance how such a case will end.

In September 2003, three pharmaceutical companies - Cambridge Antibody Technology (CAT), Micromet AG and Enzon Pharmaceuticals - announced that they had signed a non-exclusive cross-licensing agreement. In the agreement, all three parties receive from each other significant 'freedom to operate', which entitles them to use the respective patented technologies of the other two companies. Ultimately, this joint venture between the three companies led to research on which they developed antibody-based therapeutic and diagnostic products. On the basis of the agreement thus concluded, CAT obtained extended access to Micromet's and Enzon's joint patents in the field of single-chain antibody (SCA) technology, and Micromet and Enzon obtained a licence to intellectual property in the field of phage display of antibodies controlled by CAT. The cross-licensing agreement thus commented on explains an interesting, internal freedom to operate model: that of Micromet and Enzon, in which the two parties combine their substantial patent assets and complementary expertise in the field of single-chain antibodies (SCAs) and the licensing agreement first entered into between CAT, Enzon and Creative BioMolecules in 1996. In addition to the cross-licensing of intellectual property under this agreement, Enzon and CAT agreed to withdraw their pending invalidity claims (in specific territories) against each other's European patents in the field of diabodies. 

I focus the reader's attention on agreements of this kind because they have become common practice in certain sectors due to the fact that in many cases innovative companies seek to ensure that their products, processes and services do not infringe third party patent rights for various reasons. On the first reading, these efforts make business sense, but on the second, their logic stems from the fact that such patent litigation can be extremely costly, uncertain and risky, and lead to severe financial, reputational and legal consequences.

This submission aims to examine the various strategies that firms can consider and undertake as a means of reducing their risks and, consequently, increasing their freedom of action in operating innovation. 

It is logical in this line of thought to note that when a company plans to develop and market a new product, a major risk, especially in technology sectors where patenting is widespread, is that the launch may be blocked by a competitor who holds a patent on a technology incorporated in that product. Therefore, many companies at an early stage of development seek to secure their 'freedom to operate', i.e. to ensure that the manufacture, marketing and use of their new product, process or service does not infringe the intellectual property rights of third parties. Although the guarantee of the 'freedom to operate' criterion is never absolute, there are ways of minimising the risks that can save a commercial company significant financial and legal problems.


2.Patent examination phase.

The analysis of the "freedom to operate" criterion invariably begins with a search of patent literature and sources[4] for issued or "pending" patents and obtaining a legal opinion as to whether the product, process or service proposed by the study sponsor can be considered to infringe patent(s) held by third parties. Many law firms or intellectual property firms offer such analyses as part of their legal services. Some national intellectual property offices (e.g. the Swiss Federal Institute for Intellectual Property) also offer such services for a fee.

I should mention here the fact that, when conducting a patent search, it is essential whether there is a registered invention and not an application. Although patent applications cannot be enforced until they have been registered, they raise their own legal problems as they cause uncertainty as to the scope of protection that may eventually be obtained ex post facto. For this reason, 'pending rights' in patents can often be more problematic in the future than granted rights, as the scope of protection is less certain as a possible, future protection. Therefore, monitoring the progress of patent applications can be extremely important and, if necessary, action can be taken to attempt to stop the issuance of the applications in question, invalidate their registration, or enter into negotiations to acquire licensing rights on various grounds - full, non-exclusive, cross-licenses, etc.

2.1. Options are available to open opportunities despite the legal limitations of patents. I would like to point out in this respect that when conducting a search and analysis of the "freedom to operate" criterion, it should be borne in mind that some of the restrictions introduced by patents actually also offer potential opportunities. All of this leads to conclusions on how a particular legal entity's intellectual property protection policy should be structured, such as applying for patents, designs, trademarks, utility models, copyrights, etc. Here are a few examples in this regard:


2.1.2. Patent protection is territorial.

Although a technology is protected in the main markets important to the company ("inventor"), it may be in the public domain in other countries where it lacks patent coverage. In the latter case, permission (or a licence) from the patent owner is not needed to commercialise the product, as legal protection is lacking in the territory concerned. However, in these cases it should be presumed that the patent may also have copyright protection as a scientific work of technical literature and if a documentary registration of the latter is made (e.g. with the U.S Copyright office), this protection of the principle of reciprocity in international law may arise in a total of 165 Berne Convention countries. Hence the conclusion of "no patent protection" may be apparent and essentially incorrect.


2.1.2. Patents are limited in duration.

It is a notorious fact that patent protection has a maximum term of 20 years. After the said duration, the patent is considered to be in the public domain and can be freely used by any legal entity. On the subject, the European Patent Office (EPO) has come up with statistics that less than 25% of all patents granted through the EPO are maintained (in terms of validity based on annual maintenance fees paid) for the maximum 20-year term. It is logical to note in this respect that many inventions covered by patents are terminated due to non-payment of maintenance fees by their holders, well before the 20 year validity period expires. I note all of this because the subject of the FTO inquiry should not only be the registered inventions as a fact, but the extent to which they are subject to protection at the particular time of the examination, since they may be registered but expired due to unpaid fees.


