When should we assure we have FTO for our private biotech company?
Summary:
FTO for a private biotech company is typically a multi-stage process that should be started early and updated periodically to gain the right level of confidence during different product development and company funding stages. This leads up to a signoff deadline before product designs are locked, and continues post-launch to avoid difficult surprises and to assure proper action is taken with respect to competitive patents that may issue.
Some preliminary FTO-related patent searching/analysis should be performed before discussions with major investors, even for an early financing round.
Early FTO analysis can help identify design-around opportunities when it is easiest to work them into the product and process design, and can identify off-limit product plans before you present them to investors.
Ongoing FTO analysis should be part of a patent landscape effort that has ever-increasing depth over time, and helps you make key decisions in your product development and patent portfolio development strategies.
At any time, FTO analysis is aimed at allowing you to conclude to your potential investors:
(1) Our patent team has looked at patent portfolios of key competitors and key competitive technologies, and
(2) They have not identified any patent roadblocks that would block the product development plans you present to them.
Even after product launch, an ongoing FTO analysis may include monitoring competitive patent families to assure that any problematic patents that might issue after product launch, are dealt with appropriately.
Background: What is an FTO?
"Freedom to operate" (FTO) is a term often thrown around by investors in their common question to biotech/biopharma CEOs trying to raise money: Do you have FTO on your core technology/lead product candidates?
What is an FTO?
Freedom to operate to an intellectual property (IP) attorney means that no outside party owns a legal block, for example the right to block infringers that comes with an issued U.S. patent, that covers your product or process for making or using your product, for which you do not have a license. The FTO process is very much like peeling away layers of an onion. You can go to deeper layers of depth/confidence in the search and analysis until you conclude that you have gone far enough for a given time point. FTO can also be referred to as product clearance, and a key decision point with respect to FTO/clearance is usually part of a product development process before product design specifications are finalized.
Analysis: When is the right time to perform an FTO analysis?
In general, FTO analysis should start early, continue through product launch, and many times extends post-launch to monitoring for issuance of key competitor patents. FTO is an ongoing process that gets deeper/more thorough over time. The more valuable a product/process is to the overall value of a company, and the closer a product/process is to final design specifications, the deeper the FTO analysis should go. Such an analysis can start at $1,000s of dollars of billable time, and can get to $10,000s or even $100,000+ for an extremely valuable biotherapeutic product. Series A investors should not expect as much depth in your FTO analysis at that point, compared to your Series C investors, for example. However, it is helpful and possibly required in our experience, that you have some FTO analysis performed, to present some FTO conclusions to your early-round investors, and to avoid presenting off-limit product development plans to them. Furthermore, FTO updates can be presented at annual internal IP review meetings to assure that C suite team members are updated as your FTO analysis/understanding deepens.
What are examples of different depths of FTO analysis?
Patent searches always have trade-offs to get to a reasonable number of hits for a person/people to analyze. Thus, your initial biotech/biopharma patent search may bring up 100s or over 1,000 patent families. And thus, the search usually needs to be narrowed to get to 10s of issued patents whose patent claims can be analyzed by your patent team. Narrowing always has the risk that some relevant patent families are now excluded from your search. As you get deeper in your FTO analysis, broader searches can be analyzed and/or more of these different, narrow search strategies can be analyzed. Furthermore, term searches can be supplemented with knowledge opinion leader (KOL) and inventor searches, and competitor company searches. Back citing and forward citing can be performed of key patent families that are identified. These all add layers of depth and confidence to your FTO search/analysis. Over time, the same key patent families keep coming up from different search strategies. Furthermore, pending patent applications of key patent families can be added to ongoing patent monitoring activities to avoid future surprises (e.g., an unexpected cease and desist letter from a competitor).
