Gregory Stephens, RD & Marina Volin04.01.07
Understanding Your ‘Freedom to Operate’
Comprehensively reviewing the rules and requirements as they pertain to intellectual property.
By Gregory Stephens, RD & Marina Volin
Since 1971 the term “nutraceutical” has been referenced in 684 U.S. patents, 2088 published U.S. patent applications and 1907 published PCT patent applications. In this same timeframe, “glucosamine” alone has been referenced in 810 issued patents. With the proliferation of intellectual property protection in the nutraceuticals market, the development of new, more sophisticated products is becoming a complex process increasingly wrought with risk. The following discussion summarizes steps to evaluate “freedom to operate” in this rapidly growing nutraceuticals market and discusses related intellectual property issues that require attention prior to launching a new product.
Commercialization Considerations
A major risk for the marketer of a new product is that commercialization may be blocked by a competitor holding a patent covering an ingredient or a technology that is incorporated in the new product. In this situation, without a license or authorization of the patent owner, the developer runs a risk of infringement. Therefore, early in the new product evaluation process the marketer must take steps to minimize the risk on infringement by securing their “freedom to operate” (FTO). Some background patent law is helpful to understand before assessing FTO risk.
A patent is a limited grant of rights to exclude others from making, using, selling or importing the patented product, process or improvement thereof into the U.S. It is a limited right because there is a limit on lifespan, geographic area and the scope of claim coverage, all of which define the boundaries of the right to exclude.
The protection afforded by a patent has a limited duration. The patent term begins on the date of issue and lasts for a maximum period of 20 years from the filing date, provided the patent is “maintained” for the entire period by timely payment of maintenance fees. Maintenance fees are payable at 3.5, 7.5 and 11.5 years from the date of issue and if not paid, the patent will expire or become abandoned the day after the deadline. In some situations, extensions beyond 20 years are available to recapture the time lost due to delays in administrative procedures (e.g., obtaining a required FDA approval). Upon the expiration of the patent term, a patent is considered to be in the public domain and may be freely used by anyone.
Patents also have a limited geographic territory—specifically, they are limited to the geographic area of the country of filing. For example, a U.S. patent is enforceable only within the U.S. and its territories. The invention is free to be used by anyone in countries in which the patent is not registered. Companies generally make strategic decisions about key markets for their technologies and select the countries in which they will seek patent protection accordingly. Thus, technologies may be protected in a company’s key markets, but not in the countries where commercialization is less likely. In the latter countries, no permission or license will be needed from a patent owner to commercialize the technology.
A common misconception involves confusing a published international application filed as Patent Cooperation Treaty (PCT) for an international patent. There is no such thing as an international patent and a publication of a patent application is not a patent either. A published international application does not have a right to exclude as the patent does. Unless further steps are taken to pursue the filed international application in PCT member countries, the application will not mature into a national patent.
Obtaining a license from a patent owner minimizes the risk of being accused of infringement. However, prior to signing the license agreement, the developer should obtain an independent assessment of the licensed patent. A due diligence analysis conducted by a patent attorney will provide an assessment of the extent of the rights offered by the license and may be used as a bargaining chip in negotiating the license terms. In this analysis, the limits on lifespan, geographic area and the scope of claim coverage on the patent as discussed above will be assessed.
Another issue worth mentioning is the ownership rights. That is, who owns the rights protected by a patent? U.S. law presumes that an inventor owns the patent without an agreement stating otherwise. It is important to point out that joint inventors each own an undivided interest in the invention and may assign this interest independently of each other. An inventor may have an obligation to assign the invention to his employer based on an employment contract. To give a public notice of such assignment, it is recorded in the USPTO and is accessible to the public. Inquiring into the ownership of a patent is paramount in making decisions regarding obtaining the license and the ensuing freedom to operate.
After the new product developer obtains the due diligence opinion and subsequently signs the license agreement, does he still need to be concerned about freedom to operate with regard to the licensed patented ingredient? The short answer is yes. There is a difference between licensing patent protection for a product and actually selling the patented product. Owning a patent confers no rights to the patent owner to use, make or sell the product. There may be others, who may own a patent for a related technology, which may have broader claims. In this situation, use of the licensed ingredient may infringe on a patent with broader claims.
