Indira Gandhi

National Open University MIR-038

School of Law
Commercialization of
IP

Block

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ENTERING MARKETS
UNIT 13
Due Diligence 5
UNIT 14
Conducting FTO and Navigating Pitfalls 12
UNIT 15
Patent Mining, Landscaping and Mapping 19
UNIT 16
Due Diligence in Other Areas of IP Laws 24
Entering Markets

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 Due Diligence
UNIT 13 DUE DILIGENCE
Structure
13.1 Introduction
13.2 Due Diligence on Potential Business Partners
13.3 Summary
13.4 Self Assessment Exercise
13.5 Reference and Suggested Readings

13.1 INTRODUCTION
When a company is a party to any transaction with another company that involves
or affects intellectual property (whether in the sale of its assets or stock, in an
investment or public offering, a joint venture, licensing or otherwise), the other
party to that transaction will likely perform due diligence on the company’s
intellectual property to determine what intellectual property the company owns
or has rights to use and the value of such intellectual property. Prior to such time,
the selling party should conduct due diligence on itself to make sure that its
intellectual property is in order and the representations and warranties that it will
make in the transaction are accurate. Due diligence involves gathering relevant
documents (both from the company involved and from publicly available sources),
reviewing the gathered documents, meeting with and asking questions of
knowledgeable persons, and following up on inconsistent or incomplete
information.
Due diligence may be defined as “An evaluation, performed by investors or
their agents, into the details of a potential investment or purchase, where the
evaluation involves a verification of all the material facts relevant to the
investment or purchase.” (Courtesy WIPO)
When a company is a party to almost any transaction with another company that
involves or affects intellectual property (whether in the sale of its assets or stock,
in an investment or public offering, a joint venture, licensing or otherwise), the
other party to that transaction will likely perform due diligence on the company’s
intellectual property to determine what intellectual property the company owns
or has rights to use and the value of such intellectual property. Prior to such time,
the selling party should conduct due diligence on itself to make sure that its
intellectual property is in order and the representations and warranties that it will
make in the transaction are accurate. Due diligence involves gathering relevant
documents (both from the company involved and from publicly available sources),
reviewing the gathered documents, meeting with and asking questions of
knowledgeable persons, and following up on inconsistent or incomplete
information.
An organisation going for any transaction must conduct a due diligence on itself
as well as the prospective partner. Such exercise in due diligence helps identify
drawbacks and chinks before the signing of any agreement thereby allowing for
time to take considered decisions. There are hardly any adverse effect of
conducting a due diligence, instead non-conductance of due diligence may lead
to a failed unsuccessful deal and a major business embarrassment.
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Entering Markets For instance - The Volkswagen-BMW-Rolls Royce saga: Rolls Royce Plc sold
Rolls Royce Motors to Vickers, a British company in 1973. In 1998, Vickers
decided to sell Rolls Royce Motors. Volkswagen with a bidding of £430 Mn
outbid BMW who bid at £340 Mn. However, Volkswagen later realised that it
had only bought the plant and the processes but not the “Rolls Royce” brand,
which was with the Rolls Royce Plc, the parent company.

Later that year, BMW bought the rights to the “Rolls Royce” brand from the
parent company for £40 Mn. Thus, while Volkswagen (VW) owned the machinery
BMW owned the name. VW and BMW reached a settlement that from 1998 –
2002 BMW would allow VW to use the name and the logo. But from 1st January
2003, it was forced to surrender production to BMW.

13.2 DUE DILIGENCE ON POTENTIAL

BUSINESS PARTNERS

• Conducting Due Diligence: If the business wishes to expand to foreign

shores, it becomes imperative to conduct a due diligence not just on the IP
but a host of other area before entering the new markets. Language, culture,
social taboos, prevailing laws, government policies and future trends are
areas to be carefully studied, understood and then ventured into after
achieving a state of preparedness.
For instance, a multinational wishing to establish office in Chennai knows
that the national language of India is Hindi; but must also be aware that
their personnel posted in Chennai must have a working knowledge of the
local language, Tamil.
• Socio-economic considerations: while considering socio-economic
considerations, it is also important for organisation to conduct a due diligence
on the local customs and linguistic pattern of the country where they intend
to market their products and services. In a global playing field, this is an
arena of potential pitfalls and requires care and diligence. Quite a few
embarrassing moments have been faced by corporate biggies, which have
resulted in losses in terms of not only money but also goodwill.
For instance, when Coca Cola entered China in 1928, and wished to advertise
its product, it commenced a search for equivalent characters in Mandarin to
convey the sounds: “Coca Cola”. While searching for suitable sounding
characters which retained the images created for the public perception of a
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 fun drink, Coca Cola had gained enough popularity for the public local Due Diligence
distributors to coin their own Mandarin representation of the name Coca
Cola. What sounded phonetically correct and became popular by the name
“Ke-Kou-Ke-La”, which meant “bite the wax tadpole” or “female horse
stuffed with wax”, depending on the dialect when represented in writing.
When Coca Cola which had by then printed thousands of signs with this
name found out the meaning of the phrase, it promptly dumped the signs,
returned to research and is reported to have researched 40,000 characters in
the complex language to find characters that sound right and when written
was right or close to a happier meaning than the earlier one. The Coke
Company finally found a phonetic equivalent “Ko-Kou-Ko-Le” which
translates to “happiness in the mouth”.
Similar faux-pas occurred in Pepsi’s marketing campaign in Taiwan, where
the translation of the Pepsi slogan “come alive with the Pepsi generation”
came out as “Pepsi will bring your ancestors back from the dead”.
Another example advocating the need for caution in bridging the cultural
gap is evidenced by the marketing experience of a famous drug company in
the United Arab Emirates. To avoid linguistic confusion, they used a series
of three pictures depicting an ill person in the first picture, followed by a
picture of him taking the medication, with the last picture showing him
well. Unfortunately, they overlooked the fact that the Arabs read from right
to left.
However, just regional awareness does not suffice in these modern times of
quick information access. In the Beijing Olympic Games, Coke was once
again tendered red-faced over a five year old advertisement aired only in
Germany featuring 3 Buddhist monks riding a roller-coaster with a slogan
“make it real”. A local internet forum projected the old advertisement as
Coke’s support for free Tibet.
• Prevailing laws (data protection, IP Laws, enforcement agencies, courts):
Just like an organisation which grows and evolves and has the potential to
die (hence the origin from the root work “organism”), the laws too evolve
according to the needs of the society. This is a given fact since the laws
evolved to societal needs. Every law school student reads extensively on
the various theories on the evolution of laws prevailing in the various
countries including their own countries and the impact that the law can
have on the business and trade. What seems perfectly sound at the time of
implementation of law would seem very frivolous a few decades later. These
are also known as Dumb Laws. These are antiquated laws that are based on
the standards of the day. As the time change, the laws too evolve though
sometimes, some of anti-quated laws are not repealed and continue to be in
force even this day.
Some examples of dumb laws are:
• In New York license must be purchased before hanging clothes on clothes
line.
• In Bergen County, Blue law is still in effect. The only retail outlets permitted
to be open on Sundays is grocery and liquor stores.
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Entering Markets • In Staten Island, you may only water your lawn if the hose is held in your
hand.
• In New York City, citizens may not greet each other by “putting one’s thumb
to the nose and wiggling the fingers”.
• State Code in West Virginia deems it unlawful for any person to have in his
possession or to display any red or black flag.