A conclusion that a product/process has "FTO" cannot be made until there is a final product configuration, and final specifications for its manufacturing process and methods of use. However, a potential Series A lead investor does not want to hear that you are too early for FTO analysis because product/process specs have not been finalized, when they ask you whether you have "FTO" during their diligence for your pre-commercial biotech/biopharma company. So how do you respond to your early investors when they ask if you have FTO on your core technology/key initial product concepts? In our view and experience, often the response you need to present to investors is that some preliminary patent landscape/search work has been performed of some key competitors and/or technologies, and no intellectual property roadblocks have been identified to prevent moving forward with the product/technology development plans that you present to them.
Accordingly, before you conduct any detailed diligence calls with knowledgeable, experienced investors even for a significant pre/Series A round, engage your IP team to perform at least some initial searching and analysis of independent claims of issued patents in the jurisdiction(s) that are meaningful to the value of your company and to your possible investors. Usually, for our biotech/biopharma clients, this is the U.S., and possibly Europe and/or China. How much searching and analysis should be performed? The exact depth varies depending on the facts of the situation, including the round of financing and the potential market of the product, but usually there are some well-known competitors and/or prior technologies that present FTO risks to your products/processes. New technology platforms and product ideas are based on prior technologies, which present obvious initial targets for early FTO analysis. Addressing these early in your company's product development can help relieve concerns of knowledgeable investors, can identify design-around strategies to use in your processes and products, and can identify product areas that are off-limits for your product plans before you present them to investors.
This early patent landscape/analysis ideally is part of an ongoing and ever-deepening and evolving patent strategy, not only related to FTO, but relevant to patent portfolio build as well. The analysis of patents and prior art that are identified in landscaping/analysis for FTO can be helpful for patentability as well. The analysis and population of relevant patents/prior art is different for these two different purposes (FTO vs. patentability), but there is often overlap. Your patent team should create/update complex patent landscapes/maps that help them conduct FTO analysis and build your patent portfolio.
Regarding FTO, your patent team can often reach helpful conclusions early in their analysis. For example, they may identify significant aspects of your product/process that are in the public domain (e.g., any patents covering them have expired, or the details were published without a corresponding patent filing). They can work with your R&D team to identify required common elements in issued independent claims of your top competitors' patents that you do not need to include in your product/process to design around these competitor patents. If you have some commercialized products and have not received any "cease and desist" letters, that can be helpful to point out to investors, too. Furthermore, it is not ideal, but your patent team may identify some patents that arguably cover your planned product(s) or processes, but that are invalid because they are overly broad. Starting early in the process gives your patent team time to identify prior art to at least provide an oral opinion regarding the invalidity of such patents before your investor calls.
FTO analyses often identify key competitor pending patent families that should be monitored over time, even after product launch, to assure that you are not surprised by a “cease and desist” letter, competitor patent infringement lawsuit, and/or diligence finding from a potential investor or acquirer. By being alerted of a competitor's patent issuance, even after product launch, your patent team can determine appropriate steps with sufficient time. For example, you might choose to have a legal opinion put in place identifying why you do not infringe the patent, or why it is invalid, to help protect you from willful infringement. Furthermore, you may take a further step and challenge the validity of the competitor patent in court or the USPTO. Finally, you may decide to proactively seek a license to gain certainty for your business and your possible investors. There is a down-side of this approach of continuing to monitor for issuance of relevant patents after launch, which relates to losing a possible defense against a future willful infringement claim, but in my view the benefits listed above, outweigh this risk. Further details regarding this willfulness risk analysis as well as the options above, are complex and beyond the scope of this article.
In conclusion, it is helpful to perform some early patent searching/FTO analysis to address some well-known competitors and/or prior technologies that present FTO risks to your products/processes. By identifying design-around opportunities and technology areas that are blocked by your competitor patents early, you may avoid product reworks later in the process, when it is more difficult and expensive to do so. Furthermore, early FTO analysis helps lay the foundation for an ongoing, ever-deepening process to assure you have confidence in FTO before you finalize product/process details. At any financing stage, FTO analysis is aimed at providing you the legal support to conclude to your potential investors that your patent team has looked at patent portfolios of key competitors and key competitive technologies and has not identified any patent roadblocks that would block you from product development plans that you present to them.
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