Third Party Intellectual Property

A common misconception is that ownership of IP associated with a product gives an automatic right to make and sell that product.  However, IP rights such as patents and registered designs are best viewed as „negative‟ rights, which allow the owner to prevent other parties from using the invention or design. They do not provide an automatic right to practice the invention or to use the design.

When developing a new product for sale, it is therefore important to check to see whether any third parties hold IP rights that could prevent you from commercialising the product. Such checks are generally referred to as “freedom to operate” (FTO) studies. 

Failure to perform adequate FTO studies can have serious consequences, as follows.

  • Sales (etc) of product could infringe one or more IP right held by a third party
  • Risk of legal action against you, which could be expensive and time consuming and in a worst case scenario require you to come off the market 
  • There can be enormous reputation damage if you are forced to cease supply to your customers following a finding that you infringe a competitor‟s IP rights
  • There is a significant financial risk: you may need to pay damages if a third party successfully establishes that you infringe its IP

To avoid these risks, it is important where appropriate to (a) perform adequate FTO studies and (b) clear the way for commercialisation of any new product or process by ensuring that you will not infringe any IP rights uncovered in such FTO studies.

These matters are discussed in more detail below.

FTO Searching Strategies

Conducting a proper search and reviewing the results takes some time, so aim to start work as soon as possible after you have designed the relevant product or service (and the intended branding for it) and you are reasonably certain that you intend to commercialise it. IP rights are territorial, and you will therefore need to define your FTO search strategy with reference to the countries in which you plan to commercialise your product or process. If you are only planning to sell a product (for example) in the EU, there is no need to search for US IP rights.

There are a number of free databases which allow keyword based searching for registered IP rights (e.g. www.espacenet.com). However, for a comprehensive search there is no substitute for involving a searching professional to investigate registered IP Rights. Searching professionals often work with patent and trade mark attorneys here, whereby the searcher picks out patents and trades marks that look more relevant, and passes those cases to the patent and trade mark attorney for further consideration.

The output of a FTO study might be the happy conclusion that no registered IP rights exist which are relevant to your commercial plans. More usually, though, there will be a handful of pending or granted IP rights which could constitute an infringement risk.  These rights need to be considered further. 

The searcher and attorney should be provided with full details of the intended activities, e.g. if it is a product then provide details of the method of manufacture and any key intermediates used in its preparation so that these can be considered too. It is also generally advisable to seek local attorney advice for reviewing any key IP rights as the interpretation and scope of an IP right can vary depending on the jurisdiction. If you find IP rights covering your intended activities, it may also be worthwhile getting the attorney to investigate their validity in case there are reasons why the IP right may not be valid in a relevant respect (which might not have been noticed by the Office that granted it).

Clearing the Way 

When considering potential relevant third party IP rights, there are basically four options:

  1. Ignore the rights
  2. Secure a licence under the rights
  3. Design around the rights
  4. Challenge the rights

These options are discussed briefly below.

  1. Ignoring potentially relevant IP rights can be very risky. It can sometimes be the right business decision to launch at risk, but the management team needs to clearly understand the risks involved. In one case involving pharmaceuticals, a company launched a generic version of a drug at risk, and were on the market for only 24 days.  They were required to pay damages of USD 442 million and legal costs of USD 0.9 million following litigation for patent infringement.
  2. If a licence is available, this can obviously provide a speedy solution to the risk of infringement. Having your own IP portfolio can assist with licence negotiations, in that you may be in a position to offer cross-licences as part of any deal.
  3. Another solution is to modify your product, process or brand such that the IP rights at issue are no longer relevant. If this approach is taken, consider securing your own IP to cover your modified product, process or brand. That will require competitors to find a different (and hopefully less convenient) solution to the problems you have overcome.
  4. It is possible to challenge the validity of registered rights before a Patent Office or a Court. There are various options here, depending on the budget available and the timescale within which a result is required.

Role of the IP Profession

The IP profession can advise on the extent of FTO searching that you may wish to undertake, carry out the searching and analysis for you, and advise on options for dealing with any potentially relevant IP hurdles uncovered. 

11 June 2013

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