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Editor-in-Chief, Anatole Krattiger
Key Implications and Best Practices
Summary and Overview
Krattiger A, RT Mahoney, L Nelsen, JA Thomson, AB Bennett, K Satyanarayana, GD Graff, C Fernandez, and SP Kowalski. 2007. 14: Freedom to Operate and Risk Management. In Executive Guide to Intellectual Property Management in Health and Agricultural Innovation: A Handbook of Best Practices (Krattiger A, RT Mahoney, L Nelsen et al.). MIHR (Oxford, UK), PIPRA (Davis, USA), Oswaldo Cruz Foundation (Fiocruz, Rio de Janeiro, Brazil), and bioDevelopments-International Institute (Ithaca, USA). Available online at www.ipHandbook.org.
© 2007. A Krattiger et al. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncommercial purposes is permitted and encouraged.
Freedom to operate (FTO), a simple and straightforward concept, means that for a given product or service, at a given point in time, with respect to a given market or geography, no intellectual property (IP) from any third party is infringed. But to translate this concept into a productive strategy for companies and for public sector institutions alike is not so straightforward.
For public sector organizations, the opportunities presented by incorporating FTO considerations into product development strategies are numerous. These may include benefits through higher competitive intelligence, the ability to bring about culture change, and the forging of strong partnerships with providers of intellectual property and technology. An FTO strategy, therefore, is a plan that begins with research into the IP landscape of a potential product and evolves into an attitude through a product’s R&D and commercialization/distribution cycle. Krattiger discusses these policy and strategy elements in detail.1 It is useful, however, to first consider how FTO analyses are conducted before reviewing the principal FTO strategies.
At the beginning of a research project, a company would typically consider scientific feasibility, the effect of the research on the organization’s business position (whether or not the research and the product would eventually strengthen its competitive position), the project’s impact on financial status in terms of costs and potential rewards, and legal aspects (such as infringement risks). That is where an FTO analysis comes in as an initial, cursory, or quite possibly detailed, overview of the patent landscape and competitors’ positions. Hence an FTO analysis need not be a costly legal FTO opinion (note that an FTO opinion is rendered by patent counsel whereas an FTO review can have any level of legal review, or none). Rather, an FTO analysis is an assessment of the set of patents and other IP rights that are or would be connected to the product and/or method under consideration. Kowalski2 outlines in detail how different levels of FTO analyses are conducted in practice. Addressing scientists, business people, and legal staff, he describes how products and/or methods are broken down into fundamental components, processes, and combinations thereof, and then how each component is carefully analyzed for attached IP rights of third parties. An FTO analysis, irrespective of the level of detail, requires good preparation, systematic review, and rigorous record keeping.
Although FTO is often viewed as simply a legal issue, when approached from a more practical product-development perspective, FTO is a strategic risk-management tool; it relies on a synthesis of scientific and legal expertise, business development, and strategic planning. FTO for a given product in a given market is difficult to achieve because it can never conclusively be established. Obtaining FTO, therefore, becomes a strategy, or even a position, mindset, or culture. This is because the patent landscape is dynamic: new patents issue; old patents expire; some patents are abandoned. Therefore, freedom to operate does not imply absolute freedom from the risk of infringing another party’s intellectual property. Whether or not FTO exists is an assessment based on the analysis and knowledge of IP landscapes for a given product, in a given jurisdiction, at a given point in time. This statement underscores a critically important principle: there can be no risk-free decision.
FTO is thus a concern that remains throughout the R&D process, to commercialization and even afterward. By setting a goal of having reasonable FTO, a set of ten FTO strategies for managing potential IP infringement are proposed and discussed in detail by Krattiger in Chapter 14.1 (Table 1). In practice, typically two or more of these strategies will be adopted, with the specific mix of strategies varying. Which strategies will be appropriate depend on, for example, how advanced the product is, the type of organization that develops the product, and relevant market dynamics. And not all of the listed strategies are feasible for public sector institutions.
How much attention should a public sector organization give to FTO? Since some public sector research is not directly intended for commercial use, the answer is sometimes quite simple: Not much. This condition certainly applies to a great deal of university research. However, if the project is specifically aimed at product development, a goal that is becoming more prevalent in the public sector, then FTO becomes a concern. For example, through collaborations with product-development partnerships (PDPs), the primary reason for funding the research is to develop products to help the poor. Such is the case also for the research centers of the Consultative Group on International Agricultural Research (CGIAR) and for many national agricultural research systems (NARS). Universities, too, are shifting their research focus; some manage their innovations in novel ways and aim to bundle technologies and intellectual property in order to license “solutions” rather than individual patents.
A relevant example of the importance of the public sector managing FTO is the development of Golden Rice.4 No attention was given to FTO until the first material was nearly ready for transfer to developing countries. The Rockefeller Foundation then commissioned an FTO analysis that demonstrated, first of all, how many inventions from scientists around the world enabled— or accelerated—the development of Golden Rice. Although a large number of patents—and patent applications—were identified, the FTO analysis also demonstrated that licenses to only a few would be required for the transfer to and use of Golden Rice in developing countries. The FTO analysis provided a list of primary owners of patents (and of materials that went into Golden Rice under material transfer agreements) for which licenses were needed. With the leadership of the Rockefeller Foundation and Syngenta, a large agro-chemical company headquartered in Switzerland, the relevant intellectual property was quickly assembled (or in-licensed) into a package. That package then was licensed, essentially royalty-free, to public sector institutions in developing countries. This approach, in essence, represents the various aspects of FTO, from analysis to strategy, to action.
