What is a Freedom-to-Operate Analysis and Why is it Important Before Investing in an Emerging Technology Company
What is a Freedom-to-Operate Analysis and Why is it Important Before Investing in an Emerging Technology Company
By George Likourezos, Esq. Carter, DeLuca & Farrell LLP, Partner, Intellectual Property Attorney
A freedom-to-operate (FTO) analysis, also known as an infringement analysis, right-to-use analysis or clearance analysis, is a legal assessment conducted to determine whether a product, process, or technology infringes on existing intellectual property (IP) rights, particularly patents. The analysis aims to assess the risk of potential legal disputes or infringement claims that may arise from commercializing or using a particular technology. As such, before deciding whether to invest, a prospective investor of an emerging technology company should perform an FTO analysis to determine (1) if there are any risks of infringement in commercializing the technology, (2) if IP owned by third parties needs to be licensed to commercialize (if the third parties are willing to license the IP), and (3) if there are ways to design around existing IP the technology may be infringing.
During an FTO analysis, the following steps are typically performed:
1. Identify Relevant Intellectual Property: The first step is to identify relevant patents, trademarks, copyrights, or other IP rights that may be applicable to the technology or product in question. This involves conducting a comprehensive search of existing patents and other public IP databases.
2. Evaluate Claims: Once relevant IP rights are identified, the next step is to assess the claims made in those patents. Claims define the scope of protection granted by a patent and describe what aspects of the technology are covered. The analysis involves interpreting the claims and comparing them to the product or technology being evaluated.
3. Assess Potential Infringement: Based on the interpretation of the claims, the FTO analysis evaluates whether the product or technology potentially infringes on the identified IP rights. This assessment considers both literal infringement (where the product directly matches the claims) and the possibility of infringement under the doctrine of equivalents (where the product has minor differences but still performs essentially the same function).
4. Identify Risks and Mitigation Strategies: The analysis aims to identify potential risks associated with the identified IP rights and determine the strength of the IP claims. If the analysis indicates a potential infringement, the next step is to assess the potential consequences and explore strategies to mitigate the risks. This may involve modifying the product or technology, seeking a license from the IP owner, or designing around the existing IP.
5. Documentation and Reporting: A comprehensive FTO analysis should be well-documented, including the identification of relevant IP, analysis of claims, assessment of infringement risks, and proposed mitigation strategies. This documentation is crucial for legal purposes and helps inform decision-making.
FTO analyses are typically conducted by experienced patent attorneys or IP professionals who have expertise in patent law and infringement analysis. It is essential for businesses and individuals to conduct FTO analyses before commercializing a product or technology to avoid potential legal disputes and ensure freedom-to-operate in the marketplace without infringing on existing IP rights. It is also essential for investors to conduct FTO analyses before investing in a technology company, since the technology may be unique and novel, but not outside the scope of coverage of enforceable IP rights owned by others.
Remember that investing in technology companies carries inherent risks, so it is advisable to consult with financial and legal professionals to ensure a comprehensive assessment of any potential investment opportunity.
A resource you can consider as an investor in conducting FTO analyses is the intellectual property law firm of Carter, DeLuca & Farrell. Carter DeLuca can also provide guidance and representation to technology companies as they build and expand their intellectual property portfolios. Carter DeLuca has assisted hundreds of companies scale and grow, avoid patent infringement, identify investors, and protect their intellectual property, and has also assisted many investors in making informed business decisions when investing in technology-based companies.
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