FTO analysis:Prevent and control patent infringement risk
date: 2020-05-14 Yicun Hu, Xu Jia Read by:

    With the enterprises entering foreign markets, the patent infringement risk faced by their products will be correspondingly increased. In order to better prevent and control related infringement risks in advance, it becomes more and more important for the enterprises to conduct FTO analysis.

    1. What is FTO

    FTO is short for Freedom to Operate, which means free implementation. The word “FTO” first appeared in foreign countries, referring to the free implementation of the technology of the implementer without infringing others’ patent rights. From the most essential point of FTO, it refers to the analysis of patent infringement risk.

    The content and objects of the FTO analysis are mainly valid patents (granted patents and patent applications under examination), as well as invalid existing technologies. The FTO analysis mainly aims to prove that the technology to be implemented could be freely implemented without infringing others’ patent rights.

    2. Why should conduct a FTO analysis?

    When enterprises sell new products in China or sell existing products abroad, they may encounter the risk of patent infringement disputes. If they are prosecuted by the patent right holder and judged having infringement activities by the court, they will often have to face high compensation. In addition, enterprises are likely to face the enforcement of bans imposed by the courts, such as prohibiting continuously selling the products already produced and producing the products that are judged to be infringing, which will cause significant impact on the enterprise. The cost of R&D and manufacturing in the early stage of the enterprise cannot be recovered in time, let alone generate revenue.

    Therefore, while enterprises conduct R&D and manufacturing, before the product is sold, at least it should identify, prevent and avoid the product infringement risk in advance that may occur. This is especially important for enterprises. At present, most domestic enterprises don’t have sufficient knowledge and skill related to patents, especially lacking of familiarity with the laws and regulations of their target market countries, which further increases the uncertainty in the process of product export sales. Therefore, in order to better identify, prevent and circumvent the risk of patent infringement, enterprises usually entrust professional service agencies to conduct FTO investigation and analysis of their specific products, and these agencies are responsible for issuing corresponding FTO analysis reports. The benefit is that even when the alleged infringement is established, the possibility of being considered as a malicious and intentional infringement can be reduced.

    What should be noted is that, sometimes even if enterprises enforce their own patents, it still cannot exclude the possibility of infringing third parties’ patent rights. Under this situation, enterprises' own patents may be subordinate patents of third-party patents.  Meanwhile, according to the provisions of China's patent law and relevant judicial interpretations, in the patent infringement lawsuit, the reason cannot be deemed as valid for implementing their own patents proposed by the defendants, and they still have the possibility of being identified as infringement.

    3. When to conduct the FTO analysis?

    Generally speaking, FTO analysis should go through the whole process of product development, but in the early stage, since the product has not been finalized and the technical characteristics of the product have not yet been determined, FTO analysis either fails to conduct product feature comparison, or the result of product feature comparison is uncertain which cannot be compared; As such, in the early stage of product development, carry out a patent warning analysis early could enable R&D personnel informed in advance about relevant existing technologies and risk patents. After the technical characteristics of the products are determined, the FTO analysis carried out at this stage would be much targeted and has strong guidance on free implementation of the technology.

    Additionally, FTO analysis could be conducted when enterprises perform some activities, such as overseas exhibitions, cooperative R&D, investment financing, mergers and acquisitions, and licensing or transfer, etc., which can help enterprises to prevent and control risk of products when they play different roles.

    4. How to conduct FTO analysis

    To conduct FTO analysis, attentions should be paid to the product marketing area, product technical characteristics, patent search, patent screening, claim comparison analysis and conclusions.

    (1) Product marketing area

    As patent protection may vary accordingly with the patent law and regulation differing among each country or region, firstly it is necessary to determine the product marketing regions and countries prior to conducting FTO analysis, which would make the analysis very targeted then.

    (2) Product technical characteristics

    Generally, a product has many technical features. If considering all of the technical features without selection when performing FTO analysis, it would increase the unnecessary workload intangibly. Therefore, most enterprises generally focus on the components or parts which are usually self-developed and of higher infringement risk. These component or parts are more important to the product; for the existing technology parts used or the components purchased from the supplier, they could be a secondary consideration, as the infringement risk of these parts is relatively lower, and it could be borne by the supplier according to the contract.

    (3) Patent search

    An important indicator of patent search is the rate of comprehensiveness to ensure none of related patents missing. If the comprehensiveness rate does not meet the requirements, the FTO analysis will not achieve its due effect so that it cannot exclude the risk of patent infringement. When performing the FTO search, more attention should be paid to the search for claims, and meanwhile the technical characteristics of claims should be confirmed in combination with the full text of the patent. In addition, two sets of independent databases or tools can be used to verify the FTO patent search results, or "back-to-back" search by multiple searchers can be performed to improve the reliability of search results.

    (4) Patent screening

    In the process of patent screening, it is necessary to eliminate patents that are obviously unrelated to the product and confirm patents that are closely related to the product. A two-stage screening method is commonly used. The first stage is to preliminarily screen patents, i.e., if a patent is unlikely to result in a reasonable infringement dispute, then it can be directly deleted without screening into the next stage; the second stage is to finely screen patents selected from the first stage, which would be analyzed through careful comparison of the technical features between patent claims and the that of the products to determine whether the patent is related to the product.

    (5) The claims comparison analysis

    When making the claim comparison analysis, the principle of infringement judgment is mainly Literal Infringement (i.e., the same infringement) and Doctrine of Equivalents (i.e., equivalent infringement). By comparing the technical features of the product with those of the patent claims one by one to judge whether they are the same or equivalent to determine if the product falls within the protection scope of the patent claims.

    (6) Conclusions

    When issuing the concluding comments of the FTO analysis report, it is mainly to clarify the level of risk between the technical product and the scope of protection of patent rights, and to give concluding opinions respectively according to the level of the risk of infringement of the product, providing basis for enterprises deciding whether marketing the products, which could reduce the risk of infringement.