Could it be infringing on another company's patent? A complete guide to the Preventative Compromise Investigation (FTO) you should perform before app release

"All the source code was written from scratch by our own engineers. There is no imitation by other companies, so there is no possibility of patent infringement."

I often hear these words from business owners and CTOs who are about to release a new app or SaaS. His confidence and pride are amazing. However, from the perspective of a patent attorney specializing in intellectual property, ``writing the code in-house'' and ``not infringing another company's patent'' are, unfortunately, completely different issues.

What would happen if, just as the service you worked so hard to release is starting to get off the ground, you receive a ``Patent Infringement Warning Letter'' by certified mail from an unknown company?

In the worst case scenario, the app will be removed from the app store, the server will be shut down (demand for an injunction), and a huge amount of damages will be requested for past sales... There is a lurking risk that the business you have built up will collapse in an instant.

In order to prevent such nightmares from occurring, a "Freedom to Operate (FTO)" is essential.

In this article, for management teams and development managers of IT/startup companies, we will provide a thorough explanation from the actual field, including why "complete in-house development" is considered a patent infringement, what exactly an FTO investigation entails, and what to do if a risk is found.

1. Why does “in-house development” constitute patent infringement?

In the IT industry, there is a widespread ``fatal misunderstanding'' caused by confusion between copyright and patent rights. Let's get this sorted out first.

Copyright to protect “expression”, patent right to protect “idea”

Program source code is protected as a "copyrighted work" just like novels and paintings. Therefore, if you are not copying and pasting another company's code, it does not constitute copyright infringement.

However, Patents protect the "technical idea (invention)" itself.

For example, there is a function called ``Pull-to-Refresh'' by pulling the smartphone screen down. In the past, companies such as Twitter (currently Company X) held related patents.

Suppose you implemented this feature using your own algorithm and programming language without looking at a single line of Twitter's code. Although it is safe from a copyright perspective, there is a high possibility that it will be out (infringed) from a patent right perspective.

When determining patent infringement, it does not matter whether there was imitation (reliance). This is because it is a very powerful right that can be determined solely by ``does the patent have the same function and structure as the content of the patent?''

The “invisible minefield” unique to the IT industry

In the manufacturing industry, the possibility of patent infringement can be predicted to some extent by disassembling (reverse engineering) competing products. However, the IT field, especially software and business model patents, is characterized by the fact that it is difficult to understand what kind of patent network is in place just by looking at it from the outside.

• UI/UX patent: Patent related to screen transition method and button arrangement

• Data processing patent: Patent related to data processing on the server side and AI learning flow

• Business model patent: Patent related to billing system and matching mechanism

Even though these functions may seem ``obvious'' at first glance, there are many cases where some company actually holds powerful patents. This is the biggest reason why IT startups unknowingly step on landmines.

2. What is a Preventive Compromise Investigation (FTO)?

FTO (Freedom to Operate) survey is a survey to confirm the "freedom to operate" as the name suggests. In Japan, it is also called "infringement prevention investigation," "clearance investigation," and "patent clearance."

Definitive difference from "pre-application search (prior art search)"

They are often confused, but their purposes are completely different as shown below.

• Pre-filing search (prior art search):

  • Purpose: We want to know whether our invention can be patented (is it new)?

  • Target: All literature in the world (including papers).

• Preventive Compromise Investigation (FTO):

  • Purpose: We want to know whether our products can be sued by other companies (are they safe)?

  • Applicable to: Currently valid (living) patent rights of other companies.

Even if you do not plan to obtain a patent, FTO is an "essential defense" as long as you are releasing a service to the world.

3. What if I release it without investigating it? Three specific risks

What risks await us if we spare no expense and skip the investigation? Let's do a concrete simulation.

Risk ①: Forced suspension of service (injunction request)

The most powerful right a patent holder has is the "right to seek an injunction." You can order them to stop using or providing services that infringe on your patent.

For IT services, this means "request for removal from the app store" or "stop the server."

Apple and Google in particular are sensitive to claims of intellectual property infringement. In some cases, even before a court decision is issued, an app may be temporarily suspended upon receiving a warning. The loss of trust from users and the loss of billing opportunities are immeasurable.

Risk ②: Huge damages and license fees

If infringement is determined, you must retroactively pay part (or all) of the profits you earned from using that function as compensation.

In addition, even if you try to conclude a "license agreement" to continue the service, you may be asked to pay an exorbitant running royalty (usage fee). For business models with thin profit margins, this can be fatal.

