Innovation Risk Management: Evaluating Your Freedom To Operate

Innovation risk assessment and management is crucial when it comes to innovation management. Companies must ensure that their products, processes or services do not infringe on the patent rights of others.

Failure to do so will result in your company learning the hard way. This because litigating patents is always risky.

Some companies have infringed on other’s patents and ended up paying damage and legal costs to the patent owner typically higher than the license fee would have been.

It is therefore imperative that the importance of innovation risk management should be well understood by all firms, regardless of size.

Small or medium-sized companies who do not possess adequate patent portfolios to make cross-license agreements should carefully consider freedom to operate strategies when planning their product and marketing strategies.

Innovation risk assessment is much broader than FTO analysis. Provided by patent agents and search providers, FTO analysis helps companies determine whether it is safe to produce and market a product or technology without infringing or violating third party intellectual property rights.

Freedom to operate search is made primarily for the purpose of evaluating the risk of market entry and is common practice in pharmaceutical, electronics, engineering and other technology-based companies.

Innovation risk assessment, which is aimed at minimizing innovation risks is performed prior to product development.

This is crucial as it helps you identify patent rights that can restrict your business; gives you an overview of the technological field you are working in.

You may also get further information on your competitors, what alternative technologies might be entering the market and where your competitors are most active.

Innovation risk management may even reveal potential new opportunities for you.

During times of economic downturn and growth, companies must carefully consider where to invest. They need to know which R&D projects have a higher risk of failure hence the importance of minimizing risks.

Bear in mind that innovation risk assessment is not based on gut feeling. Decisions must be made based on facts and information.

Thus, when initiating new R&D projects, management must invest heavily in sufficient development and employee resources.

Prior to launching a new product and even prior to starting a new line of research aimed at developing new products, companies should seek to minimize the risk of infringement by securing their freedom to operate.

You don’t want to be in a situation whereby you first spend years developing a new product, start a massive marketing campaign and then successfully launch the new product only to receive a warning letter that you have infringed someone’s patent.

Should this happen to you, all the money and efforts spent on the development work could all go down the drain. It is crucial then to make sure that the evaluation of the freedom to operate is a permanent part of the development process.

The evaluation process should be a routine process, done more than once, at least during the early and late stages of the new product development process.

A good FTO analysis and innovation risk assessment gives you sufficient ground and basis for good insightful decision-making on R&D projects as well as market entry.

When carrying out an FTO analysis, you need to get hold of all the patent literature for issued patents and pending patent applications.

Thereafter, you must obtain legal opinion on whether a product, process or service may be considered an infringement of someone’s patent.

However, it is especially important to understand that a successful FTO analysis normally happens in two steps.

First, get an overall view of the patent situation in order to get a rough estimate of the patent landscape in the selected technical field.

Secondly, perform a detailed patent search and analysis in order to identify potential risks, i.e. patents that might be harmful.

Once you are satisfied with the number of patent documents available, you can then start evaluating the validity of the patents, their territorial coverage and interpretation of the claims in view of the law in each country.

Interpreting patent claims requires technical understanding as well as in-depth knowledge of national patent law and patents in general.

It is therefore highly recommended that you make use of specialized patent lawyers in Intellectual Property (IP) firms that offer FTO analyses as part of their legal services to clients.

There are instances where your FTO analysis reveals that there is a patent(s) that limits your freedom to trade. In this regards, you must decide how to neutralize these risks.

The neutralization strategy you choose to use must be in line with your business strategy.

Neutralization is a strategic business decision that requires consideration of the overall situation and not just what risks the specific patent poses.

The most common neutralization strategies used are neutralization by in-licensing or cross-licensing, neutralization by designing around the patented invention, neutralization by co-operation and neutralization by invalidation.

When patenting, ensure you are aware of the general limitations of patents, because these may offer potential opportunities to others. Patent protection is territorial, there are no world patents.

Patents have limited lifetime and also scope of protection.

Concluding Thoughts: Despite the general limitations of patents, they are still powerful business tools that can be used to improve you freedom to operate.

Patents give you competitive advantage, an exclusive right to your invention and can be used for cross-licensing. Innovation risk assessment is still important for successful new product development and launch.

It ensures that the commercial production, marketing and use of your products, processes or services does not infringe the IP rights of others.

This will in turn help you identify potential risks and avoid paying more than normal damage and legal costs in the event of litigation claims being raised against you.