Each of the ten strategic approaches to obtain FTO listed in Table 1 presents certain risks and opportunities. Any action—including the decision not to take action—carries risk. Delaying the licensing of third-party intellectual property, for example, could lead eventually to expensive licensing terms, the inability to obtain a license, or the possibility of being sued for patent infringement. For some organizations, such as those developing genetically modified crops (GMOs), the opposite may be the case (where it might be advantageous to delay in-licensing) due to stewardship issues that are the main concern with biotechnology crops. Krattiger concludes his discussion, in Chapter 14.1, by urging the public sector to:
- judiciously evaluate whether and when FTO concerns should be considered
- build in-house capacity to conduct patent searches and cursory FTO analyses (as opposed to legal opinions)
Source: Krattiger, 2007.3 The original table in Chapter 14.1 also includes a column listing the key challenges for the public sector for each of the ten strategies.
One of the underlying “technologies” for conducting an FTO analysis is the patent search. Such searches are also relevant when an institution is deciding whether to file a patent on a new invention (meaning when one is searching for prior art) or when scientists want to review patent literature. Fortunately, many IP search tools are accessible online at no cost. The chapter by Thangaraj, Potter, and Krattiger5 provides a “guided tour” of online patent search engines, including a description of the major ones:
- the European Patent Office (EPO’s esp@ cenet)
- the U.S. Patent and Trademark Office (PTO)
- the Patent Cooperation Treaty (PCT) Web interfaces of the World Intellectual Property Organization (WIPO)
In addition, the chapter reviews subscription-based services and other paid services, such as Delphion and Derwent World Patent Index (DWPI). Although the discussion is by no means exhaustive, the chapter lists links to many useful sites.
The chapter by Fenton, Chi-Ham, and Boetiger6 provides an examination of how the private sector thinks about FTO. Offering a comprehensive overview of the FTO process, the chapter sheds light on when to invest in FTO analysis and highlights the important role played by law firms in obtaining FTO. As mentioned earlier, for the public sector the strategic relevance of FTO is quite different from that of the private sector. Even when the public sector intends to commercialize products, its mission and goals differ from those of the private sector, and deciding when to pursue FTO becomes a very different question. Nonetheless, given the growing number of public-private partnerships, it is important for the public sector to understand how private companies approach FTO issues. This chapter discusses both private- and public-sector considerations for deciding whether, when, and how an FTO analysis should be conducted.
FTO analysis defines options; it provides a map of the relevant IP landscape. Hence, an FTO analysis presents the most viable options for achieving institutional goals. Fenton and colleagues conclude their discussion with a case study of an FTO analysis initiated by the Public Intellectual Property Resource for Agriculture (PIPRA). The case study explains the process used by PIPRA, from defining the scope of the investigation, to the delivery of the findings.
In the last chapter of Section 14, Boadi7 looks at the aspect of FTO that includes legal liabilities beyond intellectual property and, appropriately, considers stewardship as the central tool to managing liabilities. The legal framework for dealing with liability relies on the country, or legal jurisdiction, in which the intellectual property is being exploited. Even so, GMOs (and indeed non-GMOs) have the potential to cross national borders. This has led to intense debate about whether a liability regime specific to such organisms and crops should be created. Providing an overview of current common law and statutory theories of liability, the chapter considers liability issues facing public sector efforts to develop and disseminate agricultural biotechnologies.
While debate rages about liability and redress issues contained in the Cartagena Protocol on Biosafety, developing countries need to think carefully about how to manage liability today. Referencing the African Agricultural Technology Foundation (AATF), Boadi provides several liability-management practices that can be of great value, including:
- ensuring compliance with intellectual property, license, and regulatory requirements
- including indemnification provisions in technology transfer agreements
- using warranty disclaimers
- obtaining letters of nonassertion
- adhering to appropriate technology stewardship best practices
Already, innovative developing countries (or IDCs), including India, Korea, China, Brazil, South Africa, and others are embracing novel opportunities provided by the new global IP regime. Having established technology transfer offices (TTOs) for organizations in both the public and private sectors, these countries have overseen the controlled, streamlined transfer of crucial technologies, often with clear public benefits. Such efforts, of course, require investments in both infrastructure and personnel to in-license, out-license, and ensure that investments in product development are accelerated through appropriate FTO considerations during the R&D process and beyond.
1 Chapter 14.1 by A Krattiger titled Freedom to Operate, Public Sector Research and Product-Development Partnerships: Strategies and Risk-Management Options, p. 1317.
2 Chapter 14.2 by SP Kowalski titled Freedom to Operate: The Preparations, p. 1329.
3 See supra note 1.
4 See Case Study 3 by A Krattiger and I Potrykus titled Intellectual Property Management and Freedom to Operate for Golden Rice in the insert of this Executive Guide, p. 11-14.
5 Chapter 14.3 by H Thangaraj, RH Potter, and A Krattiger titled How and Where to Search for IP Information on the World Wide Web: The “Tricks of the Trade” and an Annotated Listing of Web Resources, p. 1345.
6 Chapter 14.4 by GM Fenton, CA Chi-Ham and S Boetiger titled Freedom to Operate: The Law Firm’s Approach and Role, p. 1363.
7 Chapter 14.5 by RY Boadi titled Managing Liability Associated with Genetically Modified Crops, p. 1385.