Just like any other law, IP laws have also evolved over the period of time. These
IP laws, especially copyright, patent and trademark, which appear modern, have
been in existence in some or other form virtually since the genesis of the concept
of trade itself. The Statute of Anne, also considered as the Copyright Act in the
true sense of word, came in 1709. It gave the author a fixed period of 21 years
for the protection of the work already in print at the time of enactment and 14
years for new work published subsequently to printed work after which the
copyright in the work expired. The Act has since been repealed and replaced by
a series of successive acts. The current law governing UK copyright is the
Copyright, Designs & Patents Act, 1988.

Meanwhile, in 1887, the Berne Convention, which is still in force, came into
being and set out the scope of copyright protection.

Indian Patent Law: The above example traces the evolution of copyright laws
over a period over a period of 600 years, actually over 15 years has to be seen to
be believed. A pictorial representation is given below for the very recent period
in the Indian patent history. While India has had a patent regime since 1856 with
a series of successive acts and amendments, the dawn of the 20th century under
the British regime saw the enactment of the Patents and Designs Act, 1911 which
came into force in 1912.

However, in the post-independence era, there were a series of developments that

are depicted pictorially below. What is of immense interest is that there are parallel
legislations that impact the patent law and vice-versa. The wide spectrum of
laws resonates with each amendment to the patent law ranging from:

• The Atomic Energy Act, 1962 (the Patents Act states that no patent shall be
granted in respect of an invention relating to atomic energy falling within
sub-s (1) of s 20 of the Atomic Energy Act, 1962),
• The biological Diversity Act, 2002,
• The Plant varieties and Farmers’ Rights Act, 2001,
• The Geographical Indications of goods (Protection and Registration) Act,
1999,
• The traditional Knowledge Digital Library.

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 Due Diligence

Then again, within the Act itself, there is a very clear and concise section that
states that any invention being developed by a person resident in India must first
file the invention in India. Alternatively, if the inventor or his assignee, wishes to
first file in a country other than India, they must obtain a foreign filing license
from the Controller of Patents before filing the invention abroad. Non-compliance
with this provision of the Act attracts a penalty of fine or imprisonment or both.

There is little doubt then that before commercialization of a product it is important

to conduct a due diligence on the various laws prevalent and the changes in the
policy.

A recent and almost tangible example of the evolution of law is that of the Patent
Act of India. While India has had some form of patent law since 1856, at the
time of the independence, India had the Indian Patents and Designs Act, 1911. In
the process of fine-tuning the patent requirements of a newly independent India,
the Justice Ayyangar Committee’s recommendations were incorporated into the
very controversial Patents Act, 1970 which came into effect in 1972. The Patents
Act, 1970 read with the Patent’s Rules, 1972 did not grant product patents for
invention in certain fields of technology including food, medicines and chemicals.

Since only process patents were granted for inventions in these areas of
technology, a very robust generic pharmaceutical industry flourished on reverse
engineering of drugs. According to the Indian Drugs Manufacturers Association
(IDMA), there are around 22,000 generic pharma units in India today.

But a time has come when the pharma industry has come of its own and has been
seeking exclusive rights to exploit its own intellectual property spawned from
their own research and development centres. Many of these are incremental
inventions, but nevertheless an invention that may be worth protecting through
intellectual property rights.

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Entering Markets Meanwhile, interesting development impacting our environment and trade were
brewing across the world. In 1992, India became a signatory to the Convention
on Biological Diversity (CBD). A few a signatory to the Agreement on the
Agreement on the Trade-Related Aspects of Intellectual Property Rights (TRIPS
Agreement) administered by the World Trade Organisation (WTO) and became
a member with effect from 1 January 1995.

There were also a series of status enacted that were directly or indirectly impacted
by the Patents Act, such as biological material of Indian origin that were often
used in the invention, the traditional knowledge, new plant varieties, etc. These
were the Biological Diversity Act, 2000, the Geographical Indications
(Registration of Goods) Act, 1999 and the Protection of Plant Varieties and
Farmers’ Right Act, 2001 respectively.

Being a developing country, India had a transitional period of interim intellectual

Property right almost exclusive to third world countries that did not grant product
patents for pharmaceutical inventions, that of Exclusive Marketing Rights (EMR).
This was enshrined in the Indian patent law by way of the Patents (Amendment)
Act, 1999 to the Patents Act, 1970.

Meanwhile, in order to harmonise procedures and provide national treatment to

applicants among other things, India signed the Paris Convention as well as the
Patent Co-operation Treaty (PCT) on 7 December 1998. It also signed the
Budapest Treaty on the International Recognition of the Deposit of Microorganism
for the purposes of Patent Procedure of 17 December 2003.

The repealing of the 1911 Act by the Patents Act, 1970 and the subsequent
amendments to the Patents Act, 1970 along with the enactment of the other
statutes reflect evolution of the legal system along with the need of the times.

