Freedom to Operate Opinions: A Complete Guide
An innovation company’s intellectual property accounts for a vast majority of its value, upwards of 90% in some cases. Protecting your intellectual property is therefore a fundamental aspect of success.
When it comes to launching a new product or expanding into new markets, it is paramount to ensure that your company will not encroach on the intellectual property rights of others. In this article, we will explore the concept of Freedom to Operate (FTO) opinions, what they entail, and why they are crucial for businesses aiming to avoid infringement, damages, and intellectual property litigation.
What is meant by Freedom To Operate?
Freedom to Operate, often abbreviated as FTO, is a legal concept that signifies a company’s ability to conduct its business without incurring liability for infringing on the intellectual property rights of others. This freedom is contingent on the absence of valid and enforceable patents, trademarks, copyrights, or any other intellectual property rights that could be infringed by the company’s actions, such as manufacturing, using, or selling a particular product.
One helpful way to understand Freedom to Operate is to imagine that you’re buying a piece of land that you want to develop. One of the first things you’ll do is order a survey to determine whether or not you can use the property the way you’re planning. If the survey finds that the land has available access from the roads that surround it, then your ability to develop is unimpeded. If, on the other hand, the survey shows that the property is surrounded on all sides by other parcels that don’t belong to you, then you’ll have to negotiate easements from the other property owners to secure access to your land. This is valuable information that will affect your decision to move forward with your development investment. Likewise, a Freedom to Operate analysis helps an innovation company identify potential challenges or obstacles that lie ahead when pursuing a new product or other venture.
What is a Freedom To Operate Analysis & Why Are They Important?
An FTO opinion, sometimes referred to as a clearance or right-to-use opinion, is a legal assessment provided by a qualified intellectual property attorney which examines other parties’ existing intellectual property rights to determine whether a company can proceed with its intended business activities without incurring liability for infringing those parties’ rights. In essence, a favorable FTO opinion can serve as a green light, indicating that the coast is clear to move forward with a specific product or business venture without the looming threat of intellectual property litigation or the need to obtain licenses to others’ intellectual property.
The importance of FTO analyses cannot be overstated as they serve to mitigate several critical risks:
- Minimizing Infringement Risk: An FTO analysis identifies potential obstacles, giving a company the opportunity to address them before they become legal issues. This helps avoid costly infringement lawsuits and the potential associated damages.
- Protecting Investments: By conducting an FTO analysis, a company can protect its investments in research and development, manufacturing, and fundraising. If an infringement issue arises after significant investments have been made, the consequences can be financially devastating.
- Securing Market Entry: For companies looking to expand into new markets or launch innovative products, FTO opinions offer a strategic advantage. They provide a clear path for market entry, assuring investors and stakeholders that the company’s activities are legally sound.
When to Pursue a Freedom To Operate Opinion
Determining when to pursue a Freedom to Operate analysis is critical. Here are some key situations when pursuing an FTO opinion is essential:
- Before Further Significant Investment: It is wise to initiate the FTO process at a point where the new product and its salient features have already been developed but before further substantial investment is required to complete development. Timely FTO assessments can help you make informed decisions later in development, such as designing around other parties’ intellectual property rights, and avoid costly disruptions.
- Complex Products and Partnerships: In industries where products are intricate or require licensing and partnerships to bring to market, FTO opinions are invaluable. Complex products that engage multiple technologies or inventions often involve multiple layers of intellectual property rights, making it more likely that an infringement issue could arise.
- Market Expansion: When your company is planning to expand into new markets, whether domestically or internationally, obtaining an FTO opinion is a prudent step.
How to Move Forward Based on the Freedom To Operate Opinion
The course of action to take following the receipt of an FTO opinion largely depends on its findings.
When the Freedom To Operate Opinion Finds Restrictions
- Revise the Invention: If the FTO opinion identifies areas of potential infringement, your R&D team can go back to the drawing board and revise the product or process to eliminate these concerns. This may require adjusting the design, features, or functionality to ensure other parties’ existing IP rights aren’t infringed.
- Purchase the Patent: In some cases, it may be possible to purchase the patent that poses a threat to your business. Patent acquisition can be a strategic move, as it provides complete control over the intellectual property, eliminating any risks of infringement.
- Negotiate a Patent Licensing Agreement: When you identify a patent that could impact your business, and you don’t have the opportunity or inclination to purchase it outright, you can approach the patent holder to negotiate a licensing agreement. This agreement can grant you the right to use the patented technology or process while compensating the patent owner.
When the Freedom To Operate Opinion Finds No Restrictions
Receiving an FTO opinion that clears your path for operation is an ideal scenario. When no restrictions are identified, it means your business can confidently move forward with its planned activities. However, it’s essential to keep a few considerations in mind:
- Ongoing Landscape Monitoring: Even with a clean FTO opinion, it’s wise to continue monitoring the intellectual property landscape in your industry. New patents, trademarks, or copyrights may emerge that could impact your business, and staying informed is crucial.
- Protect Your Own IP: While you are ensuring freedom to operate, it’s equally important to protect your own intellectual property. Safeguard your innovations and prevent others from infringing on your rights by filing for and obtaining patents and trademarks and taking appropriate steps to protect your trade secrets.
Freedom to Operate opinions provide the legal assurance that your company can conduct its operations without incurring liability for infringing on the intellectual property rights of others, while minimizing the risk of litigation, damages, and financial setbacks. By pursuing FTO analyses before making significant investments, in complex product development, or when expanding into new markets, businesses can make informed decisions and secure their place in the market.
Understanding and proactively addressing Freedom to Operate issues is an essential component of strategic business planning. By seeking professional legal guidance from specialized IP counsel, your company can navigate the intricate web of intellectual property rights and ensure that they are free to innovate, produce, and expand without fear of legal repercussions. Ultimately, FTO opinions empower businesses to thrive in the marketplace, and realize their potential for growth and success.
This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. The opinions expressed in this article are those of the author only and are not necessarily shared by Dilworth IP, its other attorneys, agents, or staff, or its clients.