Broad Cross-License Negotiations

Authors


  • This is a revised version of a chapter of my Ph.D. thesis defended at the London School of Economics. I thank Mark Schankerman for his guidance and for sharing data on patent litigation. I am particularly grateful to a co-editor and two referees whose insightful comments led to a substantial improvement of the paper. I also thank Andrea Prat, Philippe Schmidt-Dengler, Saul Lach, Ronny Razin, Pierre Regibeau, John Van Reenen and seminar participants at Georgia Tech, Essex, Imperial College, Stony Brook, South Carolina, Wisconsin, LSE, Toronto, HEC Montreal, Alicante, Arizona, and the European Patent Office for helpful suggestions. Brunna Parreiras provided excellent research assistance.

Abstract

In many industries, broad cross-license agreements are considered a useful method to obtain freedom to operate and to avoid patent litigation. In this paper, I study firm incentives to sign a broad cross-license as well as the duration of broad cross-license negotiations. I develop a model of bargaining with learning, which predicts that two firms will enter a broad cross-license agreement only if their capital intensities are large enough. The model also predicts faster negotiations when firms have high capital intensities and when the frequency of future disputes is low. I confirm these predictions empirically using a novel data set on cross-licensing and litigation in the US semiconductor industry.

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