Freedom to Operate (FTO) or "clearance" is the process by which a company assesses whether it is able to launch a product into a market in view of any third party intellectual property rights. For many companies, this is a crucial step in the product development cycle. FTO analysis can be performed in many ways but it is generally aimed at the same question: what is the risk of our product infringing someone else's IP?
In its simplest form, a company might search for similar products in the field in question to assess whether there are any relevant third party IP rights in directly competing products. More complex forms of FTO work can involve extensive searching for any IP rights in the relevant technology area, obtaining infringement opinions on particular IP rights, or even taking steps to invalidate a potentially troublesome third party IP right.
Many businesses overlook FTO analysis because it can incur significant costs before a product is even launched. However, it is important to keep in mind that the costs of defending an infringement lawsuit (typically in the hundreds of thousands) will greatly outweigh the costs of even a thorough FTO analysis (typically in the tens of thousands). A finding of infringement by a court can result in very costly penalties, such as an injunction against selling the product - meaning all investment in the product is wasted - and an order to pay damages to the IP owner. In many cases, infringement issues could have been avoided or mitigated if an appropriate FTO analysis had been performed before the product was launched.
Traditionally, the most in-depth FTO analysis has been reserved for products which involve lengthy and costly development, such as pharmaceuticals. In contrast, companies who market cheaper and simpler products, such as those for which aesthetic design is the main appeal, have tended to avoid or simply overlook clearing their products. However, brand owners in all areas are turning to registered and unregistered design rights to defend their market share. Consider, for example, that some recent high profile design infringement cases have concerned products like children's ride-on suitcases and baby baths - a far cry from the high-tech products which have traditionally been the focus of high value IP lawsuits.
For this reason, we believe that FTO analysis focussed on the aesthetics of a product is of ever-increasing benefit. Online retailers such as Amazon and Ebay have implemented systems for IP owners to flag and delist infringing products quickly and cheaply and it is clear that increasing numbers of IP owners are using their design rights in this way (here). Consider, for example, the cost to your business if sales of your product on Amazon and Ebay were suddenly interrupted.
We strongly recommend that businesses consider allocating some of their budget towards IP clearance, even for relatively simple products. The costs associated with a designs clearance exercise are typically much lower than those for a patent focussed FTO analysis, as designs are typically much quicker to assess than patents, meaning that designs clearance can be more easily justified to senior stakeholders in the business.
If you do choose to perform some FTO analysis, HLK can help you to use your budget efficiently; we will make sure that any clearance work is performed with the appropriate complexity and cost for your business. Our multi-disciplinary team are also well placed to advise you on any issues arising from your FTO analysis. For example, we can work with you to develop strategies to overcome any potential infringement issues identified, such as negotiating a license, advising on a redesign of the product before launch, or advising on ways to invalidate a third party design right. If your product is already on the market and you are too late for pre-launch FTO analysis, then we can also help you to understand and mitigate any outstanding risk or, in the worst case, defend an infringement action.
Originally Published 18 August 2021
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.