Cross-licence

A cross licence is an agreement by which two patent holders grant each other a licence over all or part of their portfolios. Each becomes both licensor and licensee. In practice, the cross licence is one of the most common instruments for settling disputes between manufacturers in the same sector.

The functions of the cross licence

First, the cross licence allows two companies whose technologies block each other to produce without infringement. Second, it serves as bargaining currency in the negotiation: a strong portfolio reduces or cancels the royalties due. Third, it is often the exit from patent litigation, each party abandoning its actions in exchange for a licence over the other’s titles.

The cross licence in standardised technologies

In telecommunications, standard essential patents are the subject of cross licences between major holders. The royalty actually paid is thus net of the rights granted in return. This practice feeds the debate on the determination of the FRAND rate, because cross licences are difficult to compare with ordinary paid licences. They likewise complicate the non-discrimination analysis.

The limits set by competition law

The cross licence is in principle lawful. It may however restrict competition if it contains price-fixing, market-sharing or exclusivity clauses between competitors. The block exemption regulation on technology transfer agreements sets the market share thresholds below which the agreement is presumed compatible. The drafting must therefore distinguish the clauses necessary to the exchange of licences from ancillary restrictions.

The firm drafts and negotiates cross licences, and acts where they form the outcome of litigation. See our pages patent contracts and FRAND attorney, and the block exemption regulation on the website of the European Commission.