The financial risks of being found liable for patent infringement are astronomically high
Developing a strategy for the development, production and the final launch of a new drug is a matter of predicting developments of the product in the market in the near future and also minimizing risks. A huge risk for any firm, particularly in the pharmaceutical industry, is that commercializing a new product may be thwarted by a competitor holding a patent over a technology that is used in the new product. In some cases, there may be blocking patents that are imperative for meeting certain technical standards or for developing certain kinds of products.
In such a case, if a company fails to get prior authorization from the patent owner, the financial risks of being being liable for infringement are astronomically high. This is the reason why early in the process of novel research or development of generic drugs, branded and generic pharmaceutical companies alike conduct freedom to operate, or FTO, searches.
An FTO search ensures that commercializing the product does not breach the intellectual property (IP) rights of others, which have evolved over the last few decades, with one goal in mind: to protect someone’s idea from being imitated by different forms of IP rights, such as copyrights, trademarks, or patents.
In today’s pharmaceutical world, a myriad of specialized R&D professionals purely focus on creating and preserving IP, which can be commercialized in a profitable way. An important feature of this effort is getting an FTO.
Purposes of conducting an FTO search
An FTO search may be conducted for a number of reasons:
- Evaluate infringement risks
A primary reason to conduct an FTO search is to identify party patents which might be infringed if a technology is commercialized.
- Identify licensing requirements and opportunities
An FTO search reveals patents for which licenses need to be acquired in order to commercialize a technology. Patents held by competitors which are essential for commercializing a technology can be road blocks in commercializing a technology.
- Provide information on R&D activities
Such a study may also reveal patents that may not be crucial for commercializing a technology, but may be violated if technology is not adjusted to work around such patents. Identifying such patents can allow R&D teams to design process/products in such a way that the patents do not get infringed.
What is the right time to conduct an FTO search?
The perfect time to conduct an FTO search depends on a number of factors. If a search is conducted at a premature stage, such as during the early stages of conceptualization of a technology, the final technology may emerge in unanticipated ways and most of the FTO search may not be applicable. Furthermore, a very early examination cannot properly evalualate the risk, since the patent landscape and the market requirements may change. Waiting too long to carry out a search may also pose a problem, as a project may be too mature to be changed.
To resolve such issues, a moderately early FTO search is recommended to manage R&D investments.
Clearing basic hurdles
An FTO search based on patent literature is only the maiden step. If a patent search shows that one or more patents do restrict a firm’s FTO, the firm has to decide on how to move forward.
Assuming that the abandoned patent is valid, here are some options to consider:
- Buying, or licensing, a patent
A company in need of an important patent, which it does not own, can appeal to the patent holder to either license the patent or sell it outright. In some cases, a controlling patent, or specific uses of a patent, may not be a priority for the licensor, so allowing another party to use it can be a revenue opportunity.
The convenience of a licensing agreement largely depend on the terms and conditions. While there can be a likelihood of loss of autonomy, with the patent holder requiring payment of periodic royalties and/or an up-front fee, it can be the simplest way to ensure FTO to commercialize a product or technology.
- Cross licensing
Cross licensing involves two or more firms exchanging licenses so that they can use each other’s patents.
An example of cross licensing took place in September 2003 when Amgen, Enzon Pharmaceuticals and Cambridge Antibody Technology, signed a non-exclusive cross licensing agreement. According to the agreement, all three parties obtained considerable FTO, enabling the companies to research and build a number of diagnostic and therapeutic antibody-based products.
- Patent pools
This involves a structure where two or more firms practicing similar technologies put their patents in a “pool” in order to establish a clearinghouse for patent rights. Patent pools are normally built to use the technology of others without bearing any expenses associated to R&D.
- Inventing around
As the name suggests, “inventing around” indicates boosting research, or making amendments to the process or product in order to prevent infringement on the patent owned by another company. For instance, if FTO is restricted by a process patent, it may be able to develop a non-infringing process and avoid paying a licensing fee.
An FTO search is a fundamental part involved in determining IP strategies. A productive FTO search involves taking into account the right information for search, using exhaustive search strategies, and a complete review of important references. An FTO study may not guarantee a completely free landscape, but it does alleviate risk to a considerable extent by revealing opportunities to acquire patents, to work around patented processes, to cross license patents, and to identify weak patents for invalidation.