How ignoring your competitor’s Intellectual Property will wreck your business

If you think having a patent means you can commercially exploit your invention, you’re leaving your business open to massive risk. This blog post explains why and how you manage the situation.

One of the points of confusion I encounter most often with leaders of tech SMEs is the difference between owning a patent to your invention and having the freedom to commercially exploit your invention. Very often what I hear is “we have the patent now so of course we can sell the product.” Well, you might be able to sell the product, but if you are then it isn’t because you have the patent. And not doing proper work to understand whether you have freedom to operate (or FTO), which is the freedom to conduct commercial activity in relation to your invention, means that you might stumble into some tricky situations.

Owning the patent and being able to sell your invention are two very different things. This is often a surprise to patent owners and the usual way I see the situation explained by IP specialists is to say that a patent is a “negative right” and that it “gives you the right to stop someone exploiting your invention but it doesn’t mean that you can exploit your invention.” This is factually accurate, but I don’t often see it land with business leaders. They understand the words, but it doesn’t really seem to lead to a proper understanding of the difference between getting patents and FTO. It’s one of those Curse of Knowledge situations that Patent Attorneys can fall into and that I talked about in an earlier blog post.

So I want to use a simple example (because I love cycling, I’ve chosen bikes!) to explain what’s going on that I think makes the point a little clearer.

Whether you read on or not, the bottom line (and the main takeaway from this) is that if you have a patent to your invention (or even if you don’t)then you also need to do extra work to make sure that you are free to commercially exploit it. FTO should form an important part of your R&D process.

Your invention — the tricycle!

Okay, so let’s say that you’ve invented the tricycle. You’ve noticed that by including 3 wheels on a bike, you can add a seat and charge people to be ferried around the city. This is a great invention and you want to protect it so you contact your friendly neighbourhood patent attorney for them to write and file a patent application.

Getting a patent

Your patent attorney does a great job and gets your patent application filed. During the process, the closest known technology (aka the closest prior art) is found to be a bicycle, i.e. a device having 2 wheels instead of your 3. Someone has already filed a patent application to a bicycle and that application has been published and has granted. They describe “a human powered transportation device including two wheels” and they have protected devices falling within that scope.

You claim “a human powered transportation device including three wheels” so you have a novel claim over the 2-wheeled devices described in the closest prior art. Great news! You also have a technical advantage because your 3-wheeled device is more stable and can more easily accommodate a passenger or some cargo. This is deemed to be an inventive step and you get a granted patent.

This now means that if anyone else in the city starts to use a tricycle then you can wave your granted patent in their faces and get them to stop. Invention protected!

Commercial exploitation

So, patent secured, you set up your new business ferrying people around the city for a fee. You add more people to your team until you have a fleet of tricycles all over the city and you start delivering goods too. Then you start to be contacted by others who want to know where you got your tricycles from and you notice that you could make a heap more money if you started manufacturing and selling them. So you gear up a production plant and start making and selling tricycles all over the city. You even have a lucrative maintenance subscription service that you’re selling to people when they buy your tricycles.

You’re making a fortune.

In fact, you’re taking quite a bit of trade from the bicycle manufacturer down the road. The one who has the patent covering a 2-wheeled transportation mechanism.

The next thing you know you get a letter from the bicycle manufacturer’s patent attorney notifying you of their granted patent and saying that you’re infringing it. You think “clearly there has been some mistake” and you respond letting them know that you have a patent that they maybe aren’t aware of. And anyway, your tricycle has 3 wheels not 2 and so you’re not infringing their patent.

But you are.

Your tricycle has 3 wheels, yes, but the way a patent claim is read means that it also includes 2 wheels and therefore infringes the 2-wheeled patent. Confused? I’ll explain. The bicycle patent covers a transportation mechanism including 2 wheels. So let’s take a look at the tricycle. There are three wheels on it, but it does include 2 wheels — it would include 2 wheels even if it had 4 wheels, 5 wheels or even 18 wheels. In the patent world, the word ‘includes’ when used in a claim means that the invention has that particular feature but can also have a load of other features, additional wheels being one example.

So now it dawns on you that you have built a business and invested quite a lot of money time and resource into something that, at worst, you must stop doing because of patent infringement and, at best, will require you to take a licence and pay a royalty to the bicycle manufacturer if you want to continue doing.

And that is how you can have a patent to your invention but also infringe the patent of someone else by commercialising that invention. And how not being aware of your competitor’s intellectual property can wreck your business.

So what should you do?

The big take away here is that getting a patent, whilst it might be a good idea, is only half the story. To manage the risk to your business that you will tread on someone else’s intellectual property, you need to engage in FTO research and analysis. You should do this whether you decide to file a patent or not.

Freedom to operate work usually requires some form of searching for existing patents, followed by some analysis of what patent documents are found so as to determine the risks. If you ask your patent attorney about this then they might jump straight to a full FTO search and report. This could be the right thing to do given where you are, but I would generally recommend an approach that builds the level of work (and expense) you put into FTO as the level of exposure and risk for your business increases. So, in the early stages of development of your idea, you might have a high-level search for patent documents and a high-level analysis of the search results. There can then be a couple of further stages for this work, building the depth of research and analysis to a deep patent search and a full analysis of the results. At this last stage, you might want a report from your patent attorney that you can keep and use to demonstrate freedom to operate to investors and/or to have written down the opinion of a patent attorney that you do not infringe a particular patent, which can form the basis of an initial response to an assertion that you do.

Building the level of work as you go along allows you to set costs appropriately, end the work if the product development project ends and adapt the FTO to account for changes in direction of the R&D relating to the product, which can occur for many reasons.

Give this guidance to your patent attorney and it’ll allow you to have greater control over the process.

Photo by fajri nugroho from Pexels

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Matter

Matter

Matter helps tech businesses leverage their Intellectual Property to improve their exit valuation