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Cross-Licensing

Cross-Licensing. Technology Agreements Spring 2005 Pete Perlegos pperlegos@scu.edu. Outline. Introduction Motivations Offense, Defense Negotiations Dangers Types of Licenses Benefits over Unilateral Licensing Limitation of Cross-Licensing Benefits. Introduction.

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Cross-Licensing

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  1. Cross-Licensing Technology Agreements Spring 2005 Pete Perlegos pperlegos@scu.edu

  2. Outline • Introduction • Motivations • Offense, Defense • Negotiations • Dangers • Types of Licenses • Benefits over Unilateral Licensing • Limitation of Cross-Licensing Benefits

  3. Introduction • What is cross licensing? • Businesses share patent rights through licensing agreements so that they can use each others’ inventions

  4. I think this Patent is relevant • Do not want to initially precipitate a lawsuit • If the other Party says no: • The only remedy is to file a lawsuit • Intel v. Via: Before Intel filed the lawsuit, Via did not come to the negotiating table Introduction • How does such a relationship begin?

  5. Motivations to Cross License • Litigation is Expensive • 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 • Patent might be held invalid (attacker) • This can cripple your business • Judgment might be huge (target) • Can put you out of business • Access to complementary patents

  6. Offense • How strong is the patent? • Previously Litigated • How easy is it to design around? • Fundamental v. Improvement • A fundamental patent can be Blocking and is worth more money • Process Patents • Cut across entire product lines • More valuable in negotiation • Injunction – can put target out of business

  7. Offense • Everyone is licensing • “…interest in licensing our…patent is an important validation of the value this patent holds within the industry and of the technology we create…” • US courts (CAFC) more favorable to patent holders • Treble damages and attorneys’ fees for willful infringement • Do not want to risk injunction • An injunction can shut down your business • Patents have become much more important to business (major assets)

  8. Defenses • Design Around • 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 • 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

  9. Negotiations • Look at accused products • How many are sold? • What is the prevailing party going to get in damages if they win? • Settle • Not prohibitively expensive • As long as you are not out of market • Margins might be thin • Can I still pay the fee and make money?

  10. Same Patent -> Different Result • Wang v. Msft • Microsoft bought $84Mn of Wang stock • Kodak v. Sun • Kodak won on Patents bought from Wang • Sun paid Eastman Kodak $90Mn

  11. Dangers • Agere v. Atmel • Agere sued Atmel on manufacturing process patents (Bell Labs) • Agere sued Atmel for $100Mn • Agere had licensed these patents to other companies • Result? • Three patents were found invalid because previous work was not disclosed • Fourth patent was found non-infringing

  12. Types of Licenses • Fixed Cost – Straight Fee • “paid up fee”, “fully paid fee” • Per Item • Running Royalty per item: flat fee, % • Volume discount • Declining prices over time • Straight Cross License • Very common in the 1980s-90s • Broad cross license

  13. Benefits over Unilateral Licensing • Cross-license to reduce fee • Might not be able to fully utilize patent • Monopoly deadweight loss • Use patent to barter with • Cross-license results in future collaborative relationship • Complementary inventions

  14. Benefits over Unilateral Licensing • Added knowledge flow between cross-licensing parties for post-licensing innovations • Cross-licensing is a forward-looking alliance, not merely a barter of patents • Duopoly profit attained through cross-licensing can be greater than expected monopoly profit (both technologies) • Firms prefer cross-licensing if they can assure higher profit • Allows for design freedom by leveraging access to other firms’ technologies

  15. Benefits over Unilateral Licensing • Large companies want to avoid litigation when launching new products (Sony & Samsung) • 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

  16. Benefits over Unilateral Licensing • Technologies such as semiconductors are distributed among many firms • 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 • Accelerated innovation • Higher Appropriability • Exchange of future innovation possibilities

  17. Intel v. Via • Intel sued Via over patents used in chipsets for Intel/AMD processors • Via countersued on patents used in P4 • Settlement: • Cross-license of Intel, Via patents • Via pays royalties to Intel on some products

  18. Benefits over Unilateral Licensing • Cross-licensing transforms the transaction into “mutual reliance relation” • Unilateral Licensing – Appropriability Problem • Follow-up innovations and patents are captured by the licensee against the intention of the original patent holder • Cross-Licensing • 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

  19. Limitation of Cross-Licensing Benefit • Core patent has broad innovation potential • Produces many follow-up innovations • Core technology has greater hazards • 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

  20. Conclusions • Cross license can bolster both companies’ patent portfolio • Decrease risk of litigation • Cumulative innovation • Complementary inventions • Mitigate appropriability problem • Be reasonable • Gambling to win big is a huge risk • Everyone makes money => Everyone wins

  21. Questions/Comments

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