Two patents cannot be issued for the same invention; however, one may obtain a patent for a species (a narrower claim) even if there is an existing patent for a genus (a broader claim), if one can show that the species has unexpected properties.
In this situation, a patent claiming a genus (broader claim) would be dominating. In order to practice the invention that relates to the species, a license is required. The opposite is also true—the owner of a patent with a broader claim would not be able to practice the invention that relates to the patented species (narrower claim). In Figure 1, ‘A’ represents the genus and ‘B’ the species. When ‘A’ and ‘B’ do not intersect, no permission to practice is required from the respective owners. However, when ‘B’ falls within ‘A’, to practice the licensed technology the marketer of ‘B’ may also be required to obtain a license from the owner of ‘A’. This is called cross-licensing.
Evaluating Your Freedom to Operate
What is freedom to operate and what should the new product developer do to evaluate his/her freedom to operate? The Freedom to Operate (FTO) is a legal opinion, which involves a comparison of a product or process to a patent claim. It entails searching for issued or pending patents related to the product in question and analyzing the claims.
Searching for patents can be conducted by anyone utilizing the United States Patent and Trademark Office (USPTO) website (www.uspto.gov). However, in most situations the comparison should be conducted by a patent attorney because it involves comparing the product, ingredient or process to a patent claim, evaluation of claim scope, and study of prosecution history.
Although a patent includes a specific description of the invention, only the subject matter of the claims can be infringed. The claims of a patent, which are at the end of the specification, define the boundaries of the patented invention. A patent claim, therefore, defines the exact boundaries of the invention so that others will know the extent of the exclusivity given to the patentee and would be able to avoid infringing. Under U.S. Law (35.U.S.C. 271(g)), it is an act of infringement to import, sell, offer to sell for use in the U.S. a product that was made abroad by a process patent protected by a U.S. patent. However, that provision of the statute does not apply if the product made by the patented process is “materially changed by subsequent process” before it is imported.
Obtaining FTO analysis based on the search of patent literature is only the first step. If the patent search reveals that there are patents that limit your freedom to operate, you will have to decide how to proceed. Some of the most common strategies for acquiring freedom to operate include the following:
Obtaining ownership rights by assignment or in-licensing. License is an authorization from the patent holder to use the patented technology for specified purposes, in specified markets and for a specified period of time. The value of such an agreement will depend on the terms and conditions of the proposed license. While there may be risk of some loss of autonomy in the license agreement and the patent holder will require compensation (lump sum and/or royalty payments), this may be the most expeditious route to market.
Cross-licensing. Cross-licensing involves exchanging licenses by two companies in order to be able to use certain patents owned by the other party.
Inventing around. In this alternative, one may operate around the invention. This implies making changes to the product or process in order to avoid infringing the patent(s) owned by others. For example, if one’s freedom to operate is limited by a process patent, then it may be possible to develop an alternative process for making the same or similar product and thus be able to market the product without having to pay royalties under a license.
Patent pools. A patent pool is a mechanism by which two or more companies practicing related technologies combine their patents in a pool to establish a clearinghouse for patent rights. Patent pools are not well known in food and nutraceuticals; most known examples exist in the electronics industry where companies share technologies that are required to comply with DVD standard specifications.
In the End…
Is the FTO opinion a bullet-proof opinion? The FTO opinion does not provide an absolute certainty because under most circumstances, unlimited time and resources are not available to conduct an exhaustive patent search. However, if an infringement suit is brought against your company, the FTO opinion by a patent attorney may protect you from a verdict of willful infringement and help lower the risk of paying damages.NW
Note: This column was written in collaboration with Marina Volin, a patent attorney in the Intellectual Property law firm of Caesar, Rivise, Bernstein, Cohen & Pokotilow, Ltd., which is based in Philadelphia, PA. Marina’s practice includes all aspects of intellectual property law, including trademark and patent prosecution in a wide variety of disciplines, including the nutraceutical, chemical, biotechnological, pharmaceutical and medical device industries. She is a registered patent attorney licensed to practice before the United States Patent and Trademark Office and admitted to both the Pennsylvania and New Jersey Bars.