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The Application of 365(n) to Cross-License Agreements

By Jeff J. Marwil, Jeremy T. Stillings, and Brandon W. Levitan
February 25, 2014

In high-tech industries such as semiconductor manufacturing, the practice of engaging in broad patent cross-license agreements with competitors has become common. This practice has arisen from the recognition that the complex web of patent rights in such industries is so thick that participants may not be able to avoid infringing on existing patents, or even definitively determine whether a new product infringes on existing patents prior to bringing it to market.

Moreover, once industry participants have engaged in patent cross-licenses, they may make substantial investments in reliance on the enforceability of those cross-license agreements. For example, the costs of creating a state-of-the-art semiconductor fabrication facility exceed $1 billion. See Heck, Kaza, and Pinner, Creating Value in the Semiconductor Industry at 9, McKinsey on Semiconductors (Autumn 2011) (“The cost of building leading-edge fabs continues to increase as well; for example, the average 8-inch fab costs $1.6 billion to build, while a state-of-the-art 12-inch fab costs $3 billion to $4 billion.”); Brief for the Semiconductor Industry Association, Chamber of Commerce of the United States of America, National Association of Manufacturers, and Business Software Alliance as Amici Curiae in Support of Appellees at 11, Jaffe v. Samsung Electronics Co., Ltd., 737 F.3d 14 (4th Cir. 2013) (No. 12-1802), ECF 42-1 (“The average semiconductor fabrication facility costs $4 to $5 billion dollars to construct”).

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