Freedom to Operate: Everything You Need to Know
Freedom to operate, also known as FTO or right to use, means you have the freedom to test, market, or sell a product or service in a specific area.9 min read
What Is Freedom to Operate?
Freedom to operate, also known as FTO or right to use, means you have the freedom to test, market, or sell a product or service in a specific area. Sometimes intellectual property rights only count in a country or a region, and outside of them you have the FTO to do whatever you want.
For example, let's say the U.S. government gave you a patent for a new kind of speaker. As the patent holder, you have the freedom to market and sell your speaker while no one else can. If it's a brand-new kind of speaker, you can also sell it in other countries without getting their patents.
However, your competition also has the freedom to operate in other countries, since you only have a U.S. patent. Perhaps someone else has patented the same kind of speaker in Europe, and now neither of you have the FTO to sell your speakers in each other's markets.
Another example is car names. Some cars have different names in different markets, because another company used the name first for their own car. For instance, the Ford Fusion sedan is the Ford Mondeo outside the U.S.
Because of FTO, patent lawyers and other IP experts will tell you to secure international patents while you wait for your U.S. patent to pass through the patent office (or USPTO). Patent protection isn't always enough to secure FTO, but getting a patent for each market you want to sell in is a good first step. For decades, nations have been signing treaties to make their patent laws the same so there's no confusion. Why not take advantage of this fact and guarantee your FTO so you can sell products internationally?
What Is a Freedom to Operate Analysis?
The rules for patents may be coming together, but IP laws, in general, can still be a giant mess. That's why businesses and corporations that want to expand into a new market will run a freedom to operate analysis. This analysis is more than just checking the patent records; it also includes trademarks, copyrights, and any other IP laws that might apply to the product or service.
You should not confuse an FTO analysis with a patent search. A patent search runs between $500 to $3,000, and all it says is whether your patent application is good enough to go through the system. At best, it gives you an 80 percent chance that USPTO won't reject your patent.
An FTO analysis — also called an FTO opinion, a patentability opinion, or a patent clearance search — starts at $3,000 and can sometimes go up to $30,000 and beyond. This is because the firm doing the search will also check international records, expired patents, patents pending, prior art or an existing product, and competition infringement. Patentability and infringement are two different standards, so it's possible to earn a patent you can't use.
Another big reason for this cost is that the firm offering the analysis guarantees the results. A patent search doesn't. This means clients can sue them if USPTO rejects their application.
The analysis begins with the most obvious and newest parts of the product or service. This means things like new compounds for drugs and new software for electronics. Next, you decide the scope of the search: the nations you want to market in and the competitors you'd have to face. Possible conflict points include patents, trademarks, licenses, and agreements with international corporations.
Freedom to operate also includes government regulations. Food and medications have to meet strict safety standards if you want to sell them in the United States, and it won't matter how many U.S. patents you have if the FDA rejects your drug.
- A patent issued in another country has a wide scope that includes your product
- A country might have an exemption that includes what you want to do, like New Zealand's clinical trial exemption
- A patent that expired covers your product
- A patent lapsed because the holder stopped paying the fees
- The country's patent laws don't cover the product
- Prior art means a patent is impossible
- Someone else has an identical and active patent
- Your product would infringe on another company's product with or without a patent
In cases like an expired patent or prior art, you can have freedom to operate even without a patent. However, so does everyone else. You need to be especially careful with a lapsed patent, since they can sometimes come back when the holder starts paying the fees again.
An FTO analysis can be an expensive operation, especially since it involves digging through a hundred different sets of laws. However, paying for an FTO analysis is a lot like paying for insurance. By spending some money now, you can avoid spending a lot of money later. A patent lawsuit or a government fine can be a very expensive mistake to make.
Something else to remember is that FTO analyses aren't perfect. The people who do the research are only human, and they can make mistakes. Luckily, the analysis also counts as due diligence, which means even if it's wrong you can avoid the worst penalties. After all, you can prove you tried everything to find out if you had freedom to operate before you went to market.
When Should a Freedom to Operate Analysis Take Place?
You can get by without an FTO analysis, especially if you're a small and local company, but there are a few times when getting one is a good idea:
- When you have a complicated product and you want to know whom you have to license with to make it happen
- When you're about to expand into new, international markets
- When you need to be thorough about patent infringement
- When you need to do some new market research or you want ideas for how to develop your products in the future
FTO analyses can take a lot of time and money, especially if you want to market your product or service worldwide. Because of this, you need to think hard about when to perform one.
- How Important or Valuable Is the Product? Important products that promise a big profit deserve a bigger investment. This includes everything about the product, not just the FTO analysis. A big profit margin means big profit dangers if something goes wrong, so the analysis should be early and thorough. This goes double for products with a big R and D investment, because that's a lot of money wasted if you can't get freedom to operate.
