IP Strategy: 2. Freedom-to-Operate Strategy

By John Storella , Partner at Storella & Witt, LLP

Part 2 of Strategy for the Chief Intellectual Property Officer

The goal of the freedom-to-operate strategy is to identify and neutralize third-party IP barriers to entry.

Having a strong patent portfolio is important, but having freedom to operate is more important.? If you don’t have patents, you have competitors in the market.? If you don’t have freedom to operate, you are not in the market.? Investment in freedom-to-operate analyses will be repaid many fold.

Timing

A company should perform freedom-to-operate analyses at natural checkpoints in product development, when one phase of a project is complete and the product is ready to move to the next stage.

For example, instrument products typically pass through several gates from inception to product launch.? These include concept, feasibility study/breadboard, development, and launch stages.? Freedom-to-operate analyses should be performed in connection with each of these stages.

Pharmaceutical products, also, pass through several gates during development, including target validation, drug discovery, drug selection, and clinical trial stages.? Freedom-to-operate analyses should be performed at each of these stages, as well.

If a significant barrier to entry is discovered at any of these stages, it needs to be resolved before proceeding. ?There is no point investing in the next stage of product development if the product, in its current form, cannot be introduced to market.

Searching

Freedom-to-operate analyses involve searching the patent literature.? But what searches should be performed?? There are millions of active patents and applications and one cannot review all of them.? An initial search should be targeted on patents that cover all the key elements of the product.? This type of search will generate limited hits, and should quickly identify any patents that directly cover the product.

But such hits are rare, and the search needs to be widened.? This involves eliminating some of the elements from a search, or performing multiple searches with different combinations of elements.? This approach can continue until the search turns up too many patents to review.? And searches can be further narrowed by, initially, limiting searches to issued U.S. patents, before attempting to review all issued and pending U.S. patents and WIPO patent applications, or including, for example, European patent applications.

In any case, the breadth and depth of the search will be a function of how valuable the product is, with more valuable products commanding broader searches.

Evaluation

Freedom to operate analyses typically will uncover dozens of patents that require a closer look.? These patents need to be evaluated and categorized.

In one useful method, patents identified in a freedom-to-operate study are ranked according to their threat level.

At the highest rank are issued patents that, on their face, pose a potential infringement risk.? Such patents should be closely scrutinized to determine the most likely interpretation of the claims and how such interpretation may cover a company’s product.? Frequently, the question of infringement will depend upon an interpretation of a word or phrase in the claims.? In these cases, the patent specification must be scrutinized to arrive that the best interpretation of the claim.

At a next rank are published patent applications that, if issued, would put them at the top rank.? Such patents have to be placed on a watch list and monitored through their prosecution.

A still lower level includes patents and patent applications which cover products in the filed, but which are not infringed because they require elements clearly not included in the Company’s product.? However, the claims m, but that that are close enough to a company’s products that the company should take care not to incorporate their features.

Finally, at the lowest ?level, are patents that are no threat, but may be of historical interest or indicative of the direction of the industry.

At every stage, the Company has to ask, “Can the patent owner file a continuation application that would broaden the claims to cover our product?”? If so, these patents need to be watched and, possibly, neutralized.

Neutralization

There are several approaches to neutralizing a threatening patent.

A first strategy is to design around the patent.? Designing around involves changing the product so that it clearly does not infringe the patent.? Whether or not to design around depends on the cost of doing so.? If it is a simple matter to introduce non-infringing changes to a product, this can be a good option.? However, it may be that the cost to design around the patent is prohibitive.? In this case, licensing may be an alternative.

A second strategy is to license or purchase the patent.? This approach depends of the willingness of the owner to either license or sell the patent.? Universities are typically interested in licensing their technology.? I company that owns the patent, but uses it in a different field may be willing to grant a license.? Even a competitor, may be willing to license a license a patent.? Licensing revenues go their bottom line, and, paradoxically, incentivize them to improve their own products.

If these approaches fail, a third strategy is to prepare for litigation. ?A company should get opinion of counsel about why their product does not infringe the patent.? This will give the Company an idea of how likely it is to prevail in litigation.? Then, the Company challenge the validity of the patent, for example through inter partes reexamination, or via an action for declaratory judgement.? Finally, if the Company is sued for infringement, it can assert a defense of invalidity.

In any of these cases, the company has to evaluate risk and reward.? Licenses take money from the top line, but represent a safe path. Litigation can be a role of the dice; the company may emerge free and clear, or may be socked with debilitating damages.

Other Barriers

Finally, there are other threats to commercialization besides patents that a company should be aware of.? These include, for example, single suppliers, label licenses and various kinds of regulatory exclusivity, such as new drug exclusivity and biologic exclusivity.? These are topics for another article.

By allowing market entry for a company’s products, investment in freedom-to-operate analyses is critical for creating company value.

Stayed tuned for IP Strategy: 3. In-licensing

View more from this series:

IP Strategy: 1. Exclusivity