A cross-licensing agreement is a binding contract between multiple parties wherein each party has rights to a product, technology, research, or something else. These types of agreements are beneficial when dealing with intellectual property. Cross-licensing agreements typically occur between businesses who hold patents over different facets of the same product. They will enter into an agreement, which keeps each of them out of litigation related to infringement disputes

What to Know about Cross-Licensing Agreements

A cross-licensing agreement is private, between two individual companies, or it is between a consortium of businesses. It may in some cases be public, like a patent pool with shared intellectual property management between a larger group of patent holders who share one or more patents. These agreements are often industry-based, with businesses who fall under the specific sector being eligible to join. There are some industries even where cross-licensing agreements account for a large portion of all intellectual property management and licensing agreements.

Some examples of intellectual property cross-licensing include some recognizable companies:

  • Google and Samsung Electronics — reinforced ties between Android and one of the world's largest manufacturer of smartphones
  • Google and SAP — long-term patent agreement which includes a large selection of products and various software patents
  • Apple and Microsoft — These two companies have had a cross-licensing agreement since the 1990s, which covers technical software features on utility patents and design patents

There are some recognized patent pools, like MPEG-2, RFID, and DVD, that are industry specific. In the respective patents, each party has rights to different crucial aspects of a specific commercial product. By cross-licensing, these, each company or party retain their freedom to produce the commercial product for sale. And, under the terms of the cross-licensing agreement, neither party is responsible for paying the other party any monetary royalties.

Benefits of Cross-Licensing Agreements

Businesses who opt to enter into cross-licensing agreements are eligible to enjoy a number of perks:

  • There is no need to spend resources and extra time to develop the individual technology.
  • Production and development accelerate so all businesses can start to see more profits sooner.

Cross-licensing agreements are royalty-free, which means the business can save additional money. The benefits typically outweigh the negative aspects of cost, but it's important to remember they are legally binding contracts that you are entering with your competitor. Because of this, any business considering this route should consult with an attorney right away.

Cross-licensing agreements create a number of key benefits:

  • Ability to bundle complementary technology to help develop a superior product
  • Enhance interoperability between networked products
  • Access to new markets
  • Lower production and development costs
  • Can benefit from other party's marketing and manufacturing capabilities
  • Can create an IP sharing community wherein unused IP assets get monetized, which means an increase in IP value

A common motivation for entering a cross-licensing agreement is to keep from spending limited resources to sue and counter-sue for any alleged patent infringement. Companies can negotiate an out-of-court settlement wherein they can barter their intellectual property rights and value. Cross-licensing isn't a means to barter and reduce attorney or licensing fees. Instead, it should form the basis for long-term alliances that can encourage knowledge flow and spark post-licensing innovations.

Potential Downsides to Cross-Licensing Agreements

With so many benefits of cross-licensing agreements, you might be wondering what the negative aspects are. There are several disadvantages to keep in mind:

  • Added expense to the product for licensing royalties which can take away from the IP value's profit margins
  • Another party could be poised to become a creditor and cannibalize sale.
  • Your business runs the risk of becoming dependent on the other company's abilities and skills, especially in an exclusive agreement.

Because of these potential drawbacks, it's considered unwise for a business to add its business-critical technology patents to any cross-licensing agreements. There is an option to add clauses that reduce direct competition between the cross-licensing partners.

The costs associated with licensing cross-licensed intellectual property are prohibitive for most start-up businesses. Antitrust regulators are not keen on cross-licensing portfolios that contain provisions that could lead to competition-stifling collusions, like dividing markets or price-setting. Patent pools are also heavily scrutinized to ensure they don't unfairly undermine competition or reduce incentives to innovate.

If you need help with understanding a cross-licensing agreement, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.