Post on 16-Dec-2015
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Outline
Introduction Motivations Offense, Defense Negotiations Dangers Types of Licenses Benefits over Unilateral Licensing Limitation of Cross-Licensing Benefits
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Introduction
What is cross licensing? Businesses share patent rights
through licensing agreements so that they can use each others’ inventions
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Introduction
How does such a relationship begin?
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
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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
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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
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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)
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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
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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?
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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