UK: FTO And Beyond

We recently held an exciting virtual event aimed at in-house counsel, on the topic of Freedom to Operate (FTO). For those who missed the event (and those who want a refresher), the transcript of our keynote discussion is included below.

If you'd like to discuss FTO further, please get in touch with our hosts Greg St Clair Jones, Benni Pfundner, or your usual Kilburn & Strode advisor.

Keynote summary

Speakers:

Rike Dekker
Rike is a partner working out of Kilburn & Strode's office in the Netherlands. Rike has a varied background both in-house and in private practice. Her in-house positions included roles with Pfizer in their chemistry team as well as an eight year stint with biotechnology company DSM. She also has a decade of experience advising clients from her role in private practice. 

Mark Marfé
Mark is a patent litigation solicitor and partner at Pinsent Masons, based in London. With almost 20 years' experience working on contentious matters for a host of big hitting clients, Mark has been involved in various pan-European litigation matters. He has represented clients before the UK Courts at all levels and has also acted on matters before the courts in Ireland, Spain, Germany and the Netherlands as well as in arbitration proceedings.

First, we spoke to Rike about her experiences of crafting FTO investigations and advising on factors to consider when deciding what kind of FTO is right for a given situation.
 

Rike's insights

At what stage of a product lifecycle do you advise clients to begin thinking about FTO? From day 1? Or are there certain development milestones that should be met first?

• If you look at the typical product development process, this tends to run through stages of Ideation, Proof of Concept, Prototype and then finally Launch. Each stage requires a different approach to FTO.
• When in early ideation stage, the focus is typically more on patent landscaping. It can be helpful to work out how dense the technology field is. How many competitors might you be up against and how active are they in patent filings? Are there any ‘empty' areas where you might be free to make your mark?
• Once you come to proof of concept or prototype phase, then it's at that stage where it's usually more useful to conduct a targeted FTO review, since you know what the product will look like. It's here that you do the bulk of the work in investigating whether there are any roadblocks for your product.
• Finally, close to launch, it is important to update any previous searches as a final check – products are often tweaked as launch day approaches, and you need to be sure that your previous conclusions on FTO still hold true!

Once you've agreed with a client that you are going to conduct an FTO investigation, what factors do you consider to make sure the results are useful and tailored to their needs? 

• It's important to be aware that fully fledged FTO investigations can be really costly, easily into the tens of thousands of pounds/dollars. Clearly, most clients don't want to be spending that type of money on every project they have, so it's important to take a step back and check that your expenses are aligned with your business aims and potential profits.
• One question I often ask the client early on is: how “novel” is the product you are reviewing? Is it targeted at a small audience in a niche sector, or is it a total game-changer? Clearly, the latter justifies a higher spend on FTO than the former.
• Another related question to ask is: what is the business case for the product? What is your expected turnover/margin from the product both in the short and longer term? It's important that the expected return is not outweighed by the cost of the FTO!

Is there anything else you think people should consider in the context of crafting an FTO investigation?

• One thing to consider is: what is the risk appetite of your business and of your
  competitors? Do you expect a “big fight”? Have you previously had fights with your
  competitors over IP? Or might things work out more amicably?
• To give an example, one client I worked for conducted an FTO investigation and found a potential roadblock for their product. Perhaps counter-intuitively, rather than this being a problem the realisation actually ended up leading to a business opportunity! Specifically, the finding prompted the client to approach the rights-holder and negotiate a cross-license concerning the Japanese and European markets. As a result, both parties came out happy.
• I think a key point to remember is that as lawyers we tend to think in terms of win/lose, whereas in business you can often negotiate a win/win!

Mark's insights

We then asked Mark to give his thoughts on FTO from a litigator's perspective. We were particularly keen to find out his thoughts on what to do once an FTO is complete. In other words, what should you do with the output of the investigation?

Once the FTO is complete, you have an idea of the risk level facing your product. What do you tend to advise clients if a potential threat has been identified or there is some form of restriction on the FTO?

• A first point to make is that there is no single answer. IP is complex and it will always depend on the specific facts of the case. Ultimately, FTO is about enabling you to manage risk in an informed way, rather than something which provides a binary result.
• That said, if there appears to be an FTO risk then an initial important question to ask early on is: how easy will it be for the rights holder to actually identify a potential infringement? Does your product provide functionality that works in the back-end or is it consumer facing? How central to your product is the functionality in question? The answers to these questions may well guide you when determining how worried to be about a potential blocking right.
• I also advise looking at who the holder of the relevant patent right is. What are they likely to do? What do you know about them already, and what can we find out? Are they litigious? We can look at their litigation history. Where do they operate? Are we up against one key rights holder or multiple rights holders? The answers to all of these questions will impact how you proceed.
• Another aspect to consider relates to how mature the relevant product market is, which can often impact the appetite for litigation. A mature market with little space for manoeuvre will typically mean that rights holders will jealously guard and enforce their rights (and market share), in a way that might not be the case in a newer, less crowded market. Of course, the flip side is that a mature market will typically have more prior art available to challenge any potential threats.

What aspects do you advise considering when deciding how to approach a rights holder? How do you decide between aggressive (e.g. challenge the right) versus amicable (e.g. approach for a licence)?

• I think that it's important to consider how your actions will be perceived by the other side. If, for example, you reach out to the rights holder and ask for licence then the rights holder may see that as evidence of infringement and that you're concerned. This could lead them to demand a high royalty, plus they are now on notice of a potential infringement. This dynamic makes it harder to pull out of talks and leaves the door open for litigation.
• That said, charging in and trying to kill the patent immediately isn't always the best thing to do either. While it makes you look assertive and confident, it might also sour relationships with a potential partner and make compromise difficult.
• In view of this, it's really important to take your time before you decide your next move. That is a big advantage of an FTO investigation. It gives you advance warning of risks. As a result, you're likely aware of the issue before the rights holder. This gives you breathing space to decide what to do. Make use of it!
• One thing to do in this time is to look for and carefully consider the available prior art. The FTO results can often be a starting point for this. At first, you might want to keep the prior art to yourself. Any useful documents can then be used as leverage in licensing negotiations especially if you have a limited patent portfolio of your own.
• Another thing to consider is whether any of your own actions might cause a potential competitor to think twice before suing you. In one case I was involved in, we discovered a potential FTO issue. However, our client also had evidence that they were carrying out the apparently “infringing” act publicly over a year before the priority date, meaning the patent was likely invalid. Once we made the patentee aware of this, the threatening correspondence quickly ceased!

Sometimes an FTO doesn't find any threats. Other than being a relief, is there anything else we can learn from such an outcome?

• Yes, as Rike mentioned, FTO can also be used as a patent landscaping tool and can give you an insight into potential gaps in the market. Any such gaps can assist you in identifying your product's technical “USP” and give you an idea of whether you might want to file your own patents directed to that USP.
• As you know, we (Kilburn & Strode and Pinsent Masons) recently worked together for a UK tech company on an FTO investigation. The FTO helped to identify not only that there appeared to be no major obstacles to product launch, but also that a patent directed to the product appeared to be worthwhile because it filled a technology gap which the FTO had identified.

Is there anything else you think people should consider in the context of responding to the findings of an FTO investigation?

• A useful point to remember is to not rest on your laurels even if your FTO gives you the all clear. You need to stay on the ball. Subsequent developments in your product may require you to look back at the initial FTO or necessitate a further FTO. Don't just think about patent rights. Sometimes confidentiality is your best friend. Finally, you might also want to consider defensive publication of your invention to give yourself more ammunition in a potential infringement suit later down the line.

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.