13.3 SUMMARY
• In this Unit we have discussed on the due diligence which plays very crucial
role in many transactions especially in the case of merger and acquisition.
Due Diligence is formed when a company is a party to almost any transaction
with another company that involves or affects intellectual property (whether
in the sale of its assets or stock, in an investment or public offering, a joint
venture, licensing or otherwise), the other party to that transaction will likely
perform due diligence on the company’s intellectual property to determine
what intellectual property the company owns or has rights to use and the
value of such intellectual property. And Due Diligence has to be conducted
very carefully.
• In the International level of transaction, not only Due Diligence which has
to be made carefully but also language, culture, social taboos, prevailing
laws, government policies and future trends are areas to be carefully studied
as well. Many examples have been provided in order to understand how
important Due Diligence is and how to conduct such Due Diligence.

13.4 SELF ASSESSMENT EXERCISES

1) Define Due Diligence?
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2) Why a Due Diligence should be done? Due Diligence

3) What factors should be considered while entering a new market?

13.5 REFERENCE AND SUGGESTED READINGS

1) Rembrandts in the Attic: Unlocking the Hidden Value of Patents by Kevin
G. Rivette and David Kline
2) Edison in the Boardroom: How Leading Companies Realize Value from
Their Intellectual Assets by Julie L. Davies and Suzanne S. Harrison
3) There May Be Trouble Ahead: A Practical Guide to Effective Patent Asset
Management by Lex Van Wijk

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Entering Markets
UNIT 14 CONDUCTING FTO AND
NAVIGATING PITFALLS
Structure
14.1 Conducting a Freedom-to-operate Search
14.2 Patent Thicket – Navigating the Pitfalls by Way of an FTO
14.3 Summary
14.4 Self Assessment Exercise
14.5 Reference and Suggested Readings

14.1 CONDUCTING A FREEDOM-TO-OPERATE

(FTO) - SEARCH
Intellectual assets that can be protected legally under various statutes as intellectual
property rights have certain characteristics that are unique to a particular form of
IPR. For instance, patent rights are a territorial right and can be validly enforced
in the country or region where a patent has been granted. Also, since a patent is
valid for a period of 20 years, and has to be maintained annually, a patent right
will expire either at the completion of 20 years or if the annual fee is not paid.
Another important to point to bear in mind is that since patent filing, prosecution
and maintenance is such an expensive proposition, a patent owner may not seek
protection in all the countries.

At this point it is important to note that:

A patent provides the patent holder a right to exclude others from

commercialising the patented invention without authorisation; it does not
however, provide the patent holder the right to commercialise the patented
invention.

It may well be that another patent holder may have broader claims (Patent 2)
than the main patent (patent 1) held by another patent holder. In such a case , a
permission by way of licence may be required to commercialise that Patent 2 in
in countries where Patent 1 is in force.

A classic example of such a situation is that of the patent on the Cohen-Boyer

recombinant DNA (r-DNA) technology. For years till the patent expired in 1997,
every new technology in that area that required the use of the r-DNA technology
had to take a licence for the use of Cohen-Boyer r-DNA technology to
commercialise their own technology regardless of whether own technology was
patented or otherwise.

This is also main reason why an organisation may want to patent its technology
rather than keep it as trade secret. While the grant of the patent is not sufficient
to clear the way for the commercialisation of the new technology or product, it
provides the strategic tool that may be used to prevent problems while
commercialising the invention.

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Similarly a trademark right is a territorial right and thought it can be protected Conducting FTO and
Navigating Pitfalls
almost in perpetuity; the trademark protection may lapse for want of timely
renewal. However, a copyright is valid in all the countries that are the members
of the Berne Convention.

It goes without saying that planning for the launch of a new product but careful
understanding of the markets to minimise the losses and the risks. One of the
major risks that an organisation may face is that of infringement of an intellectual
property right such as a patent. The patent infringement may be an overt
infringement element by element of the invention or a covert where one patent
aspect owned by the competitor has been used to prepare a product either because
it is an essential patent in that field of technology or it is essential to meet a
technical standard.

In order to be better prepared or to prevent the development and/or marketing on

an infringement product or services, an organisation may conduct an FTO search
as an exercise in due diligence. In some cases, the FTO search may be conducted
before the commencement of the research and development of a particular line
of product. While the FTO search does not provide a fool-proof guarantee against
infringement, it helps minimise the risk of infringement.
• What is Freedom-to-operate search: Conducting a freedom-to-operate
(FTO) search helps minimise some risks with regard to infringing intellectual
property rights of others in the proposed country of operation. While due
diligence may be done in house, it requires a competent team of technical
and legal profession to ensure that the due diligence report is sound and
clear especially where patents may be involved. A legal opinion is invaluable
as a shield to protect business interests. An FTO search is also a great way
to improve chances of finding business partners and attract investors to
support business development plans.
• Methods of FTO search: As the phrase suggests, an FTO search is a form
of due diligence to protect an organisation from any infringement action. It
flows from the adage “prevention is better than cure”.
So, if a product is to be launched, it would be wise to have an FTO search
conducted for the given country or region. Care must be taken to see that:
• A patent search be conducted for:
a) Granted patents for a period of last 20 years since a patent is valid for 20
years after which it comes into public domain and can be freely used by the
public at large;
b) Pending patent applications that have been published by the Patent Office
usually after 18 months from the date of filing.

