Identification of third-party patents

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1 Freedom to commercialize 9.3 However good your idea, you must make sure you have a clear path to market, say Nicola Baker-Munton and Hannah Kendall at Stratagem IPM Owning a patent does not grant a company the right to commercialize free from any threat of infringement of third-party rights. Third parties may have patent coverage that dominates your position and the onus is on you to identify these and avoid them, challenge them or take a licence! Failure to do so has a number of possible consequences; the most likely for an early-stage company is that such third-party rights are identified during the due diligence associated with fund raising and the investors refuse to invest or beat you down on value. At a later stage you risk a law suit and the very significant costs of mounting a defence. Under the law and in summary, a person infringes a patent in a particular territory, if, without the consent of the patent owner, he or she manufactures or sells product or uses a process. Innocence and/or ignorance of a relevant third-party patent is not a valid defence in infringement proceedings. It is therefore vital that as part of any development plan for a product or process, freedom-to-commercialize analyses should be undertaken, or at least a risk assessment carried out, on each and every aspect of a product, its production methodology, its formulation and its use or the process steps. Carrying out these analyses early in development can help to avoid costly development being wasted on products or processes that are the subject of someone else s patents. It also gives the company an opportunity to devise non-infringing products and processes which are free from third-party coverage or obtaining a licence to proceed. It is also important to note that no amount of freedom-to-commercialize search and analysis can prevent an aggressive competitor from using the patent system as one of its routes to thwart a company s business, but clearing the path to market and being aware of what a competitor has in its armoury is not only vital for the company but usually a pre-requisite to secure investment. Identification of third-party patents Third-party patents should be identified by specific patent searches undertaken by a specialist with expertise in searching the relevant patent databases. Searches may

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3 Freedom to Commercialize 205 focus on keywords, classification, structures if the technology is chemistry, sequence searching where sequences of proteins or nucleic acids are involved, or company and scientist names known to be active in the field. The databases used are of great importance as they need to be comprehensive and not merely representative if all potentially relevant documents are to be found. Consideration should be given to whether the searching should be geographically limited; a search covering UK, EP, US and PCT publications will generally identify all potentially relevant families as these key territories are almost always designated. The searches will require analysis, sometimes by both patent attorneys and scientists, to determine whether any documents warrant further scrutiny for claims that might pose a threat. As part of the search process, a consideration of costs vs benefits needs to be taken into account. The more quality information that can be searched means that the resulting answer set is likely to be far more comprehensive and relevant. However, this is likely to increase costs. Low-cost options may lead to the risk of an incomplete search and key third-party patents may be missed, resulting in an increased risk of expensive litigation and potential damage to business. A search budget needs to be carefully considered when assessing the level of risk proportional to investment. It should always be remembered that however comprehensive a search may be, there will be instances when not all relevant third-party patents are identified, and as such there can never be absolute certainty with regard to search results capturing all relevant patents. Consequently, as well as identifying third-party patents through comprehensive database searching, it is also important for the company, as part of its risk management strategy, to be aware of its competition. Attending meetings and monitoring third-party publications are useful means of maintaining awareness of competitor activity. Assessment of third-party rights and dealing with the threat A patent affords a grant of rights to exclude others, not a right to operate or commercialize. Protection afforded by a patent has a limited duration, normally 20 years from the date of filing, the protection is territorial, and a patent is determined by the scope of the granted claims. All of these aspects form important features when identifying potentially relevant third-party patents. Prior to any detailed analysis, the status of any patent should be checked to see if the patentee has allowed it to lapse, to see if it has expired and to check whether or not it has been granted. At the same time, territorial scope should be determined to see if patent filings cover the territories of interest. Determining the scope of a patent requires considerable experience and knowledge, since it is not always easy to interpret granted claims. When assessing thirdparty patents, the written specification and the examination history of a patent should also be taken into consideration to help with interpreting the granted claims. It is also worth bearing in mind that the claim scope of a granted patent may vary from territory to territory.

4 206 Competitive Position If, following analysis of a third-party patent, there is deemed to be a risk of infringement, an assessment of the validity of the claims should be the next stage. If the patent is flawed, the company may feel comfortable to ignore it on the basis that should it be sued it is confident of its ability to counter-claim for invalidity. However, this strategy carries the risk of costly litigation. If the patent is still pending, simply monitoring through to grant and then challenging validity may help pre-empt any infringement suit. This strategy will incur costs, including further search and analysis costs to identify publications that question the validity of the pending claims, along with associated patent attorney fees to carry out the analysis. There is no guarantee that a challenge will prove successful and, accordingly, this approach needs to be weighed against alternative approaches that may be taken post-grant. If a third-party patent is identified in which the claims pose an infringement threat and are considered valid, there are a number of strategies that the company can consider. One option is to cease those activities as the risk of infringement is too great; the company may, however, identify a way in which to work around the claims. The earlier in the company s R&D process a third-party patent is identified, the greater the likelihood that it will be easier and cheaper to devise an alternative approach to work around third-party claims. Turning the threat into an opportunity by acquiring the patent and making it part of the company s own portfolio may be an alternative option, as may be obtaining a licence under the claims. Any licence will most likely provide authorization from the patent holder for the company to use the patented subject matter for specified acts, in designated markets and for a specified period of time. The terms of such a licence will need to be negotiated carefully to ensure that the company s commercialization needs are best met. Ideally, an exclusive licence under the claims will be agreed, ensuring that no other parties are free to commercialize without risk of litigation. Failing that, a non-exclusive licence giving the company the freedom it needs to commercialize, but no exclusive protection, may be adequate for its needs and free it from any further threat. In some instances the company may own a patent, the claims of which fall within the broad scope of a third-party patent. In this situation the third-party patent will dominate, but it may be that the company patent covers a specific improvement that the third party is unable to make use of, and, as such, it may be beneficial to both parties if a cross-licence is negotiated. In such a scenario the two companies will exchange licences that enable each other to use certain patents owned by the other party. Conclusion Whatever approach is taken to minimize the possibility of facing potentially risky and expensive patent litigation, companies are well advised to start looking into the matter early on in the research and development process. As the company s products and services evolve, so the freedom to commercialize must evolve too. Minor changes to a product or process may be sufficient to overcome third-party claims,

5 Freedom to Commercialize 207 and the earlier on in the process third-party issues are identified the easier it is likely to be to work around these issues. Payment of a licensing fee to a patent owner may be sufficient to avoid costly disputes in the future. In order to obtain a meaningful freedom to commercialize patent search, the use of an experienced searcher is advisable, with the quality of the search more often than not dictating the quality of the results. Care needs to be taken in keeping a record of all searches and analyses, but attention needs to be paid not to create a negative record which could be used against the company during litigation proceedings. When assessing third-party patents it is vitally important to seek formal opinions only under careful patent attorney guidance. Such opinions should not be generally released to avoid breaking client attorney privilege. Nicola Baker-Munton founded Stratagem IPM in She is a Chartered UK Patent Attorney and European Patent Attorney with a joint honours degree in biology and biochemistry. With steady growth Strategem IPM has become the leading specialist company providing active strategic management of intellectual pro perty portfolios from inception through development to market, and from academia through start-up to stock market listing. Hannah Kendall is an IP Manager at Stratagem IPM. Hannah has experience of maintaining patent and agreement portfolios within the pharmaceutical industry. She has a background in synthetic organic chemistry, and has worked for a number of years within IP departments of pharmaceutical research sites. Hannah also has experience of patent and agreement database management. Further details from Stratagem IPM: tel: ; web: