Startups and Freedom to Operate

Freedom to Operate

Our IP expert Ingrid addresses important questions on FTO analysis in technology startups.

In my role at early-stage venture fund IST cube, I have the privilege of exchanging with dozens of academic researchers every year who are working on spinning out deep tech and life sciences technologies from research institutes and universities. Given my background as a patent attorney and technology transfer professional, I am naturally drawn to inspecting the intellectual property (IP) situation surrounding these technologies.

Most founders have given significant thought to IP protection for their technology, including an assessment of the strength and scope of any proprietary patent rights, and understand the significance of securing rights to key IP. However, it is a rare occurrence to come across a founder team that appreciates the need to determine the risk of infringing patents held by third parties, through conducting a Freedom to Operate (FTO) analysis. Failure to carry out an FTO analysis at an early stage can lead to unpleasant and potentially expensive surprises down the road.

A typical conversation with a founder might go like this:

Me: “Tell me a bit about the patent landscape — are you aware of any patents belonging to others that might stand in your way?”

Founder: “The patent office didn’t find anything, so the university Technology Transfer Office told me it should be fine.”

Me: “Let me make sure I’m clear on this — the patent office did a search on your own patent application and didn’t find any prior art patents that caused you concern.”

Founder: “Yes, that’s right.”

Clearly there is a lot of confusion around the scope and meaning of a FTO search and how it differs from a prior art search.

Prior art searches vs FTO searches

A prior art search on a patent application can certainly reveal problematic third party patents, but it is limited in scope because it is specifically directed to identifying novelty-destroying publications or those relevant to inventive step for the patent claims on file: i.e. it will only identify those patents that are closest in technical terms and field to the searched patent claims, it will only look at patents filed before the patent application’s filing date, and it will not address any aspects or elements of the potential product or service that are not covered by the patent application’s claims.

A genuine FTO search will aim to identify any and all patent rights that could present a commercial hurdle, i.e.

  • in countries of interest
  • whatever their date of filing (as long as they could be in force); and
  • with pending or granted claims that ostensibly cover the product/service or any part or aspect thereof.

This requires a different search strategy from a prior art search. Once the FTO search has been conducted, an in-depth analysis will tease out any truly problematic patents from an infringement perspective. A validity assessment can try to predict the likelihood of patent claims being upheld in court.

Who should conduct FTO searches and analysis?

In my view, FTO search and analysis is best conducted by experts in this field, namely professional patent searchers with the appropriate technical background who are good at listening to startup founders, since understanding the client’s commercial intentions is extremely important in defining the scope of the search. A typical search will throw up hundreds or thousands of possible hits, so an FTO searcher will need to exercise judgement in filtering those results.

In the ideal case, professional searchers work in a team with patent attorneys who can advise on potential infringement and patent validity issues to give startup founders practical advice and guidance.

When is the right time to conduct a FTO search and analysis?

A full FTO analysis on a deep tech technology for an early stage (pre-seed or seed) VC investment would be premature in most cases, as many aspects of the intended product or service will only be defined several years into the future (this is why a FTO search by a university Technology Transfer Office would be unusual). I normally encourage founders to do their homework first, using simple keyword or competitor name searches in public patent databases such as Espacenet to start the process. After a first professional FTO search and analysis (at the latest prior to a Series A round), the FTO requires periodic attention and updating as the patent landscape evolves and the startup’s commercial plans are refined.

The right time to start an FTO analysis is also dependent on the context, and in this respect the coronavirus pandemic has led to a unique situation.

A myriad of startups has been set up on the back of SARS-CoV-2 related technologies, and these companies have been dutifully filing patents to protect their innovation (in the face of patent waiver threats).

As I write, hardly any of those patent applications have been published — even early-bird applications filed as the crisis took hold in January 2020 would be published at the earliest in July 2021. Interesting times are coming, when it starts to become clear which exclusivities have been carved out, and who will be able to claim dominant rights in case of overlapping inventions.

Startups in this arena would be well advised to keep a very close eye on the emerging patent situation — starting now — and partner with trusted IP advisors to ensure that the company can anticipate and mitigate FTO risks.

Image Credit: Salvatore Iovene (CC BY-NC-SA 2.0)

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