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Technology companies living under the constant threat of patent litigation are increasingly inking cross-licensing deals and generating a broad mix of patent and transactional work for attorneys. Attorneys say cross-licenses, which are comprehensive or limited rights to use another company’s patent technology, are particularly favored by biotechnology and information-technology companies as a way to avoid or settle litigation. Companies have a “strong preference” to settle patent litigation through cross-licensing, said Marc J. Pensabene, a patent litigator in New York’s Fitzpatrick, Cella, Harper & Scinto. Pensabene, whose practice focuses on computers and the electronics industry, said companies are also using cross-licensing as a tool to avoid the courts. “A lot of the bigger players in the industry are very happy to cross-license with other comparably sized companies to avoid litigation,” Pensabene said. “The only people who win in those situations are lawyers like me who collect attorneys fees.” An inoculation strategy Companies look to cross-licenses as more than an inoculation against litigation. Biotechnology companies particularly need cross-licenses to develop products, since different companies’ patents are often interrelated. Venture capitalists may also require companies seeking venture funding or a merger or acquisition deal to ink such licenses as insurance against court fights that risk company assets. While many cross-licensing deals are completely confidential or have secret components, whether part of a court settlement or a business-driven deal, some major public companies are touting the benefits of their cross-licensing deals. In last month’s announcement of its broad patent cross-licensing agreement with Samsung Electronics Co. Ltd., Microsoft Corp. cited similar agreements with five other computer or high-tech equipment makers companies in the past year, and also said the agreement would broaden the company’s “access to ideas” and “lead to even more desirable products.” Microsoft is “always looking for new opportunities to work collaboratively within the industry,” said Horacio Gutierrez, vice president of intellectual property and licensing, in a statement about the deal. “Companies that collaborate are in the best position to deliver the products and service that their customers demand,” Gutierrez said. Bill Becker’s current company isn’t engaged in cross-licensing, because it’s a medical device company that leads the market niche for invisible orthodontic products, but as co-chairman of the intellectual property committee of the San Francisco Bay chapter of the Association of Corporate Counsel, Becker has seen an uptick in cross-licensing. Becker also said it is “rare” to find a high-technology company that isn’t cross-licensed. “I know a number of companies who have gone out and tried to get at no-cost or low-cost broad cross-licenses with everyone who may have patents in their industry just to give them freedom of action,” Becker said. “It doesn’t protect you from the trolls, but it can protect you from other people in the field.” The rise of business-method patents, which typically cover computerized data processing, for software-related inventions has prompted more cross-licensing deals because “it’s always difficult to figure out what those patents apply to,” said William A. Tanenbaum, international chairman of the technology, intellectual property and outsourcing group at New York-based Kaye Scholer. A ‘must’ in biotech In biotechnology, cross-licensing is “really a must,” said Jon Lourie, co-chairman of the life sciences practice group at Boston’s Edwards Angell Palmer & Dodge, “It has to be done,” Lourie said. “It takes more than one entity to bring a therapuetic drug, device or diagnostic to the marketplace. It requires a lot of cooperation among a lot of people.” A web of interlocking technologies has spurred growth in biotechnology-related cross-licensing during the past couple of years, added John Wetherell, a San Diego-based intellectual property lawyer at Pillsbury Winthrop Shaw Pittman. Producing a certain protein, for instance, may require the need to license a particular cell line or gene, so companies need to trade rights with each other, Wetherell said. “It’s something that is going to continue to increase and it’s going to feed the impetus to develop strong patent portfolios,” Wetherell said. For lawyers toiling behind the scenes, the deals involve due diligence searches of other companies’ patents, document preparation and extensive negotiations. Biotech cross-licensing deals can take months to nail down because companies are looking at a long-term collaboration with huge dollars at stake, said Jeff Quillen, a Boston-based corporate and intellectual property partner at Foley Hoag. “It’s worth spending quite a bit of time thinking about this cross-license and collaboration and trying to anticipate risks and possibilities in the future,” Quillen said. “As a result of that, no two agreements look alike,” he added. Three-way deals The deal complexity, and legal work, grows when cross-licenses incorporate factors besides intellectual property, such as manufacturing rights, said John Garvey, a partner in Foley & Lardner’s Boston office. Three-way deals involving another party besides the two companies, such as a hospital or university from which one company originally licensed the technology, are also extremely intricate, Garvey said. “If you’re talking about a three-party deal, the exchange of rights is almost always in more than one direction,” Garvey said. “Something like that would produce a tremendous amount of due diligence work.” All types of joint ventures and strategic alliances are common across the business world, so companies need cross-licenses to ensure that they don’t lose control of their propriety technology, Tanenbaum said. “The company needs to control its partner so the partner doesn’t take the information,” Tanenbaum said. “The vehicle for controlling all those things is a license.” Looking ahead Looking ahead, Garvey foresees early-stage companies that opt to grow on their own, instead of taking a mergers and acquisitions deal, embracing cross-licensing arrangements. “A lot of companies have the financial means to stay in the market,” Garvey said. “To the extent that these companies present an intellectual property problem for another company, cross-licensing is typically seen as a solution.”

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