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Licensing vs. Litigating: What an FTO Opinion Should Tell You About Your Options

7 days ago
9 min read

Most founders and product heads get an FTO opinion the same way. A thick document lands in the inbox. It has claim charts, patent numbers and phrases like “reasonable likelihood of infringement.” You skim the executive summary, see a few red flags, and then comes the question nobody wrote down: so what do we actually do?


That gap is where good businesses make expensive mistakes. A freedom to operate (FTO) opinion is not a verdict. It is a map. The legal team can tell you where the cliffs are, but you decide the route: pay your way through, fight your way through, build around, or turn back.

This article is about reading an FTO opinion as a decision tool. We will focus on the two options people argue about the most, licensing and litigating, and what the opinion should tell you about each.


First, what an FTO opinion is (and is not)

An FTO opinion is a lawyer’s assessment of whether making, using, selling or importing your product in a particular country is likely to infringe someone else’s valid, enforceable patents. It looks at what is out there, reads the claims, compares them to your product, and also considers whether those claims would survive a challenge.


It is not a guarantee. It is not a certificate of safety. And it is usually limited to specific countries and a specific version of your product. If you change the product later, the opinion may no longer fit.


Here is the part that matters for business: an FTO opinion that only says “high risk” or “low risk” is only half done. A useful one gives you three more things:

  1. How strong is the other side’s patent, really?

  2. How close is your product to the claims, and how easily could you change it?

  3. Who owns the patent, and what do they probably want?


Those three answers decide whether you license, litigate, redesign or walk away.


Why the “risk flag” approach falls short

Legal risk language is built to protect you from surprises. That is a good thing. But “high risk” does not tell a CEO whether to spend $200,000 or $20 million. It does not say whether the patent owner is a competitor who wants you out of the market, or a company that would happily take a modest royalty and move on.


The same patent can lead to completely different decisions depending on:

  • How much revenue depends on the feature in question. If it is a tiny part of your product, a redesign is probably cheaper than any fight.

  • Who is on the other side. A direct competitor, a university, a patent assertion company and a friendly supplier each behave differently.

  • Your runway and your customers. A startup in the middle of a funding round has very different tolerance for uncertainty than a public company with a legal budget.

  • Timing. Before launch you have options. After launch, with a demand letter on the table, you have deadlines.


A good FTO conversation turns the legal findings into a set of options with rough costs, timelines and odds attached.


What the opinion should tell you about licensing

Licensing means paying for permission. It can be a one time lump sum, ongoing royalties, or a cross license where both sides swap rights. Many businesses treat it as a defeat. It is often just the cheapest, fastest way to remove a risk.


Your FTO opinion should help you judge licensing by telling you:


1. How strong the patent is. If the claims clearly cover your product and look hard to invalidate, licensing becomes attractive. Fighting a strong patent is a long, costly way to lose.

2. Whether the patent owner is likely to license. Some owners guard patents to block competitors. Others exist to collect royalties. The opinion, together with some quiet market research, should tell you which kind you are dealing with.

3. How the royalty might be shaped. Courts and negotiators often look at how much the patented feature contributes to the product’s value, not the product’s entire price. If your FTO analysis shows the patent covers a small piece, that is a strong argument for a lower rate.

4. Whether a license is even necessary right now. If the patent expires in two years or covers only a country where you do not sell, you may not need to pay at all.


A real example: Apple and Nokia

Apple and Nokia fought over patents on mobile devices for around two years, with claims in multiple countries. In 2011 they settled. Based on public reporting at the time, Apple agreed to a one time payment plus ongoing royalties in exchange for a license. The dispute ended, and both companies went back to selling products. Two enormous businesses, with enormous legal budgets, still decided that a negotiated license was better than letting the fight run on indefinitely.


The lesson is not “always pay.” It is that even companies with every resource to litigate often decide a deal is the smarter business move.


What the opinion should tell you about litigating

Litigating means defending yourself in court or at the patent office, and sometimes going on offense. It is slow and expensive. U.S. patent cases commonly take years, and legal costs can run into the millions. But there are situations where it is clearly the right call.


Your FTO opinion should help you decide by telling you:


1. Whether the patent looks weak. The opinion should include an invalidity analysis. Is there older technology (called “prior art”) that was publicly available before the patent was filed? If so, you may have a real path to knocking the patent out.

2. Whether you can challenge it cheaply first. In the United States, you can ask the Patent Office to review a patent through a process called inter partes review. It is generally faster and cheaper than a full court case, and it can take a patent off the table entirely. Many defendants use it as leverage in settlement talks.

3. Whether you have a non-infringement story. Patent claims are very specific. Sometimes your product simply does not do one of the things the claim requires. A clear non infringement argument is a strong reason to hold firm.

4. What the worst case looks like. This is the question executives care about most, and the opinion should answer it plainly: what are the possible damages, and could the patent owner get an injunction that stops you from selling?


A real example: Microsoft and i4i

Microsoft is a cautionary tale about the risks of fighting. A small Canadian software company, i4i, sued Microsoft over a custom XML editing feature in Microsoft Word. A jury awarded roughly $200 million in 2009. Microsoft argued the patent was invalid, but the U.S. Supreme Court ruled in 2011 that challengers must prove invalidity by “clear and convincing evidence,” a high bar that applies even when the prior art was not before the patent examiner. Microsoft lost. It also had to change Word so the feature no longer worked the way the patent described.