Sometimes the client may require an FTO to be conducted for a period lesser
than the ideal 20 year period.
• Design of the product may be unique and may entail a design FTO search,
• A trademark FTO search where a mark may be searched for in the trademark
database in specified classes of goods and services before the launch of the
product or before registration. Since trademark protection is in perpetuity
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Entering Markets since the marks can be renewed indefinitely, it is also important to see if the
marks yielded in a FTO are still in use.
For a patent FTO search, the most important aspect is the interpretation of
the claims read with the written specification. It requires a skilled and
experienced patent attorney to interpret claims for determining infringement.
In case an FTO search has to be conducted for a country of export, the
organisation may directly approach an IP law firm in that country to do the
same; alternatively, the organisation may approach their local IP law firm
who in turn will approach their foreign associates for the FTO search. Some
national IP offices like Swiss Federal Institute for Intellectual Property also
provide such services for a fee.
In areas relating to medical technology especially bio-medical technology,
besides an FTO on patent, there is also need to check on various regulatory
approvals, the time required to fulfil all compliances, the design aspects as
well as trademark related information.
While conducting an FTO search and analysis, the following points should
be kept in mind:
• IP rights are territorial: As the IPR are territorial in nature, the companies
usually do not have any IPR in countries where there are lesser chances of
commercialisation of their product/technology. In such cases, no license is
needed from the IP owner to operate.
• Limited duration: While patents and designs are for 20 years and 15 years
respectively, trademarks, though for perpetuity, if not maintained can also
come into public domain. Hence, can be freely used by anyone. For patents,
it is estimated that less than 25 % of all patents granted through the European
Patent Office (EPO) are maintained for the maximum term of protection of
20 years, implying that many patents are in fact abandoned by the patent
holders (by not paying the maintenance fees) before the 20 years have lapsed,
leaving a large number of useful technologies in the public domain.
• Limited scope of patents: Claims, the most important part of the patent,
define the scope of the patent. Thereby implying that whatever, is not covered
by claims is not considered to be patented. Hence, if the technology has not
been covered in claims, it can be freely used.
If the FTO search and analysis, results in some patents, which are very close
to the area of operation, then some of the common strategies employed to
have Freedom-to-operate are:
• Assignment/In-licensing – Obtaining an assignment or in-licensing for the
IPR protected technology is one of the simple and uncomplicated way of
entering any market.
• Cross-licensing – This is another safe way of entering any market. The case
here can be in September 2003, three pharmaceutical companies, Cambridge
Antibody Technology, Micromet AG, and Enzon Pharmaceuticals, announced
that they had signed a non-exclusive cross-license agreement. In the
agreement, all three parties obtained substantial “freedom to operate” under
some of each other’s’ intellectual property, to conduct research and develop
a defined number of therapeutic and diagnostic antibody-based products.
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• Inventing around – This means that making changes in technology/product Conducting FTO and
Navigating Pitfalls
to avoid infringing the IPR protected technology/product. For example,
developing an alternative process to reach the same end result. This does
not require any license from the owner.
• Patent pools - This is yet another way to obtain FTO. A well-known example
of a patent pool is that formed by Sony, Philips and Pioneer for inventions
that are essential to comply with certain DVD-Video and DVD-ROM
standard specifications.

Significance of FTO search: The FTO search provides risk assessment of

infringement of granted and pending patent applications. It, if not completely
eliminates, minimises to a great extent the chances of infringing, owner’s valid
and enforceable rights and hence preventing intellectual property disputes. The
FTO opinions are very crucial while taking business decisions. The FTO search
may also provide direction to the research and development programs by designing
around the technology.

14.2 PATENT THICKET – NAVIGATING THE

PITFALLS BY WAY OF AN FTO
In several key industries like semiconductors, nanotechnology, stem cell
technology, biotechnology, telecommunications and Internet, the patentees create
a patent thicket i.e. an overlapping set of patent rights requiring those seeking to
commercialise new technologies to obtain licenses from multiple patentees.
Another reason for conducting an FTO is to navigate through a patent thicket. A
patent thicket may be defined as a dense web of inventions in a particular field of
technology which each invention having its own patent such that there is an
overlapping of intellectual property rights in that area of technology. A new entrant
or a competitor in that field must hack its way through in order to actually
commercialize new technology.

The term patent thicket appears to have originated in a US case SCM Corp v.
Xerox Corp 645 F2d 1195, 1208-1213 (2d Cir 1981). In this case SCM had
charged XEROX of having constructed a patent thicket to prevent competition.
As a matter of interest, in this case, however, the Court held that unilateral refusal
to license lawfully acquired patents is permitted under the patent laws, and thus
cannot trigger liability under the antitrust laws.

Incidentally, such a situation as in the SCM v. Xerox case would have a slightly
different take if Indian patents were involved. Under the Contract Act 1872,
which governs all license agreements, the parties to a contract have a right to
agree on their own terms and conditions provided they are legal. This freedom to
negotiate and settle terms included the right to refuse a license; however, in case
of a patent granted in India, if a license has been refused to a potential licensee,
then an interested party may approach the Controller for a grant of a compulsory
license provided:
• Three years have passed since the patent was granted;
• The applicant must show that the patented inventions is not available to the
public in reasonable quantities; and
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Entering Markets • For a reasonable fee; or
• The patent is not being worked in India.
• Defining Patent Thicket: A patent thicket has also been defined as the
utilisation by a patent owner of some patents but not others, or the failure to
license others for the purpose of obtaining or maintaining an illegal
monopoly. Seen from another perspective, patent thickets are used to defend
against competitors designing around a single patent. This is particularly
true in the electronic industry.

That as it may, it is better to be safe than sorry; and a skilfully conducted FTO
helps navigate through a patent thicket especially where the field of invention is
such as that of nanotechnology. Patenting and/or commercialising in the area of
nanotechnology can be a tricky situation because of its multidisciplinary nature.

This thicket of patents can partially be attributed to the complex nature of

nanotechnology itself and to the fact that much of the field is the result of
cumulative innovation, where innovations build on many previous innovations.
Because multiple patents from competing group may cover each incremental
innovation to some degree, a large of overlapping patents is inevitable as complex
technologies become commercialised.

Although, much nanotechnology innovation may take place in one particular

industry, being essentially a multidisciplinary field, nanotechnology inventions
(and patents thereon) overlap a wide range of scientific and technical disciplines
including biotechnology, material science, physical chemistry, synthetic chemistry,
electrical engineering and electronics.

For instance: It is no surprise then that a patent on a nanotechnology platform

that was originally developed for one industry can affect other industries as
well. For example, a technology originally developed to create nanostructures
in semiconductor microchips may also be used to create nanostructures for
microelectromechanical system based medical devices. A patent on this
nanotechnology platform, in addition to covering the semiconductor application,
could also cover the medical device application even if it was not foreseen.

Thus, for an invention relating to medical device, this means that relevant
technology patent owners are not necessarily in the life science and healthcare
industries-and that there are potentially more players in the field than at first
glance.

Having a comprehensive view of patent landscape is vital to operating in the

nanotechnology space because multiple patents from different sources may need
to be licensed to bring medical devices using nanotechnology to market.

A nanotechnology-based medical device will probably implement multiple layers

of nanotech platform, for instance, in an invention relating to a hip implant with
a nanocomposite coating that is designed to improve tissue regeneration around
the implant there may be number of clearances required such as licenses to operate
the invention. License from three different IPR owners may be required such as
• Licence for the nanocomposite coating from the supplier,

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• Licence from the owner of the raw nanomaterial component of the coating, Conducting FTO and
Navigating Pitfalls
• Licence for the technique for applying the coating to the medical device.

