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Technology companies living under the constant threat of patent litigation are increasingly negotiating cross-licensing deals and generating a broad mix of patent and transactional work for attorneys. The lawyers say that cross licenses, which provide for comprehensive or limited rights to use another company’s patent technology, are particularly favored by biotech and information-related tech companies as a way to avoid or settle litigation. Companies have a “strong preference” to settle patent litigation through cross licensing, says Marc Pensabene, a patent litigator at New York’s Fitzpatrick, Cella, Harper & Scinto. Pensabene, whose practice focuses on computers and the electronics industry, says 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,” he says. “The only people who win in those situations are lawyers like me who collect attorneys fees.” Companies look to cross licenses as more than an inoculation against litigation. Biotech 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 negotiate such licenses as insurance against court fights that can put company assets at risk. While many cross-licensing deals are 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 the recent 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,” says Horacio Gutierrez, the company’s vice president of intellectual property and licensing. 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 increase in cross-licensing deals. “I know a number of companies that 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,” says Becker. “It doesn’t protect you from the trolls but it can protect you from other people in the field.” In biotechnology, cross licensing is “really a must,” says Jon Lourie, co-chairman of the life sciences practice group at Boston’s Edwards Angell Palmer & Dodge. “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, adds 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, which in turn may require companies to trade rights with each other, says Wetherell. “It’s something that is going to continue to increase and it’s going to feed the impetus to develop strong patent portfolios.” 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 often are looking at a long-term collaboration with huge dollars at stake, says 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,” he says. The complexity of the deals, along with the legal work involved, increases when cross licenses incorporate factors beyond intellectual property such as manufacturing rights, says 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, says Garvey. “If you’re talking about a three-party deal, the exchange of rights is almost always in more than one direction. Something like that would produce a tremendous amount of due diligence work.” Sheri Qualters is a staff writer at the National Law Journal, an ALM publication affiliated with IP Magazine.

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