2.1.3. The scope of patents as claims is also limited.

It is common knowledge that patent claims determine the subject matter scope of a patent. Any aspect of the invention not covered by the claims is not considered to be protected. However, it is not always very simple to determine the scope of a patent. Rather, it requires considerable expertise in claim interpretation, written specification, and the history of the application process. From this perspective, it is important to determine the exact scope of patent protection sought in order to determine the likely policy course of action - applying for a patent to build on the prior art and/or negotiating licensing, cross-licensing, etc.


3.Protocol to be followed for FTO.

A freedom to operate analysis based on a search of the patent literature is only the first step in a well-structured FTO action plan. If the patent search reveals that one or more patents do limit the company's freedom of action, the company must decide how to proceed. Assuming the "blocking" patent is valid, options include: purchasing the patent, licensing it, or filing new patent applications.

3.1. Licensing(as a process) usually involves negotiating and obtaining written permission from the patent holder to use the patented technology for certain acts, in certain markets(territory) and for a certain period of time. The convenience of such an agreement will depend largely on the terms and conditions of the proposed licence. Although there is a potential loss of autonomy and that the patent holder will require payment of a lump sum and/or periodic licence fees, this may be the simplest legal route to commercialisation and monetisation of a new technology or product by avoiding unnecessary legal confrontation. 

3.2. Cross-licensing. This concept involves two or more companies exchanging licenses to be able to use certain patents held by the other parties. To be able to use cross-licensing, a company needs a well-protected portfolio of patents that is valuable to potential licensing partners. As already mentioned in detail, such a flexible legal approach can be particularly beneficial to a business decision, as patent registration is a time-consuming, expensive and sometimes uncertain process as a final outcome, as improper research and development can lead to a refusal to register an invention. All these negative effects can be saved by the simple exchange of pre-existing patent rights between entities with common business, social and legal objectives. The creation of advanced technologies in robotics, pharmaceuticals, the IT sector and artificial intelligence increasingly point precisely to this practice of cross-licensing in the common interest.


3.3 'Patent circumvention' with rationalisation.

Worldwide practice shows that, in reality, any rationalisation builds on the prior art, i.e. this process of "building on the earlier patent" should not be seen as "stealing" or "copying", but as a step forward. The approach described implies directing research or making changes to the product or process to avoid infringing patent(s) held by third parties. For example, if freedom of action is limited by a process patent, then the company may be able to develop an alternative process to achieve a similar but qualitatively new end result and thus be able to commercialise the invention without having to pay a licensing fee to someone else.

I would like to draw attention here to the fact that in fact the patent claim scope of any new invention helps determine the value of the patent by defining the boundary between what has already been protected and what has not. Hence, in my opinion - the broader the scope of protection of "old" patents, the more likely any new competing products and processes are to infringe them. Along these lines, I should flag the fact that patentability[5] as a criterion refers to how easy or difficult it is to meet the standards for obtaining a patent on an invention. Patent scope and patentability can therefore have both positive and negative impacts on innovation. The openness of the legislator, respectively the enforcer, to the criteria of patentability in the described context also determines the scope of R&D development so as to invent patents whose claims lead to higher quality innovations.


3.4.Patent hubs.

This is a jointventuring mechanism that solves many problems in FTOs, whereby two or more companies practicing related technologies pool their patents in a common hub (from "pooling", "intersection") to create a patent rights clearinghouse. A well-known past example of a patent hub is that created by Sony, Philips and Pioneer concerning inventions that are essential to comply with specific specifications of DVD-Video and DVD-ROM standards. Obviously, this step is logical in the case of companies that are looking in the same direction and have common business objectives, which are far from developing and imposing "patent egotism", but on the contrary present an open approach to the joint development of, for example, so-called "generic cures" for AIDS, malaria, etc., which have a humanitarian rather than a business effect.


4.Patent protection.

If the patent search shows that there are no patents blocking market access for an innovation and, therefore, that the new technology is likely to meet the criteria for patentability, the owner of a commercial company may wish to seek patent protection in order to secure a greater degree of freedom of action from a business perspective, rather than keeping its technology as a trade secret. 

However, there is a clear limit to the extent to which a patent owner has discretion. A patent does not in itself confer the right to commercialise the protected technology, but only to prevent others from using it without legal justification. While the distinction may seem subtle, it is crucial.  Why? A third party may, for example, have an even broader patent that covers the subject matter of the first company's patent and, despite its existence, commercialization is impossible.

Therefore, in order for a company to commercialise its own technology, it may have to use an invention patented by a third party. In the field of biotechnology, the Cohen-Boyer patent on recombinant DNA is a classic example in this respect. For many years, the commercialisation of any new technology using the technology developed by Cohen and Boyer required the payment of licensing fees to obtain the relevant rights. There may also be government regulations not directly related to intellectual property that restrict market access to a patented invention (e.g., regulations requiring approval for food or pharmaceutical products, etc.). Notwithstanding the above, 'freedom to operate' is one of the reasons why companies apply for patent protection. While the grant of a patent is not in itself sufficient to clear the way for commercialisation, it is a useful step and can prevent problems of a different nature at a later stage.


