Part 2: Why Freedom to Operate Matters: Litigation Risk, Willfulness, and Timing
The Freedom to Operate (FTO) Deep Dive: Questions Your Company Should Be Asking
This is Part 2 of a six-part series on freedom-to-operate analysis. The series walks through what an FTO is, why it matters, how it works, what to do with the results, how it changes for software, AI, and international products, and the most common ways it goes wrong. See the full table of contents here.
Part 2: Why Freedom to Operate Matters: Litigation Risk, Willfulness, and Timing.
Patent infringement litigation is its own category of unpleasantness. There’s an old saying that “the only winners in patent litigation are the lawyers.” Patent litigation happens in federal court, takes two to four years to resolve in most cases, and costs millions of dollars in legal fees through trial. The basic question the court has to answer is whether your product practices every limitation of at least one claim of the asserted patent. If your product has every element of even one claim, you infringe, even if you didn’t copy the patent, didn’t know the patent existed, and developed your product entirely independently. Once a court finds infringement, the patent owner can recover damages going back six years from the filing of the complaint, can get an injunction stopping future sales in some cases, and (if willfulness is established) can get those damages tripled. The litigation process itself is expensive and intrusive, even if you win. Discovery typically requires producing internal emails, design documents, source code, and engineering personnel for depositions. The accused product becomes the centerpiece of years of legal scrutiny, with everything you said about it (in marketing materials, internal documents, customer pitches) potentially being used against you.
What’s At Stake If We Skip the FTO?
It’s worth understanding the specific risks:
Treble Damages. If a court finds infringement was willful, it can multiply damages by up to three. On a successful product, that can be a real number with real consequences.
Injunctions. Courts can order you to stop selling. For a hardware company with inventory, this means a lot of product cost that will not be recovered. For a software company with enterprise customers locked into multi-year contracts, it can be catastrophic.
Customer Indemnification Claims. Most enterprise contracts require you to defend and indemnify your customers if they get sued for using your product. One assertion against a major customer can trigger payouts across your entire customer base.
Failed diligence. Acquirers and institutional investors will usually ask whether you’ve done an FTO. Saying “we never looked” will lead to a discount on your valuation (at best) and kill the deal altogether (at worst).
Lost Leverage. Discovering a problem-patent during litigation is a much worse position than discovering it during product design, when you have time and options for design-around or licensing negotiations.
The cost of an FTO is generally a small fraction of the cost of even one of these outcomes.
How Does an FTO Help with Willfulness?
Willfulness is the thing that turns “we owe damages” into “we owe damages times three.” After the Supreme Court’s 2016 Halo decision, courts have broad discretion to enhance damages when an infringer’s conduct was “egregious,” and the analysis turns heavily on the accused infringer’s state of mind at the time.
A documented FTO opinion that predates the conduct, prepared by competent counsel, and based on real analysis is one of the cleanest ways to defeat the willfulness argument. In other words, you can’t have been willful if you had a well-reasoned, good-faith belief that you weren’t infringing.
A few things to know about how this works in practice:
- The FTO opinion generally has to actually predate the conduct. Retrofitting one after you get sued is worth nothing, and sometimes worse than nothing.
- The FTO opinion has to be substantive. A one-page conclusory letter saying “we think you’re fine” can do more harm than good if it ends up before a jury.
- You’re not legally required to get an FTO opinion. The failure to obtain an opinion can’t, by itself, be used to prove willfulness. The Federal Circuit’s Knorr-Bremse decision eliminated the old rule that not getting an opinion could be held against you. But the presence of a good opinion still helps a lot.
- But “no opinion” is rarely the same as “no risk.” Juries don’t parse legal doctrine; they evaluate stories. A defendant who knew about a patent and never engaged with it seriously looks indifferent, regardless of what the formal rule allows. The opinion isn’t required, but reasoned engagement with patent risk is, and a documented opinion is the cleanest way to demonstrate that engagement.
When Should I Get the FTO?