- How Much Risk Can You Take? An FTO analysis is like insurance, and like insurance, you don't have to buy a policy. However, that can set you up for a lot of penalties and courtroom time later. If the product won't be a big seller or won't matter to the company's bottom line, then maybe the risk of going without an analysis will be worth it. However, a high-stakes, high-reward gamble deserves an analysis.
- How Competitive Is the Market? Lots of competition means lots of businesses that can sue you for tripping up. Competition also means it's not as important to bring your product to market as quickly as possible, although the consumer electronics industry is an exception.
- How Likely Is an Infringement Lawsuit? For markets like mobile phones and medications, patent infringement lawsuits are practically how companies say hello. Lawsuits are most likely in markets with high profit margins, lots of competition, and cutting-edge technology. If any of these sound familiar, you need an FTO analysis for the due diligence protection if nothing else. There are tools you can use to find out how lawsuit-heavy an industry is.
- What Are Your Business Connections? If the product or service has connections to a third party, you have to consider how a lawsuit would play out. Selling to another country through a local company might be illegal, or it might be your only legal solution. Maybe you're the big company and will pay the most in a lawsuit, or maybe you're the little company and your business partner already has an FTO analysis going. In any case, make sure you understand how your partners can simplify and complicate your freedom to operate.
What Happens if There Is No Freedom to Operate?
If an FTO analysis gives you a bad result, that doesn't have to be the end of the story. You can speak to the patent holders to get permission, a license, or else buy the patent from them to get your FTO. Sometimes you need several patents to do what you want to. Professionals call this situation a patent thicket.
To get yourself freedom to operate, you have several options:
- Buy or license the patent. It's a simple and easy solution, although it might be expensive. Some companies make all their money by licensing their patented technology, and getting a license might be the only way to sell certain products. For years, the only way to make recombinant DNA products was to get a license for the Cohen-Boyer patent on the process.
- A cross-license agreement. This agreement lets companies share patent rights with each other so they both get a better freedom to operate. For instance, two genetic engineering companies could share their patented research methods to make better corn and soybean crops.
- A patent pool. This is a bigger version of a cross-license agreement that lets several companies use many patents when they pay for access. Companies sometimes use patent pools to create industry standards like DVD encoding.
- Invent around. This means changing the product just enough to earn it a different patent.
The cross-license agreement is particularly good at giving companies the freedom to use each other's research methods and discover breakthroughs that wouldn't have been possible otherwise. For instance, in 2003 the biotech companies Micromet AG, Enzon Pharmaceuticals, and Cambridge Antibody Technology all signed a nonexclusive cross-license agreement to share their research technology. This let all of them create new antibody-based products they could then patent and sell.
Something else an FTO analysis can do is help a company brainstorm a new product or go in a new direction. After all, it involves a lot of industry research in foreign markets, so you might come up with a good idea even if the one you're developing turns out to be a dud. You may find a patent opportunity as you discover you can't get the patent you want.
Another option is an invalidity search. If a patent is blocking your product, you might want to check whether the patent is really valid. It might turn out to be too wide or too narrow, or there might be another patent or prior art that makes it invalid. If you get a positive result, you might want to move forward, but you should prepare for a court battle.
What Happens When There Is Freedom to Operate?
If you get an all-clear from your FTO analysis, you should act fast and secure all the patents, trademarks, and other IP rights available. If you don't, someone else might, which is why trade secrets are so risky. Trade secrets have some protections in most nations, but they aren't nearly as strong as patents.
There's one case when you might want to think twice even if you have FTO. A patent can expire early if you don't pay the maintenance fees, which in America are due 3.5, 7.5, and 11.5 years after you submit the application. Sometimes people can reinstate the patent by paying the fees, which you can't do if the patent reaches its time limit.
Your company can't get in trouble for selling patented products during the lapse period, but you have to stop selling them if USPTO reissues the patent and its holder tells you to stop. If your company has invested a lot into manufacturing, selling, or using an expired patent (after a six-month grace period), you do get some protections called intervening rights. However, you still need to bring in your legal team and hash things out with the patent holder. It's a big headache you can avoid by checking whether a patent has expired from age or from unpaid maintenance fees.
You might also try a different risky move if you don't have the money or time to get a patent. It's called defensive publishing, or a technical disclosure, but it's just you publishing your invention or design. This counts as prior art, so no one will ever patent your creation. USPTO has a special registration for this, called a Statutory Invention Registration. The best time to use this strategy is when you have several more important patents protecting your products.
You should also realize FTO means you can and can't do certain things. For one thing, a patent isn't a right to market and sell a product —it's a right to stop other people from marketing and selling the same product. This means enforcing a patent is up to you, not the government. So if you want to limit the FTO of your competitors, you have to send the cease-and-desist letters and file the lawsuits.
FTO analyses are time-consuming and grueling, and you wouldn't want anyone less than the best to handle such an important and expensive task. That's why UpCounsel offers a marketplace for businesses in need to post their legal needs for patent laws, FTO searches, immigration law, and more. On average, the firms and lawyers in our marketplace have 16 years of experience, and many have worked with major corporations like Google.