What is Cross-Licensing?

Mary McMahon

Cross-licensing is an activity in which companies grant licenses to use their patents to each other. This can be done for a number of different reasons, with one of the key reasons being that since the companies have cross-licensed their material, they do not have to be as concerned about patent infringement or the risk of reinventing something which the other company has already patented. There are some antitrust concerns related to cross-licensing which companies must be wary of before entering into cross-licensing deals.

Man with hands on his hips
Man with hands on his hips

Sometimes, two companies collaborate on a project and they use cross-licensing to allow access to all the components of the project. Likewise, companies in competitive industries sometimes cross-license to eliminate the risk of infringement suits and to share technology which will improve the industry as a whole. One form of cross-licensing can be a patent pool, in which patent holders as a group share patents which apply to their industry.

The benefits for consumers can be significant. For example, patent cross-licensing in the auto industry has made the production of generic parts possible, cutting down on costs by allowing people to purchase a wider range of products for maintenance and service. Likewise, cross-licensing can contribute to innovation by providing companies with access to materials other companies are working on. Not having to worry about patents held by others frees up inventors to develop new and better products.

One problem with patents and cross-licensing is that it can create barriers to people who are just getting started in the field. If a newcomer wants to develop anything, substantial licensing costs may need to be paid to cross-licensed patent holders to gain access to technology used in the industry. This in turn makes it hard to get started, unless a startup has significant capital to apply to the development of new products and the licensing of patents. If the government feels that cross-licensing is creating such barriers or that a so-called "patent thicket" which makes it extremely hard to innovate and invent is being created, it may take steps to break down these barriers under antitrust laws.

In a tactic known as defensive termination, a company grants licensing rights to another company on the condition that if the other company sues it for infringement, it will revoke the licensed patent and countersue. This can act as a disincentive to suits between companies which have cross-licensing deals.

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