In this types of invention, rather than conducting an FTO, what is required is a

patent landscaping exercise early in the product development cycle before
substantial amount of time, money and manpower is spent on developing such a
device. A well-planned licensing strategy can help manufactures avoid a situation
in which a company licenses on set of patents to develop a product only to learn
later on that more patents need to be licensed.
• Options if FTO indicates possibility of infringement: If the FTO search
is clear, the product launch can be carried out as planned; however, if an
FTO search indicates the possibility of infringement, the organisation has a
few options:
a) Inventing around or design around the patent; it entails going back to the
research desk to design a product or process hat circumvents the possibility
of infringement of another’s IPR.
b) Licence agreements: the organisation may consider entering into licence
agreements with the patented product owner or the IPR owner to ensure
that the organisation’s product has a freedom to operate in that territory. It
may be the simplest way to enter a new market to commercialise a new
technology, product or services.
c) Cross licensing: this option may be considered if the organisation has a
robust and valuable IPR or patent portfolio that is of value to potential
licensing partners.
d) Pooling of IPR: by one or more company of their patents or copyright for
quicker and less tedious access to the IP rights. A major example of such
pooling is that of patent pools.

To regulate, patent pools refer to a consortium of two or more companies that

agree to pool together their patent relating to a particular area of technology.
This prevents the blocking of patents, saves patentees and licensee time and
money and allows for quicker development of the invention in that particular
field of technology like Sony, Philips and Pioneer pool inventions that are essential
to comply with certain DVD Video and DVD-ROM standard specifications.
• Points to remember:
a) FTO is part of a due diligence exercise.
b) FTO helps minimise risks while entering new markets such as infringing
third party intellectual property rights including patents, trademarks and
design rights.
c) An FTO should be country specific.
d) It is preferable to obtain a legal opinion.
e) Preferably, the legal opinion is from a reputed law firm in the target country
of export.

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Entering Markets f) Apart from identifying potential infringement, an FTO may also help identify
potential licensors as well as licensee in the target country of export.
g) FTO may provide avenues for new business partnerships by way of cross-
licensing, complementary licensing or patent pools.

It is not just in the area of patent or copyright that due diligence must be conducted
and a clear freedom-to-operate opinion be obtained from a reliable source. The
freedom-to-operate must encompass to the entire gamut of rights and assets before
the company considers:
• Commercialising a product or service in a new territory; or
• Commercialising a new product or service in the same territory.
In a very recent incident, a leading business house dealing in white goods wished
to launch a product in the home territory. Being aware of enforcement issues in
IPR matters, they decided to conduct an FTO before the launch of the white
goods in question. Surprisingly, they found a valid patent in force in India by a
foreign competitor. Not only was the patent valid in India, it was also in force.

14.3 SUMMARY
• As we have discussed on the Due Diligence in the earlier unit, in this Unit
we have further studied on how to conduct Freedom-to-operate (FTO).
• An FTO search helps minimize some risks with regard to infringing
intellectual property rights of others in the proposed country of operation.
• FTO search is also a great way to improve chances of finding business
partners and attract investors to support business development plans.
• Further the discussion has been made on the method of FTO search and its
significance. The planning for the launch of a new product is careful
understanding of the markets to minimize the losses and the risks especially
in the case of patent.

14.4 SELF ASSESSMENT EXERCISES

1) What is an FTO?
2) What are the benefits of an FTO and who conducts it?
3) Briefly describe the steps of an FTO analysis in for a company planning to
enter into a new market with a new product.

14.5 REFERENCE AND SUGGESTED READINGS

1) New Product Launch: Evaluating Your Freedom to Operate, Esteban Burrone,
Consultant, SMEs Division, WIPO
2) Intellectual Property Management in Health and Agricultural Innovation – a
handbook of best practices, Edited by Anatole Krattiger, Richard T. Mahoney,
Lita Nelsen, Jennifer A. Thomson, Alan B. Bennett, Kanika ram
Satyanarayana, Gregory D. Graff, Carlos Fernandez, Stanley P. Kowalski

18
 Conducting FTO and
UNIT 15 PATENT MINING, Navigating Pitfalls

LANDSCAPING AND MAPPING

Structure
15.1 Introduction
15.2 Patent Mining and its Significance
15.3 Patent landscaping and its Significance
15.4 Patent Mapping and its Significance
15.5 Summary
15.6 Self Assessment Exercise
15.7 Reference and Suggested Readings

15.1 INTRODUCTION
“IP management is the direct connection of R&D to the marketplace”. These
words of Dr. Joe Daniele, former Director of Licensing at Xerox in a 1993 given
in a speech before the Licensing Executives Society (LES) capture the essence
of IP portfolio management.

Patents are the most valuable and comprehensive source of the technological
information and thus are very crucial for the industries. A clear and effective IP
strategy critically incorporates a clear and effective strategy for managing an
organization’s patent portfolio.

Along with a very strong IPR protection and enforcement system, a very strong
IP portfolio positions an organization in an enviable position to compete in the
global market. An organization’s IP portfolio comprising its designs, trademarks,
copyrights and trade secrets is critical to its success. Much of the value from a
portfolio can only be realized through its effective management. Of equal
significance is the competitor’s IP portfolio and the contents therein. This
information may play a crucial in planning, setting future goals and strategizing.
On the flip side mismanagement of IP can be as lethal to competitive positioning
and new product development as poorly drafted patent filings, or worse, picking
the wrong technology platform.

The tools used in unearthing value in a portfolio and using it to project trends
are:
• Patent mining
• Patent landscape
• Patent mapping

15.2 PATENT MINING AND ITS SIGNIFICANCE

Patent mining or data mining is a process of discovering meaningful new
correlations, patterns and trends by sifting through large amounts of data stored
in repositories, using statistical, data analysis and mathematical techniques.
19
Entering Markets It must mean the active scanning and analysis of ALL patents that can directly
affect your business and technology development practice. Patent mining is a
strategic and core function for any IP-centric corporation seeking to tie technology
development to business strategy and provides a foundation to help managers
make strategic decisions regarding IP acquisition and technology development.

But if patent mining is more than an operational task for the IP law department,
who “owns” it in a typical corporation: legal, the CTO or the CEO? Harry
Gwinnell, Chief IP Counsel at Cargill Inc., says: “The greatest likelihood of
success lies in establishing a business group, visible throughout the company, to
identify and execute hidden opportunities”.