Risk ③: Death march due to “rework” of development

In order to avoid service outage, it is necessary to make a "design change (avoidance design)" to correct the part that violates the patent.

It's easy to fix it at the design stage before release, but fixing it after release is hell.

Impact on running database, user interface changes, bug checks... The development team stops developing new features and becomes busy with backward-looking fixes.

4. Specific process and implementation timing of FTO investigation

We will publish the practical flow of a patent attorney, showing how an investigation is actually conducted.

Step 1: Identifying the investigation target (scope definition)

Exploring all the features of an app can be expensive. First, a patent attorney and an engineer have a meeting and pick out ``features that appear to be high risk'' and ``features that are highly unique to the company (=features that are likely to be patented by other companies)''.

Step 2: Population search/screening

Using a patent database, we will list thousands to tens of thousands of patents by combining related keywords and patent classifications (IPC/FI). From there, researchers and patent attorneys visually narrow down the items that are likely to be related to between a few dozen and a hundred cases.

Step 3: Comparison with claims

Compare in detail the "claims" of the extracted patents and the specifications of your company's services.

Legal interpretation (constituent requirement sufficiency) is required here.

• Opponent's patent: "System comprising A, B, and C"

• Our product: "A system that includes A, B, andD"

In this case, since there is no C, can it be said to be "non-infringement"? Or is D an "infringement" because it is substantially the same (equivalent) as C? We make professional judgments such as:

The best time to implement is "when specifications are finalized"

The best time to conduct an FTO survey is when the requirements have been defined and the basic design has been finalized.

Before you start coding, even if a dangerous patent is found, there is a high possibility that it can be avoided by just changing the specifications slightly.

5. What should you do if you get a “black (infringement)” judgment?

There is no need to despair even if the result of the investigation is that there is a high possibility that your patent will infringe on another company's patent. In fact, we should be glad that we found it before it was released. The patent attorney will recommend the following measures:

Measure A: Design Around

This is the most common and reliable method. We analyze the scope of patent rights (claims) in detail and avoid infringement by ``removing some of the constituent elements'' or ``replacing them with other technical means.''

A patent attorney will provide specific technical advice such as ``If this processing flow is performed on the terminal side rather than the server side, it will not violate the patent.''

Measure B: License negotiation/patent purchase

This is a method of contacting the other company and formally obtaining permission to use it. However, if it is a competing company, you may be refused.

Measure C: Invalidation trial/information provision

This is a method of finding evidence that the patent "should not have been patented in the first place (similar technology already existed in the past, etc.)" and claiming "invalidity of the patent" to the Japan Patent Office. The approach is that attack is the best defense.

6. FTO is for startups and venture companies

"Isn't an FTO investigation something that big companies with the budget do?"

You might think so. However, weak startups need FTO to avoid instant death due to a single lawsuit.

Due diligence measures by investors (VC)

For financing after Series A, legal due diligence is performed by VC.

In this case, if there is a report stating that ``the main functions have been investigated by FTO and confirmed to be legal (or workarounds have been designed)'', investors will feel extremely secure. It proves that the company's finances are effective, and it also contributes to improving corporate value (valuation).

Discovering “white space”

FTO investigations have other benefits besides protection. By researching other companies' patents, you can find out in which areas patents have not been granted (=white space).

If you attack an area where other companies don't have the rights and apply for a patent yourself, it will completely turn into an opportunity to build your advantage in the market.

Summary: FTO is an investment that increases the probability of business success

"Infringement prevention investigation" is not a cheap purchase. It can cost up to several hundred thousand yen.

However, compared to the amount of compensation for damages if you run into trouble after release, the loss due to service suspension, and the risk of brand damage, it can be said to be an extremely cost-effective "insurance".

Intellectual property risks in IT business are invisible. That's why a radar (investigation) by a professional is necessary.

• "Aren't other companies doing something similar with this new feature?"

• "That company, a major company in the industry, seems to have started issuing patents recently."

If you have any concerns, please consult with a patent attorney who specializes in the IT and software fields before development begins.

We will do our best to support your company's innovative services so that they can spread across the world without any legal constraints.

Next action for this article's target audience

• Free consultation: We will perform a simple diagnosis of "which parts of your app are at risk."

• Estimate: We will provide you with an estimated cost for an FTO survey depending on the number of functions and scope of investigation.

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