Two takeaways. First, a weak looking patent is not automatically a weak patent in court, because the legal standard favors the patent holder. Second, a huge company still ended up redesigning the product. Which brings us to the option people forget.


The third path nobody should skip: design around

Before you pick licensing or litigating, ask your patent counsel one question: could we change the product so it no longer falls inside these claims?


Often the answer is yes, and often it is the cheapest option of all. The i4i case ended with exactly that, a redesign. A good FTO opinion does not just say “you infringe.” It points to which element of the claim you are hitting, which gives your engineers a target.


Designing around has costs, of course: engineering time, possible performance trade offs, and the chance that the redesign still lands inside the claims under a broader reading. That is why the redesign itself should be reviewed before launch.


Willfulness: why having an opinion matters

There is one legal reason, beyond business planning, to take your FTO work seriously. In U.S. patent law, if you infringe and a court finds you did it knowingly or recklessly, damages can be increased up to three times. In the 2016 Halo Electronics v. Pulse Electronics decision, the Supreme Court made it easier for judges to award these enhanced damages in cases of deliberate or egregious behavior.


An FTO opinion shows you took the issue seriously and acted in good faith. Congress also wrote in the 2011 America Invents Act that failing to get a lawyer’s opinion cannot be used as proof of willful infringement. So an opinion is not mandatory, but a thoughtful one can be valuable evidence of your state of mind, and it also helps you make better decisions long before any lawsuit.


Injunctions: the risk that really changes the math

For many companies the scariest outcome is not paying money. It is being ordered to stop selling the product.


That risk is lower than it used to be in the U.S. In eBay v. MercExchange (2006), the Supreme Court held that courts must weigh specific factors before granting a permanent injunction, rather than issuing one automatically once infringement is found. This made it harder for companies that do not make products themselves to shut down operating businesses and easier for the defendant to argue that money damages would be enough.


But it does not apply equally everywhere, and a direct competitor can still win an injunction in the right circumstances. Your FTO opinion should say which scenario you are in.


The BlackBerry lesson: timing and pressure

The case of NTP v. Research In Motion (maker of BlackBerry) shows how pressure builds. NTP sued in 2001. For years the case moved through the courts, and at one point there were serious concerns that BlackBerry service in the U.S. could be shut down by an injunction. In 2006, RIM settled for $612.5 million. Whatever one thinks of the merits, the lesson is about leverage: the closer a case gets to a possible injunction, the more costly settlement becomes.


If RIM had faced the question earlier, with a clear view of its options, it might have had a cheaper range of choices. That is the argument for doing FTO work early, before the product is in the market and the stakes are highest.


Turning an FTO opinion into a decision: a simple framework

Next time you receive an FTO opinion, sit down with your counsel and your leadership team and work through these questions.


1. How much of the business does this touch? If the risky feature drives most of your revenue, you are in a different situation than if it is a minor add on.

2. How strong is the patent, and how strong is our position? Get both a validity view and a non infringement view, in plain language, with rough percentages if your counsel is willing to give them.

3. Who owns the patent and what do they want? A competitor wants you off the market. A licensing focused owner wants a check. A university may want a partnership. This shapes your approach.

4. What does each path cost and how long does it take? Ask for rough ranges: license fees, redesign costs, legal defense budgets, and the time each takes. Even rough numbers are better than none.

5. What is our worst case, and can we live with it? If the worst case would end the company, you should lean toward certainty (a license or a redesign), even if it costs more upfront.

6. Do we have leverage? A strong invalidity case, your own patents to cross license, or a pending review at the Patent Office can all improve your negotiating position.

7. Can we combine paths? Many successful outcomes mix approaches. Companies often file for patent review to create pressure, negotiate a license in parallel, and develop a backup design at the same time.


One more example: Apple and Qualcomm

Apple and Qualcomm were locked in global litigation over licensing terms and patents. In April 2019, just as a major trial was getting started in San Diego, they announced a settlement that included a six year license agreement and a payment from Apple. Reports at the time pointed to the pressure of the trial date as a key factor. The takeaway: litigation is often a negotiation tool as much as a path to a verdict, and the decision point often arrives right before trial, when costs and risks are at their peak.


Questions to ask your counsel

When the opinion arrives, bring this short list to the call:


  • If we do nothing, what is the realistic worst case?

  • Which exact feature creates the risk, and could we change it?

  • How strong is our invalidity argument, and what would it cost to pursue?

  • Is the patent owner likely to license, and what would a fair royalty look like?

  • What is the timeline for each option?

  • Does this opinion cover all the countries where we sell or plan to sell?

  • When do we need to revisit this analysis?


If your counsel cannot answer most of these, ask for a follow-up memo. The point of an FTO is not to hand you a stack of legal analysis. It is to help you choose a direction with open eyes.


The bottom line

Licensing and litigating are not good or bad choices. They are tools. Licensing buys certainty and speed. Litigation buys the chance to remove a threat entirely, at the price of time, money and uncertainty. Designing around buys independence, at the price of engineering effort. The right choice depends on the strength of the patent, the identity of the owner, your product’s dependence on the feature, and your ability to withstand a long fight.


An FTO opinion that only flags risk leaves you holding a problem. One that frames your options, with costs, odds and timing, gives you a decision. Ask for the second kind.



This article is for general information only and is not legal advice. Case details and figures are drawn from publicly reported sources and may be simplified; confirm specifics with a qualified patent attorney for your situation.

 
 
 

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