Cross-Licensing of Patents

Cross-licensing of patents is popular because it allows parties to explore & exploit opportunities in the same field without fearing a conflict of interest. It is a ‘quid-pro-quo’ arrangement. Read this article for information on important clauses in India, pros & cons.

Wed Jul 06 2022 | Business Law | Comments (0)

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Cross-licensing is a contract between two parties that is an agreement to grant patent licenses to each other. Such agreements ensure essential exchange of patented knowledge, thereby ensuring technological advancement for those involved, yielding better products. In industries such as automobile, telecommunication and tech, cross-licensing contracts are extremely common.

For instance, Intel has several cross-licensing agreements with Advance Micro Devices Inc. (AMD). Similarly, Google and Samsung have certain agreements in place as well via cross-licensing. Popularity of cross-licensing stems from the fact that it allows parties to explore and exploit opportunities in the same field without the fear of a conflict of interest. It is a ‘quid-pro-quo’ arrangement.

What are patent pools?


  • Patent pools are licensing agreements between two or more patent owners who ‘pool’ their patents/licenses amongst themselves, or to another third party with pre-determined terms and conditions for usage. Therefore, any cross-licensing between two or more companies for patents with respect to a technology creates a patent pool.
  • Patent pools incentivize innovation by making patent licensing easily accessible and user-friendly. A patent pool is different from a multilateral cross-licensing agreement in the sense that in the former, you simply have to be a member of the pool to reap its benefits, even if your contribution to the pool is nil. However, in an agreement, only the parties to the agreement can reap the benefits in accordance with the terms and conditions of the said agreement.

Advantages & Disadvantages of engaging in Cross-Licensing


In case your business engages in a cross-licensing agreement, it may have its own advantages and disadvantages:

Advantages


  • Using complementary technology to create a superior product.
  • Enhancing coordination and cooperation among industry products to produce the best product possible.
  • Gaining access to new markets.
  • Lowering overall product development costs – including distribution, manufacturing, R&D.
  • Avoiding litigation/dispute involving infringement claims.
  • Creation of passive income in terms of royalty due to regular use of the license.

Disadvantages


  • It has the risk of imitation of one’s product – even if unintentional.
  • A lot of negotiation on monetary clauses regarding royalties, duration of agreement, terms, etc.
  • Cross-licensing agreements amongst established members of an industry may deter start-up or new businesses from joining – new innovation may remain unexplored.
  • Some concerns of anti-competitive practices arise as cross-licensing ensures essential technological know-how is in the hands of a few; this can lead to cartels if unchecked.
  • A company may become dependent on another’s abilities and skills to further its own product.

What sort of deal are you looking at?


Cross-licensing agreements take a lot of negotiation to satisfy the concerns of all parties involved. The benefits of an agreement solely depend on the deal that is struck. Parties must have clarity on what they seek from the deal and also understand what the other party wants. The questions to consider are:

  • Is it an exclusive license, or can it be offered to a third party?
  • What is best that you can get from this deal?
  • What do you wish to avoid?
  • How much revenue can you generate from this arrangement; cost-benefit?
  • Does the offer include training as well as usage?

Therefore, while cross-licensing is effective and beneficial in many senses, its negotiation can often be long and arduous.

Cross-Licensing of patents in India: Important Clauses & Points


Certain provisions and points govern licensing agreements in India, which are essential to its validity.

Provisions under a license agreement


  • The Indian Contract Law: A patent license or cross-license means that the licensor authorizes the licensee to make use of the patent, in accordance with the terms and conditions of the agreement. Therefore, a patent licensing agreement is, essentially, a contract and it must satisfy the basic elements of a contract. Primary among those elements are Section 11 & 12 of the Indian Contracts Act – contract made between people of sound mind, with the age of majority, and those who are not barred by any law whilst having a law object and consideration with free consent of the parties, respectively. This is essential for a valid licensing agreement.
  • Section 67, Patents Act: The registration is done in accordance with Section 67. Any breach of a registered agreement allows the aggrieved party to sue the breaching party. However, no suit is possible in case it is unregistered.
  • Section 68, Patents Act: A patent licensing must be registered and be in writing, as mandated by Section 68 of the Patents Act, 1970, to be valid and enforceable in law. The agreement has to be registered with the official Register of Patents. The agreement is usually made for a period of time, defined purpose, and for a definite territory.
  • Section 69, Patents Act: This provision is used for the application of a registration title. An application is filed with the controller in writing, to gain registration for the title or registration of a notice of the concerned person’s interest in the license.
  • Section 70, Patents Act: Lastly, Section 70 deals with the ‘grantee’ or the registered proprietor and their powers in dealing with the patent.

Key clauses under a license agreement


Following are the key points that must be incorporated in a licensing agreement:

  • The rights, liabilities and indemnity clauses of the members involved.
  • Service of notices – mode, date of effectiveness, etc.
  • Grounds for termination of agreement.
  • Dispute resolution method in case of conflict.

Conclusion


Cross-licensing is an effective tool if the key industry players come together. It is a wise, strategic and cost-benefit method of technological advancement that ensures that best products are made available to humankind. However, certain checks must be put in place to avoid a monopoly of such agreements. These include anti-competitive and anti-collusion regulations and a watchdog that ensures healthy competition is not hampered.

The relationship of the key players in a particular industry impacts the effectiveness of cross-licensing agreements. Hence, a healthy balance is the way forward, especially in hard times such as today, where, in light of the pandemic, cooperation and coordination are vital for our well-being.

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