University of Toronto – Rotman School of Management; University of Toronto – Strategic Management
June 19, 2012
Rotman School of Management Working Paper No. 1982086
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 dataset on cross-licensing and litigation in the U.S. semiconductor industry.