What is Cross-Licensing?

A cross-licensing patent agreement is a contract between two parties that grant mutual rights to both parties intellectual property. The agreement may be a private, one between two specific companies or the small consortium of companies. Or it may be a public agreement such as patent pool, in which IP management is shared amongst a relatively large group of patent holders who share patent.

Who is Doing it?

In some industries, cross-licensing accounts for a significant share of all IP Management and licensing agreements. For example, a recent study by Toulouse School of Economics says, cross-licensing accounts for 50% of all licensing arrangements in telecommunication and broadcasting industry.

Some classic cases of IP cross-licensing include:

  1. Google and Samsung Electronics: These two giants signed broad cross-licensing agreement. that covers existing patents as well as those patents filed next ten years. The agreement reinforced ties between the owner of the Android operating system and the world’s largest smartphone manufacturer at the time.
  2. Google and SAP: They announced a long-term patent cross-licensing agreement that includes a broad range of products and software patents.
  3. Apple and Software: These companies have had a long-standing cross-licensing agreement. The deal covers worldwide utility patents (technical software features) and design patents (aesthetic hardware/software features).

 

The GOOD

One of the most common motivations, therefore, for cross-licensing agreements is to avoid spending valuable resources on suing and counter-suing for alledged patents infringements. Cross-Licensing is not just a barter to tend intellectual property lawyer or reduce licensing fee, it can and should be the basis of forwarding-looking alliances that encourage knowledge flow, and spur post-licensing innovation.

Some of the key benefits include:

  1. Bundling complementary technologies to develop a superior product.
  2. Enhancing interoperability among networked product.
  3. Gaining access to new markets
  4. Lowering product development costs
  5. Benefitting from the other party’s manufacturing or marketing capabilities to shorten time to market’
  6. Creating an IP sharing economy in which unused IP asset can be monetized there increasing IP value.

It’s not only the cross-licensing parties that win. Patent cross-licensing in the auto industry, for example, has made cost-effective generic parts available to the general public. And it is generally accepted that patent cross-licensing creates an innovation ecosystem that generates novel and superior products for the benefit of all.

The Bad

So with all of these cross-licensing benefits, what can be bad? Here are some of the disadvantage that companies contemplating IP cross-licensing should consider:

  1. Licensing royalties add a layer of expense to the product and can detract from profit margin within IP value.
  2. The other Party could become a competitor who “cannibalize” sales
  3. Your company could become dependent on another party’s skill and abilities

For these reasons, it is generally considered unwise for a company to include its core, business-critical technology patents in cross-licensing agreements. It is also possible to introduce clauses that limit direct competition between the two cross-licensing partners.

The Ugly

One of the most serious concerns about broad cross-licensing agreement is that they create a near impenetrable intellectual property law barrier for newcomers to the industry. The cost of licensing the cross-licensed IP can be prohibitive for most startups. Antitrust regulators are particularly wary of cross-licensing portfolios with the provision that could facilitate competition stifling collusion activity, such as price-setting or dividing markets.

Patent Pools are also subject to regulatory scrutiny to ensure that they do not unfairly reduce competition, or undermine incentives to innovate. Pools that are compromised primarily of substitute patent have a greater potential to stifle competition while a pool of complementary utility and design patent are considered more likely to increase efficiencies.

Conclusion

When carried out wisely and strategically, everyone benefits from the cross-licensing of technology patents – the companies themselves, the industry, and consumers. It is necessary, however, for anti-trust, anti-collusion regulators, and other patent litigation bodies to keep a watchful eye on the larger and broader cross-licensing agreements to ensure that healthy competition is upheld.