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In patent law, a cross-licensing agreement is an agreement according to which two parties grant a license to each other for the exploitation of the subject-matter claimed in patents. In other words, cross-licensing is the mutual sharing of patents between companies without an exchange of a license fee if both patent portfolios are about equal in value. Software corporations like Microsoft use this method to pile up more licenses. They have many licenses that can be used for such cross-licensing. It is known that big software corporations can force small companies to share their licenses with them in an cross-licensing agreement or face legal problems from the corporations who say, that they have licenses that are broken by the small company.
For instance, if company A owns a patent PA, if company B owns a patent PB, and if company A grants a license to company B for exploiting patent PA while at the same time company B grants a license to company A for exploiting patent PB, company A and company B are said to have concluded a cross-licensing agreement. This means company B can exploit the subject-matter claimed in patent PA and that will not constitute an infringement.
If a third party, let's call it company C, infringes patent PA, company A can sue company C for infringement. In most legislations, in this case, the licensee, company B, can even become party to the court proceedings and claimed damages from company C.
To a large extent, cross-licensing agreements are legal, otherwise this could completely block the exploitation of a technology of which two or more inventions are patented, but this can easily become a complex issue, involving (as far as the European Union is concerned) Art. 81 and 82 of the EC Treaty (abuse of dominant position, etc) as well as licensing directives, cartels, etc.
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