In turn, that requires tools and techniques to help understand portfolio content,
how and where this fits in with the organization’s competencies and what the
market opportunities are for exploiting the technology owned.

There is also a need to identify gaps where complementary technology can be

licensed in and identify non-core technology where know-how can be licensed
out or divested for financial return. This is the province of patent mining.

15.3 PATENT LANDSCAPE AND ITS

SIGNIFICANCE
Patent landscaping is suitable for planning research in virtually any area of
technology. It can also indicate the most efficient way to achieve research goals.
Because it is so informative, patent landscaping is a powerful tool for strategic
research planning. A patent landscape reveals past and present activities of various
top and small players in a given broad-spectrum of technology. The landscape
reports can be useful for the business strategists, market analyst, scientists and
attorneys take key decisions in new product development, R&D planning and
strategic development. Thus patent landscaping studies is vital in today
competitive market, to gain competency in the today’s versatile market.

A patent landscape analysis is a strategic element of a new product market launch.

It helps understanding the business risks (infringement) and opportunities
(partnerships) presented by the intellectual property. Patent landscaping requires
an understanding of patent law and is an art performed by patent agents or patent
attorneys.

We can best understand the kind of insight a patent landscaping study can provide,
however, by reviewing a specific example of patent landscaping analysis.

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 Patent Mining,
Landscaping and Mapping

Courtesy : Inrea Research, Mumbai

A bird’s eye view of the landscape above shows that maximum research is being
undertaken in the area of Electrical sciences with Samsung being the leader with
169 patent families in this area of science. The landscape shows that the Samsung
is strong in the area of Chemical applications as well. Hon Hai Precission and
Intel are focussing on thermal applications. Sony is actively undertaking research
in the area of Chemistry with 20 patent families. Hyperion Catalysis is focused
on chemistry and mechanical applications. Scimed Life Systems is a strong
contender in the area of Biological sciences with the company holding 8 patent
families. The landscape further shows that no major research is being undertaken
in the areas of Optical, Analytical Instruments and Electro-Mechanical sciences.

15.4 PATENT MAPPING AND ITS SIGNIFICANCE

Patent map refers to a visual representation of related patent information. Such
information may be gathered by searching related patent information in specific
areas of technology, processing the searched information and thereafter analysing
it on the basis of pre-determined parameters.

In the prevailing scenario where there the invenstment of time, money and
manpower is usually on a large scale basis, the mapping the patent landscape
becomes significant in helping cut costs. Both the R&D teams and the commercial
arm of the organization benefit from an understanding of a well conducted
comprehensive patent landscape. The organization can then not only focus on
the best opportunities for their R&D, it can also create a business strategy to
protect and commercialize their IP.

In effect a patent map is a tool to analyze all the existing patents / patent
applications in a given field of technology to determine the opportunities as well
the risks. The opportunities would be in terms of the ‘white spaces’ that opens
21
Entering Markets new untapped areas of research while the risks would indicate the specific areas
that ought to be avoided in order to ensure that there are no overlapping areas of
research and therefore infringement of valid patents.

Apart from identifying patent thickets, the other information could be :

a) Identifying serious competitors in a particular technology area since the
map would reveal all the applicants including those to whom the patent or
the patent application has been assigned. This is a very common way of
gathering competitive intelligence.
b) Identifying the top inventors in each of these companies since all patent
documents provide inventors names and addresses. A careful study can
indicate whether the subject matter of the patent / patent application was
invented in-house of whether it was acquired from outside the organization’s
R&D labs.
c) The study could also reveal the focus of future research projects that is
being adopted by both the immediate competitors as well as the research
trends world-wide.
d) The competitor’s strengths and problem-solving approach is also
revealed from a study of the patent specification and the best method practices
described therein. A competent patent attorney would be best suited to
understand the implications and translate the same to the business
development team in order to strategize around this information.
e) The particular R&D unit of their competitor that specializes in a particular
technology area, especially when the competitor has diverse very successful
business practices. These may not be immediately useful but help in the
long term planning especially involving mergers and acquisitions.
f) The various minor/localized ecosystems which support a particular area
of technology. It may not sound much and may lack an empirical formula,
but history is witness to the fact that certain ecosystems support a particular
form of activity more than the other especially true of places like Florence
of the 18 and 19th century as artists’ haven. Similarly, the 20th century has
been witness to technology specific ecosystems that support excellent
research in certain areas of technology. A case in point is that of Silicon
Valley in the US and the Silicon City closer home.
g) Identifying licensing partners to negotiate in-licensing or out-licensing
of technologies becomes much more easier once the organization has clear
ideas of the strengths and weaknesses of the organization with whom he is
going to negotiate.
h) This same study spills over to the identification of partners for cross-
licensing. The patent mapping exercise clearly reveals those organizations
that have technologies that you may wish to use or that may threaten
infringement action against you. Having such information can pre-empt
litigation or even forge alliances for joint R&D to develop new platform
technologies that require different types of expertise.
i) The study also provides information on paradigm shifts in industries
undergoing rapid change or transition. There is a fair understanding of
22
 shifting of focus areas especially post merger and acquisition by a major Patent Mining,
Landscaping and Mapping
competitor.
j) Emergence of new competitors also brought into focus and into the
collective consciousness of the organization conducting the landscape study
and analysis.

The production of patent maps is conducted in the form of a joint project by

experts on patent information analysis and specialists on each technology field.
A minimum of thirty thousand patents are extracted for each technology field
which are then analyzed using various methods in order to perform this work.

