Cross-Licensing
Technology Agreements
Spring 2005
Pete Perlegos
pperlegos@scu.edu
Outline
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Introduction
Motivations
Offense, Defense
Negotiations
Dangers
Types of Licenses
Benefits over Unilateral Licensing
Limitation of Cross-Licensing Benefits
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Introduction
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What is cross licensing?
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Businesses share patent rights through
licensing agreements so that they can use
each others’ inventions
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Introduction
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How does such a relationship begin?
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I think this Patent is relevant
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Do not want to initially precipitate a lawsuit
If the other Party says no:
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The only remedy is to file a lawsuit
Intel v. Via: Before Intel filed the lawsuit,
Via did not come to the negotiating table
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Motivations to Cross License
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Litigation is Expensive
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David v. Goliath
Can a small company afford to litigate?
Normal case cost $2-5Mn from start to end of trial.
Large case can cost $10Mn/quarter
Dangers of Litigation
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Patent might be held invalid (attacker)
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Judgment might be huge (target)
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This can cripple your business
Can put you out of business
Access to complementary patents
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Offense
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How strong is the patent?
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Previously Litigated
How easy is it to design around?
Fundamental v. Improvement
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A fundamental patent can be
Blocking and is worth more money
Process Patents
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Cut across entire product lines
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More valuable in negotiation
Injunction – can put target out of business
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Offense
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Everyone is licensing
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US courts (CAFC) more favorable to patent holders
Treble damages and attorneys’ fees for willful
infringement
Do not want to risk injunction
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“…interest in licensing our…patent is an important
validation of the value this patent holds within the
industry and of the technology we create…”
An injunction can shut down your business
Patents have become much more important to
business (major assets)
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Defenses
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Design Around
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If you can design around the patent you can still
make the product
Value of the patent is only the cost of designing
around and implementing the design around
Legal Defenses
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Previous Art: if not disclosed at the time of the
patent, patent can be invalidated
Pay less: the payment should be proportional to
chances of the patent not being invalidated and
found to be infringing
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Negotiations
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Look at accused products
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How many are sold?
What is the prevailing party going to get in
damages if they win?
Settle
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Not prohibitively expensive
As long as you are not out of market
Margins might be thin
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Can I still pay the fee and make money?
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Same Patent -> Different Result
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Wang v. Msft
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Microsoft bought $84Mn of Wang stock
Kodak v. Sun
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Kodak won on Patents bought from Wang
Sun paid Eastman Kodak $90Mn
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Dangers
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Agere v. Atmel
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Agere sued Atmel on manufacturing
process patents (Bell Labs)
Agere sued Atmel for $100Mn
Agere had licensed these patents to other
companies
Result?
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Three patents were found invalid because
previous work was not disclosed
Fourth patent was found non-infringing
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Types of Licenses
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Fixed Cost – Straight Fee
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Per Item
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“paid up fee”, “fully paid fee”
Running Royalty per item: flat fee, %
Volume discount
Declining prices over time
Straight Cross License
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Very common in the 1980s-90s
Broad cross license
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Benefits over Unilateral Licensing
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Cross-license to reduce fee
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Might not be able to fully utilize patent
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Monopoly deadweight loss
Use patent to barter with
Cross-license results in future
collaborative relationship
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Complementary inventions
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Benefits over Unilateral Licensing
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Added knowledge flow between crosslicensing parties for post-licensing innovations
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Duopoly profit attained through crosslicensing can be greater than expected
monopoly profit (both technologies)
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Cross-licensing is a forward-looking alliance, not
merely a barter of patents
Firms prefer cross-licensing if they can assure
higher profit
Allows for design freedom by leveraging
access to other firms’ technologies
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Benefits over Unilateral Licensing
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Large companies want to avoid litigation when
launching new products (Sony & Samsung)
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companies don't want to be surprised by litigation
for patent infringement of non-ground-breaking
products
there may be too many patents to look at practically
to not pay any money, they have to be roughly
equal in the harm they could do to each other
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Benefits over Unilateral Licensing
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Technologies such as semiconductors are
distributed among many firms
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A single merger or license is not likely to fulfill all
technological requirements for the industry
participants
Firms need to have access to other firms’
technological assets through contract
Semiconductor patents are highly complementary
Cumulative Innovation
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Accelerated innovation
Higher Appropriability
Exchange of future innovation possibilities
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Intel v. Via
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Intel sued Via over patents used in
chipsets for Intel/AMD processors
Via countersued on patents used in P4
Settlement:
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Cross-license of Intel, Via patents
Via pays royalties to Intel on some
products
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Benefits over Unilateral Licensing
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Cross-licensing transforms the transaction into
“mutual reliance relation”
Unilateral Licensing – Appropriability Problem
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Follow-up innovations and patents are captured by
the licensee against the intention of the original
patent holder
Cross-Licensing
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Can mitigate hazards of appropriability problem
A’s license to B is tied with B’s license to A
Safeguarding mechanism for transfer of knowledge
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Limitation of Cross-Licensing Benefit
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Core patent has broad innovation
potential
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Produces many follow-up innovations
Core technology has greater hazards
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Continuing innovation is a key asset for the
licensor and blocking innovation jeopardizes
the competence
Companies are reluctant to license core
technologies
Selective cross-licensing of non-core patents
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Conclusions
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Cross license can bolster both
companies’ patent portfolio
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Decrease risk of litigation
Cumulative innovation
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Complementary inventions
Mitigate appropriability problem
Be reasonable
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Gambling to win big is a huge risk
Everyone makes money => Everyone wins
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Questions/Comments
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