Cross-licensing

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In patent law, a cross-licensing agreement is an agreement according to which two parties grant a license to each other for the exploitation of the subject-matter claimed in patents. In other words, cross-licensing is the mutual sharing of patents between companies without an exchange of a license fee if both patent portfolios are about equal in value. Large corporations like Microsoft use this method to pile up more licenses for technology developed by other companies. They have many patents that can be used for such cross-licensing. Large corporations can force small companies to share their patents with the large company in a cross-licensing agreement or face legal problems from the large company which has patents that are infringed by the small company.

For example, if Sony owns a patent of interest to IBM, and IBM owns a patent of interest to Sony, Sony may grant a license to IBM for the Sony patent while at the same time IBM grants a license to Sony for the IBM patent. Then Sony and IBM will have concluded a cross-licensing agreement, in this hypothetical example. This means each company can make, use, and sell products claimed in each other's licensed patents and that will not constitute an infringement.

If a third party, let's call it InfringerCorp, infringes the Sony patent, Sony can sue InfringerCorp for infringement. In most jurisdictions, a licensee, IBM for example, can become party to the court proceedings and also claim damages from InfringerCorp.

To a large extent, cross-licensing agreements are legal, otherwise this could completely block the exploitation of a technology of which two or more inventions are patented by different companies. As one lawyer for a large electronics company put it: "Everybody invents. They need our stuff, we need their stuff. And so instead of suing each other, we have a meeting every few years and cross-license." This can easily become a complex issue, involving (as far as the European Union is concerned) Art. 81 and 82 of the EC Treaty (abuse of dominant position, etc) as well as licensing directives, cartels, etc. To insure they will have plenty of patents to cross-license, each large company may do "patent flooding"^[1] which is to patent every conceivable way of doing something.

Some non-patent Intellectual property such as computer software can also be cross-licensed.