15.5 SUMMARY
• In this Unit we have examined the significance of due diligence. The unit
has discussed briefly the significance of patent mining, patent landscaping,
and patent mapping.
• A patent landscaping is a comprehensive analysis of patent helping scientists,
businessmen and attorneys to make important decisions in the investments,
planning, development and launch of new products. And in the case of patent
mapping, it allows to create a visual representation of information from and
about patent documents in a way that is easy to understand. It is an excellent
tool for assessing large sets of patent data.
• Due diligence is very important

15.6 SELF-ASSESSMENT QUESTIONS:

1) Why is due-diligence a necessary process for an organization?
2) What are the benefits of conducting a due diligence on an organization’s IP
portfolio
3) What is patent landscape?
4) Name 5 benefits of a due diligence on a patent portfolio

15.7 REFERENCE AND SUGGESTED READINGS

1) Patent data mining and effective patent portfolio management by Bob
Stembridge and Breda Corish
2) Business Use of Patent Information – www. epo.org
3) Guide Book for Practical Use of “Patent Map for Each Technology Field” -
Japan Patent Office, Asia-Pacific Industrial Property Center, JIII

23
Entering Markets
UNIT 16 DUE DILIGENCE IN OTHERS
AREAS OF IP LAWS
Structure
16.1 Introduction
16.2 Trademark Related Matters
16.3 Copyright
16.4 GI Vs Trademark
16.5 Summary
16.6 Self Assessment Exercise
16.7 Reference and Suggested Readings

16.1 INTRODUCTION
While the main focus of strategization appears to hinge on the patent portfolio
and its correct analysis, there is an equal and sometimes more immediate due-
diligence required in the more visible intellectual properties and assets namely
trademark, copyright, design etc. Unlike the patents which deals with inventions
that are not immediately discernible to the lay-person, trademarks and copyrights
as well as designs a visually discernible intellectual properties and therefore a
lack of due-diligence is immediately discernible and often the retribution is
immediate.

Further, unlike patents which deal with technology and therefore use its own
unique language and jargon; the visual IPs are used for the first level of
communication with the consumers and therefore have to speak the language of
the consumers themselves. Therefore, it becomes imperative for an organization
to be socially and culturally sensitive before forging ahead with the marketing
spiel.

16.2 TRADEMARK RELATED MATTERS

Have been veritable minefields for major faux pas not just with regard to the
standard due diligence which involves trademark search in the nation’s trademark
register, but also due to unawareness of the local social mores and cultural pitfalls.

Traditional trademark search involves, a trademark search conducted by the user

or his attorney in the trademark database hosted by the Trademark Office in the
relevant class(es) of interest. This search provides a fair idea as to whether the
proposed to be used trademark has any serious competition/ threat from a local
user having a similar registered trademark in the country where it is to be
introduced.

Many countries have come together to ensure that well-known trademark are
accorded recognition even when they are not commercially traded sales in a
particular country. This is in order to avoid dilution of marks.

24
Some of the common faux pas caused as a result of not conducting a proper due Due Diligence in Other
Areas of IP Laws
diligence include:
• ‘Coca-Cola’ when translated into its nearest sounding Chinese equivalent,
it meant ‘bite the wax tadpole’. Similarly, in Cuba it meant ‘Fear Coca
Cola’.
• ‘Ford Caliente’, meaning “hot” in Spanish, is also slang in many countries
for “streetwalker.”
• When French speakers pronounce the ‘Toyota MR-2’ product name, it sounds
like “merdeux”, a profane word equivalent to the English “shitty.”
• ‘Nissan’ sought to sell a sports car in the United States in the early 1970s
called “Fair Lady.” It later sold better as the 240Z.
• The ‘Honda Fitta’ was renamed ‘Jazz’ after discovering that fitta is Norwegian
and Swedish slang for the female genitals
• ‘Reebok’ named a women’s sneaker Incubus. In medieval folklore, an incubus
was a demon who ravished women in their sleep.
• ‘Irish Mist’ introduced its drink brand in Germany without knowing that
“mist” is German slang for excrement.

‘Rolls Royce’ didn’t make the same mistake with its “Silver Mist” model in the
1960s, after realizing what the word meant in German–a potentially lucrative
market for the car–they wisely changed the name to the “Silver Shadow.”

Thus misunderstanding the customs or languages of the foreign country and not
doing proper due diligence may kill a brand even before entering a new market.
At the same time doing a proper due diligence may yield wonders as in the case
of Pepsi, which changed its name in Argentina to “Pecsi” to reflect the way it is
pronounced there.

Conducting a due diligence while purchasing a trademark is very important as to

ascertain the value of the trademark and whether the trademark is valid, infringed,
or infringing on any other trademark. All of these are important considerations
when purchasing a company or some of its trademark assets. This due diligence
should include all the trademarks including current trademarks, logos, slogans
or brands, service marks, trade names, trade dress as well as domain names. The
due diligence should also include verification of ownership, scope and strength
of the mark. Further, whether the mark is registered or not, if yes, whether the
proper maintenance fee has been paid or not.

Due diligence on trademark related matters could start with a preliminary

trademark search which could include a review of the trademarks both on the on
the internet search engines and on the databases of the major trademark offices
of the world like the U.S. Patent and Trademark Office (USPTO) or the
Community Trademark (CTM), that are identical or confusingly similar to the
mark. For instance, a trademark search could initially be conducted on the USPTO
website. The USPTO trademark database generally includes abandoned marks,
cancelled marks, pending registrations, and registered marks. Depending on the
mark at hand, the trademark search could include several searches directed to
the mark itself, individual components of the mark, spelling variations of the
25
Entering Markets mark, phonetically similar marks, and other suitable searches. If the trademark
search yields any marks that are identical or confusingly similar, then those marks
could be distinguished from the mark at hand. Otherwise, further investigation
may be required to decide whether the mark should be adopted.

Next step in the exercise of due diligence could be search of domain names that
include identical or confusingly similar marks. For example, the trademark search
could include using the “whois” domain name registration database. As with the
other trademark searches, a domain name related trademark search could yield
the mark itself, individual components of the mark, spelling variations of the
mark, or phonetically similar marks that could be identical or confusingly similar
to the mark at hand.

All assertion of trademark or trade dress infringement should be reviewed and

assessed for risk, especially when protection for the mark has not been obtained
in that country.

16.3 COPYRIGHT
Conducting due diligence at the time of buying a copyright can inform the
purchaser of a copyright with regard to the value of that copyright, and whether
the copyright is valid, infringed, or infringing on another copyright. Particularly
in the software context a great deal of care must be taken when purchasing these
types of assets.

