Freedom-to-Operate for RDIs: Maximizing the Opinion to Prevent Patent Infringement

So you are a technology transfer officer of a research and development institute (RDI). You’ve learned, after attending numerous intellectual property seminars and workshops the importance of patenting your RDI’s technologies first before disclosing them in public, whether in a conference presentation or through journal publication. Through your initiative, you were able to secure several patents from the Intellectual Property Office of the Philippines (IPOPHL) covering different technologies of your RDI. 

You understand that patents give a limited monopoly in jurisdictions where you want protection for the products of your technologies: Third parties cannot simply use your RDI’s technologies without asking for your permission. This they can do in exchange, of course, for consideration, usually in the form of royalties and licensing fees. If you license your RDI’s patents to them, third parties can produce the goods or make use of the processes and then sell these goods to the end user or consumer. Your RDI’s licensees create revenue from the use of your patents, and, in turn, your RDI also make money from royalty payments.

You then enter into several licensing agreements with licensees, both here and abroad, who were delighted with the prospect of manufacturing and distributing the consumer products from the use of your RDI’s patented technology. Under the terms of the licensing agreements, you warrant the validity of your patents and undertake to keep your licensees free and harmless from any claims, including infringement of competitors’ patents.

The licensees then invest time and money in manufacturing and marketing the patented products. After a year from signing the licensing agreements, your licensees launched the products in the Philippines and in several territories, say Germany, Japan, Korea, the United States, and Australia. The patented products took the market by storm and, in the first year of the release of the products, revenues were made and royalties to your RDI were paid.

Suddenly, the licensees call you saying that they all received a cease-and-desist letter from a competitor claiming that they should stop from further distributing and selling the patented products because they are infringing on competitor’s product, which, apparently is covered by a different but valid patent registered in the name of the competitor (or its exclusive licensor) not only in the Philippines but also in Germany, Japan, Korea, the United States, and Australia.

How could that happen? 

You already assumed that, because patents had been issued by the IPOPHL to your RDI, the protected technologies and the products using the same technologies should be novel, have an inventive step and are industrially applicable. How is it possible that someone is claiming the monopoly to a technology that you have painstakingly developed and protected when patents had already been issued to your RDI? 

Patenting vs. Freedom-to-Operate 

Securing a patent for your product is different from having the knowledge that there is a risk your product will be infringing upon another’s patent in a particular jurisdiction. The first act allows you to protect your technology from being infringed by third parties in the jurisdiction where your patent was issued. The second act can only be managed by getting a report or an opinion from an external expert or counsel (called a Freedom-to-Operate [FTO] report or opinion) that your patented product will not violate issued patented owned by third parties issued in one or more jurisdictions. 

Patents, specifically patented inventions, are technical solutions to problems in any human endeavor. Among the three requirements of patentability, novelty is the most important as inventive step and industrial applicability are no longer relevant if the technology subject of the invention application is not new. Novelty is tested against the closest prior art, which is the published or known technology, whether patented or not, that has the greatest number of structural and functional features as the technology to be patented. The closest prior art usually seeks to address the same technical problem that the invention application wants to solve so the latter must bring some structural or functional feature (or both) that is not found in the closest prior art to be considered new or novel. (Whether this new structural or functional element, when combined with the closest prior art, has an inventive step and is industrially applicable is another story altogether.)

For patenting inventions, it does not matter whether the closest prior art is a registered patent in the jurisdiction where the invention application was filed or just a technical brochure distributed in a trade exhibit. Novelty of an invention is tested against a universal standard of known technologies. However, to determine whether a patented product or process is at risk of infringing someone else’s patent, this must be done in the jurisdictions where such product will be sold or said process will be used. Patents are jurisdictional. 

In our example, if the competitor’s products are covered by patents but were not issued in the jurisdictions where the licensees’ products are being sold or distributed: Germany, Japan, Korea, the United States, and Australia, then there is no infringement to speak of. But if the competitor shows up with patents issued by these offices, then there may be a possible cause for concern.

Closest Prior Art May Be Too Close

Assuming that patents were secured by your RDI not only from IPOPHL but also in Germany, Japan, Korea, the United States, and Australia, an FTO assessment should be conducted in these jurisdictions to check whether the patented product of the RDI will not be infringing any issued patents owned by third parties. The FTO report or a legal opinion that results from this assessment should be secured before the RDI enters into any licensing agreement in the mentioned jurisdictions. Any self-respecting licensee would not want to enter into any agreement over a patented technology without a free-and-harmless warranty from the licensor who owns the patents. 

The RDI will have to turn over the German, Japanese, Korean, American, Australian patents to the expert or external counsel, together with the entire file wrapper for each of the patents coming from these jurisdictions. The file wrapper contains the prosecution history of each of the patents issued by the respective jurisdictions. The details of the exchange between the RDI’s local patent agents and the examiners in these file wrappers will reveal how the RDI managed to traverse the patentability objections raised by the latter on behalf of their respective patent offices. More importantly, for the purpose of the FTO assessment, the prior art used by the examiners can be easily seen from the file wrapper. 

The expert or external counsel can then study if the prior art cited by the examiners are (i) patent documents, (ii) if they are, whether these are registered and still active in the jurisdiction under consideration; and (iii) if these patents are owned by someone else (it is possible that the RDI’s own earlier registered patent in that country is the closest prior art). If the closest prior art is a registered and active patent owned by another entity, the expert or external counsel will then have to compare what extent the structural and functional elements of the Claims of the registered patents can be read in the RDI’s patent. (Claims define the scope of protection provided by a patent.) If there are overlapping elements between the Claims of the registered patents and the patent subject of the FTO, these elements are potential sources of risk of infringement on the part of the RDI, especially if these are essential for the RDI’s patented product to function. This assessment is particularly useful for non-chemical fields like electronics, communications and automotive industry where innovation is dependent on past inventions. No one can reinvent the wheel.

If the patents of your RDI are from the chemical fields like biotechnology and pharmaceuticals, it is more probable to have no overlapping elements as interactions between molecules and compounds and the effects of the use of the combination of these molecules and compounds are unpredictable. An FTO assessment with remote risk of infringement is highly likely in these fields.

(Given the jurisdictional nature of patents, the RDI may have more peace of mind if the FTO will be conducted by experts or counsel who are practitioners in the listed jurisdictions.)

Thinking Out Loud

Now that overlapping elements have been identified after an FTO assessment has been done, you, as the technology transfer officer of the RDI, will have to decide before you enter into any licensing agreement whether the RDI will assume the risk of infringement or pass this along to your licensees. And because it does not make any business sense to pass the risk to your licensees (who would want to do business with a licensor who would not give a warranty?), you will have to see whether the RDI will enter into a licensing agreement now or build and secure enough patents around the technology so that the RDI will be in a better position to license and cross-license future patents with the owners of the overlapping patents. Getting more patents will not only eradicate the risk of infringement but will give the RDI more freedom of action to move around with its own patented (and soon-to-be licensed) products in a given jurisdiction.