Cross-licensing occurs when two or more parties agree to grant rights to their intellectual property to the other parties.
Cross-licensing is one of the mechanisms used by companies to obtain design freedom when a patent thicket exists. The main variables are: (1) the number of patents at issue; and (2) the use of balancing payments (i.e., monetary payments to even out the value of the portfolios being cross-licensed).
The number of patents that are cross-licensed can vary from two to a complete patent portfolio, which might include thousands of patents. Balancing payments are often negotiated by the parties and are used to address a relative imbalance in patent portfolio size or quality.
Companies generally consider three factors when deciding whether to license: (1) potential patent infringement claims the prospective licensee might have against the company; (2) potential patent infringement claims the company has against the prospective licensee; and (3) the relative interest of the parties in reaching a cross-licensing arrangement.