One of the fastest growing markets today is the cleantech market, which spans the energy, environmental, and biotechnology sectors, and focusses on mitigating environmental impact and conserving the environment and natural resources. Cleantech innovations often arise in a well-developed and rapidly evolving intellectual property space, and tend to integrate several pre-existing technologies from various scientific and engineering disciplines. Accordingly, in such an environment, strong patent protection and an awareness of one’s position within the industry can be integral to survival and can provide a competitive advantage when properly managed.
Patent due diligence can be broadly defined as an investigation into a company’s patent asset platform with respect to the state of the target industry, with a goal of identifying risks and opportunities. A well-designed and executed patent due diligence strategy can be beneficial to both the patent owner and the investor as it can uncover opportunities for further innovation or product development and help anticipate legal issues, such as risks of infringement, before they arise.
Selection of a proper patent due diligence team. An important initial consideration before beginning the patent due diligence process is ensuring that a proper patent due diligence team is in place given the specialized nature of patent law and the technically-sophisticated subject matter. The patent due diligence team should be experienced in patent law, due diligence and opinion work, and should have a technical understanding of the target technology and the related field to achieve effective communication with the client’s technical team and to ensure that all intellectual property angles have been fully explored. Otherwise, critical issues can be missed. Another important consideration in selecting the patent due diligence team is an awareness that certain communications generated in the course of the due diligence, if unprotected by solicitor-client privilege, could one day be accessed by a third party through discovery in preparation for litigation and potentially be used as evidence against the client’s interests. In Canada, jurisprudence indicates that solicitor-client privilege is not granted in respect of client communications with non-lawyer patent agents. Therefore, in the event of litigation, such communications could be admissible as evidence.
Opinion generation from patent due diligence. Patent due diligence can result in different types of opinions, such as an infringement opinion, a validity opinion, a freedom to operate opinion or a patentability opinion. It is important to note that the opinion should be balanced and objective instead of subjective and hindsight-biased, and should not misstate or misapply the applicable legal tests. The opinion should thoroughly discuss all of the relevant facts, clearly identify any limitations and any uncertainties in the law and its application to the facts, identify missing or unclear facts, discuss positive and negative factors affecting the end result, address any weaknesses in the target technology, identify remedial action if available, and discuss any post-delivery responsibilities of the parties such as those relating to updating the opinion or restrictions on its use. A properly conducted patent due diligence and any opinion arising from it should flag issues that merit additional consideration to enable the client to make an informed business decision as to which risks are acceptable and which are not, and whether to pursue potential opportunities. Foreign patent counsel should be engaged to separately opine on patent matters in foreign jurisdictions.
Patent landscaping analysis. A well-developed patent due diligence plan includes understanding the competitive patent landscape and its impact on the target technology aside from identifying and understanding the nature and scope of the client’s technology and related intellectual property rights, duties, and limitations. An investigation of the patent landscape can reveal where the client can and cannot go, and thus uncovers new patenting opportunities and potential infringement risks. This line of investigation can involve proactively identifying and evaluating foreign and domestic patents and patent applications in the target field, which may involve designing multiple search strategies and searching multiple databases, as well as considering non-patent academic and trade literature and the client’s own issued patents and published applications.
Assessment of potential threats. If threatening patents or pending applications are identified through the patent landscaping analysis, depending on the goals of the due diligence, further investigative activities may involve obtaining infringement and validity opinions. Infringement and validity opinions require a rigorous legal analysis, including construction of the claims within the legal framework, and a determination of whether the client’s product or process falls within the scope of the construed claims or whether the problematic claims may be invalidated in view of the prior art. Such a legal analysis may be significantly complicated in cases where the problematic claims support both broad and narrow construction regarding their scope. Broad claims that are considered valid can pose a risk because they may not be easily designed around. Therefore, unless a competitor obtains a license from the patent owner, it would risk a patent infringement lawsuit.
Conclusion. Patents are one of the most valuable assets for innovation-driven cleantech companies, which can maximize the value of these assets while minimizing risks by conducting a well-planned and on-going patent due diligence that can enable them to monitor and evaluate their position in the evolving competitive landscape.
This article originally appeared in the January 21, 2011 issue of The Lawyers Weekly published by LexisNexis Canada.
Kathy Rzeszutek, Vancouver