The following steps should be taken as a part of the due diligence exercise while
purchasing assets in which copyright persists:
• Verification of ownership – The purchaser should be very attentive while
buying the asset in which copyright subsists more specifically, when the
author is the employee of an organisation or has been hired to create a work
i.e. under contract of service where employer normally enjoys the power of
control over the work of the employee and the employee is bound to obey
the orders/instructions of the master. Hence, in most cases of contract of
service, the rights vest with the employer. However, the situation is entirely
different in the case of contact for service. Thus, before purchasing a
copyrighted material, it is very important to check if the work has been
created under a work-for-hire agreement.
• Verification of registration: Although the registration of copyright is not
necessary, it usually gives the edge in case of any litigation and is of help
while calculating damages.
• Verify scope of copyright – Although this is important only for software
copyrights, certain elements of software code are not protectable, such as
parts of a program which are used to achieve compatibility with other
software and/or hardware, and aspects of a program that conform to industry
standards. One must be careful to check what was claimed in the original
copyright registration when filed.
• Copyright licences - When the company or person bought its copyright
from someone else, the scope of the company’s rights is defined by the
copyright license agreements. Therefore, it will be very important, to check
26 the scope of the licence before buying.
Due Diligence Checklist for Copyrights: Due Diligence in Other
Areas of IP Laws
1) Identify all copyrighted materials used in or associated with the acquired
business. Provide copies of applications and registrations.
2) Check title to and payment of renewal fees (for older copyrights) for
copyrights by searching the Copyright Office records.
3) Identify Seller’s procedures for identifying copyrightable material, clearing,
using and protecting copyrights, including procedures for deciding whether
to mark materials and/or filing registrations.
4) Are works for hire provisions being followed? Provide documents. Has Seller
obtained assignments of copyrighted works, e.g., blueprints or software,
from consultants and independent contractors? Provide copies.
5) Has there been any modification of any original registered copyrighted work?
Provide details.
6) Have there been any prior assignments of the copyrights? Have the
assignments been recorded? Provide documents.
7) Identify all agreements dealing with copyrights, e.g., licenses, whether Seller
is licensor or licensee. Provide copies. Are they assignable or transferable?
Are consents necessary? Termination dates? Any restriction or limitations?
8) Identify revenue streams or payment obligations associated with each license.
9) Are there any restrictions or limitations on the use of the copyright portfolio
or third party ownership rights?
10) Provide all searches, conclusions, reports and opinions, whether internal or
external, that Seller possesses concerning the validity of its copyright
registrations, the scope of rights, the infringement of its copyrights by others,
and infringement of third party copyrights by its activities.
11) How has Seller enforced its copyrights in the past? What is Seller’s copyright
notice policy?
12) Provide copies of all correspondence relating to copyright disputes, cease
and desist letters, letters alleging infringement, letters threatening lawsuits
and other legal notices received or sent by Seller.
13) Identify all litigation involving the copyrights and provide copies of
complaints, answers, motions, judgments, settlement agreements.
14) Does any action need to be taken during the transition or due diligence periods
to protect the copyrights?

Courtsey: Checklist for Due Diligence in Intellectual Property Transactions,

Mary Ann Tucker, The BF Goodrich Company

16.4 GI VS TRADEMARK
Before proceeding further in any business transaction, it is necessary for the
buyer to enquire whether the trademarks owned by an organisation are in any
conflict with the Geographical Indications. This is especially important in India
27
Entering Markets where the GI laws of the country do not allow any Geographical Indication to be
registered as a trademark. The GI act provides for the prohibition of registration
of GI as a trademark, especially it is of such a nature as to confuse or mislead the
persons as to the true place of origin of goods.

Thus it is imperative that before spending money in purchasing any trademark,

legal advice should be sought to determine whether any conflict exists between
the trade mark or a geographical indication. Registration of a pending trade mark
may be refused if the mark is in conflict with a geographical indication.

Due diligence Checklist:

• Review all current patent, trademark, service mark, trade name, and copyright
agreements, and note renewal dates.
• Obtain an itemization of all pending patent applications.
• Determine annual patent renewal costs.
• Determine the current patent-related revenue stream.
• Document the patent application process. Have any potential patents not
been applied for?
• List all trademark and service mark registrations and pending applications
for registration. Verify that all affidavits of use and renewal applications
have been filed, and prosecution of all pending applications is current.
• List all unregistered trademarks and service marks used by the organization.
• Collect and catalog copies of all publications and check for unlisted
trademarks and service marks, proper notification.
• List all copyright registrations.
• List all registered designs.
• Does the company have any information that provides a competitive
advantage? If so, verify that the information is marked as “confidential.”
• Have all employees executed Invention Assignment and Confidentiality
agreements?
• Obtain copies of all licenses of intellectual property in which the company
is the licensor or licensee.
• List all lawsuits pertaining to intellectual property in which the organization
is a party.

Brands:
• Review any branding strategy documents. Does the company have a long-
term plan for brand support?
• Review budgeted and actual expenditures for customer support, marketing,
and quality assurance related to branding.
• What types of advertising and promotion are used?
• Ensure that the company has clear title to any branded names.
28
• How well is the brand supported on the company Web site? Due Diligence in Other
Areas of IP Laws
• Note the amount and trend of any legal fees needed to stop brand
encroachment.
http://www.accountingtools.com/article-merge-due-diligence-ch

16.5 SUMMARY
In this Unit we have learnt on how to conduct Due Diligence under each
intellectual Property right ranging from patent, trademark, copyright, geographical
indication, and trade dress. The strategies on conducting such due diligence have
to be understood carefully. For example in the case of trademark; Communicate
Strategy and Plans, Identify Rights and Verify Ownership, Assess the Strength
of the Trademark Rights are very important strategies.
• The examples have been provided in order to make more understanding on
how to conduct such due diligence.

16.6 SELF ASSESSMENT EXERCISE

1) Is due diligence important in other areas of IPR as well? Give reasons for
your answer.
2) What role due diligence plays in trade mark related matters?

16.7 REFERENCE NAD SUGGESTED READINGS

1) Rembrandts in the Attic: Unlocking the Hidden Value of Patents by Kevin
G. Rivette and David Kline
2) Edison in the Boardroom: How Leading Companies Realize Value from
Their Intellectual Assets by Julie L. Davies and Suzanne S. Harrison
3) Profiting from Intellectual Capital by Patrick H. Sullivan
4) Websites of USPTO, OHIM, IP Australia and Indian Patent Office
5) From Assets to Profits: Competing for IP Value and Return (Intellectual
Property-General, Law, Accounting & Finance, Management, Licensing,
Special Topics) by Bruce Berman
6) There May Be Trouble Ahead: A Practical Guide to Effective Patent Asset
Management by Lex Van Wijk

29