Freedom to Operate analysis as competitive necessity—the Selden automobile patent case revisited

Abstract

Abstract We contribute a unique empirical account of Freedom to Operate (FTO) analysis in respect to patent claims of others to avoid infringement liability. Over a century ago, the Selden automobile patent owners asserted that its scope encompassed early US automobiles. FTO analyses of the Selden patent claims demonstrated their narrow scope and hence their non-infringement. The legal opinion by patent attorney Parker on the Selden patent gave Ford Motor Company the confidence to publicly indemnify its customers from infringement liability and to publicly challenge the broad claim interpretation of the Selden patent. The asserted broad interpretation of Selden’s patent claims is sometimes alleged today to have retarded US automobile industry development but a review of commercial evidence of the development does not support this conjecture. That developers were undeterred is consistent with the FTO analyses conducted by Ford and others, and the patentee’s avoidance of a court challenge to the validity of the Selden patent on the merits. The Selden case should be known as the classic empirical example of how firms conduct FTO analysis to assess patent scope and validity to enable continued development. The prevalence of FTO practice today should be considered as a reason why such conjectured economic harms from ‘over-broad’ patents may not be realized today. Yet, we found a dearth of publicly available FTO analyses and lack of rigorous empirical studies demonstrating the actual extent of FTO analyses. Given continuing concerns over the harms from ‘over-broad’ patents, there is a need for research into the economics and behavioural influence of FTO analysis.