The short answer is “before the conduct you want it to cover.” The longer answer is more complicated (of course) and requires understanding what an opinion actually does and does not do for you over time.
Opinion Should Predate the Conduct It’s Defending. Willfulness (discussed above) turns on what you knew and believed at the time you were making, using, or selling the accused product. An opinion written in 2024 cannot, by definition, have informed your state of mind in 2022. If you launched in 2022 and didn’t get an opinion until you got sued in 2024, the opinion does very little for the 2022-2024 willfulness analysis. Two years of potentially willful conduct have already happened.
Material Product Changes Restart the Clock. An FTO from 2021 covers the specific version of the product that was sold in 2021. If you significantly redesigned the product in 2023, the 2021 opinion may not cover the new version, and you may need a refresh. The refresh only protects conduct after the refresh.
Retrofitted Opinions Can Be Worse Than Nothing. A company that gets sued and then immediately commissions its first opinion will be argued to be essentially saying “We didn’t think about this before.” This will be argued to support a willfulness argument for everything that happened before the suit. And if the post-suit analysis turns up real concerns or close calls, those internal documents can become problems in litigation, with privilege questions that are difficult to navigate cleanly.
Notice. Willfulness usually requires notice, which means that you knew about the patent. If you got a demand letter, a competitor’s licensing presentation flagged the patent, or someone called it out at a conference, it will be argued that you had notice. Continuing to ship the product without getting an FTO opinion after that point can be more difficult to defend against than ignorance. Once you receive a demand letter, getting an opinion becomes more important.
Post-Suit Opinions Still Have Value. Once you’re aware of a patent, continued sales of the accused product is its own conduct that gets evaluated separately. A post-suit opinion supporting continued sales can establish a good-faith basis for that ongoing conduct, which matters for damages accruing during the litigation. Post-suit analysis is also the foundation of the actual litigation defense and informs settlement strategy. It just performs a different role than a pre-suit opinion does.
It makes sense to get the FTO opinion when getting it still matters. That means before launch for the launch itself, before major redesigns for the new version, and immediately upon notice for any patent someone has put in front of you. Waiting until you get sued can leave you at risk for years of conduct that has already happened without the protection an opinion provides.
Once you have the FTO opinion, the next question is when to update it. A five-year-old FTO on a currently shipping product is usually no longer reliable. Your product has likely changed, the landscape has changed, and continuations filed years ago by competitors have now had time to issue. For active products in active spaces, an annual landscape refresh is reasonable; for fast-moving fields like AI, more frequent monitoring of specific competitor portfolios is increasingly becoming the norm.
When in the Business Lifecycle Does an FTO Matter Most?
There are specific moments when an FTO provides the most value.
Product Conception/Design. At the conception/initial design stages, the design is still flexible, and you can design around a problematic patent for the cost of an engineering decision instead of a product recall.
Fundraising. Sophisticated investors will ask about IP risk, particularly when you’re selling B2B or other enterprise-type sales where the contracts will often have IP indemnification clauses. Having already worked through this when the questions come can improve your fundraising success.
Entering a New Market. Adding an entirely new product line or entering a new industry? You may not know as much about the new product/industry as you know about your current product/industry. Expanding to a new geographical market? Different countries have different patent landscapes, with different rules. These types of changes to your market make it worth a fresh look before you launch in the new market.
Inflection Points. Businesses often have a few major inflection points, such as a big customer deployment, a new partnership with a public company, or going from “stealth” to visible. Visibility increases the probability of being asserted against.
M&A. Both sides of the deal will want to know what the FTO looks like. The buy side will want to know the risk profile of what they’re buying, and the sell side will want a clean transaction that doesn’t come back to haunt them years later.
An FTO matters because patent infringement is high-stakes, willfulness can triple the damages, and the timing of the opinion determines what protection it actually provides. The companies that handle this well don’t treat it as a one-time clearance check. They treat it as a process integrated into product development, fundraising, market entry, and M&A.
Part 3 picks up the next obvious question: what does an FTO actually look like under the hood? How does the analysis work, and what makes a good one different from a bad one?