 5.The methods of "protective publication" and "technical disclosure".

There are many reasons why a company may wish to avoid patenting an invention, such as burdensome patent costs or the fact that the invention may not meet the criteria for patentability. An alternative that is sometimes used by businesses is 'protective publication' or 'technical disclosure'. These two methods differ sharply from trade secret preservation - why?

Protective publication involves publicly disclosing the invention to ensure that no one else can patent it. This provides a degree of freedom of action for all interested legal entities. The disclosure should be made in a well-known technical journal, online source[6] or other scientific publication that is likely to be scrutinised by patent examiners when considering future applications for a similar patent. This is done, for example, by examining journals that are included as part of the minimum documentation for an international patent(PCT) recommended by international examination bodies. Some journals devoted exclusively to disclosure publications have become respected sources of technical information. Defensive publication is not usually done for a major breakthrough in technology or for a major technological invention that is likely to be of top importance to an enterprise, and in most cases it is intended to undermine the patentability of specific elements. 

Some large corporations (such as Xerox) rely on their own technical disclosure bulletins, which are widely distributed, to show inventions that are not patented. The United States Patent and Trademark Office (USPTO) allows applicants to request publication of a Statutory Invention Registration (SIR) of an applied-for patent. This is effectively a technical disclosure of the invention for which the patent application has been filed. Through the SIR model, the applicant effectively waives judicial protection over the patent in exchange for disclosure of the invention by the patent office, thereby pursuing inherently different strategic business objectives related to freedom of action.

5.1. In a number of cases, defensive publication may be a better option than seeking patent protection[7]. Among the most common circumstances in which this may occur are the following: 

-Probability of high costs. The costs required to file, obtain and maintain an issued patent can be significant, especially when it comes to maintaining regular patent renewal payments in multiple jurisdictions. If these costs significantly outweigh the benefits of full patent protection, disclosure may be an appropriate alternative. 

-Fast-growing industries: fast-growing technology sectors - especially consumer electronics - are full of products that become effectively or efficiently obsolete within just a few years. Although some items in this field, such as batteries or chip technology, may have an extended shelf life that would benefit patent rights, there are many other cases where patenting would be cost-ineffective. 

- "Fierce competition": If you know that your competitors are working on an invention identical or very similar to yours, technical disclosure of your intellectual property can confuse much of their strategy. In this example, the best defense is a really good offense. 

In all of these cases, a defensive publication puts the innovation in the public domain. Even disclosing only certain aspects of the invention ensures that the subject matter becomes prior art, making it extremely difficult for a patent examiner to formulate any meaningful claims that incorporate the published material. Thus, a defensive publication can provide correspondingly participate in the operational latitude analysis by providing information on potential fees saved from filing costs, prosecution and support fees.


Author: Mr.Atanas Kostov – intellectual property attorney


[1] I would argue that the "freedom to operate" study model is a type of "IP due diligence" of the purest kind, i.e. it concerns a proper, complex and detailed analysis of an intellectual property;

[2] In 1996, the "Airscarf" technology was patented by the German inventor Ludwig Schatzinger, and his patent expires on 25 December 2016.

[3] The "Airscarf" case under No. X ZR 114/13 is in fact also known in German case law as the "Heat Exchange" decision. The decision in the docket case of 2016 also led to a development of the case law in Germany on the criterion whether the automatic prohibition of the use of an earlier patent constitutes a disproportionate hardship in case of infringement, and in their reasoning the judges also addressed the question of what exactly the period of use is and how this affects the claimed compensation. From this perspective, the panel also clarified when patent law should apply the principle of good faith in order to ensure that, in exceptional cases, injunctive relief does not disproportionately hit the infringer.

[4] I refer here to the presumed tools Google patents(includes the USPTO, EPO, JPO, KPO, WIPO and CNIPA databases), Esracenet, Lens, Patentscope, USPTO, NanoData, the European Commission's DG Research & Innovation search engine, etc;

[5] There are some differences between jurisdictions in terms of legal standards for patentability. In Europe, for example, inventions must be technical in nature. Similarly, Japanese patent law defines a patentable invention as a highly developed creation of technical ideas using laws of nature - argument from Japanese Patent Law (1959), Article 2(1). In the United States, on the other hand, anyone who invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement, may obtain a patent therefor(United States Patent Act Article 35). There are numerous committee reports on the subject in the United States Congress, S. Rep. No. 82-1979, 5(1952); H.R. Rep. No. 82-1923, 6 (1952).

[6] Some of the most popular in this vein are Cloem, a company that created computer-generated versions of patent claims; IBM Technical Disclosure Bulletin; Trade Secret; United States Defensive Publication (a magazine in existence between May 1968 and May 1985); United States Statutory Invention Registration (in existence until 2013);

[7] On this topic, see Barrett, Bill (2003). "Defensive use of publications in an intellectual property strategy". Nature Biotechnology. 20 (2): 191-193. doi:10.1038/nbt0202-191. PMID 11821867. [. . .] the successful defensive publication renders the competitor's invention obvious or lacking in novelty.