Licensing

Licensing allows for the use of technologies developed by another company. Purchase of licenses allows for the use of technologies that were developed by other companies. Yahoo, for instance, used Web search technology developed and licensed by Google up to 2003.

In the pharmaceutical industry, buying license rights, usually from small innovative biotechnology companies, has become one of the favored ways for big firms to supply their development pipeline. For instance, since 1988, the industry leader GlaxoSmithKline (GSK) has acquired licenses to market 80 drugs from other companies after the fiasco of its own products. More than half of the licenses have been bought since 1998. Similarly, other big players such as Johnson & Johnson, Roche, and Abbot, cut more than 20 license deals between 2001 and 2003. Today, licensed products contribute more than $60 billion a year to the revenues of the top 20 pharmaceutical companies representing almost 25% of their total revenues, according to the consulting firm Wood Mackenzie.

Sometimes, one licensee manages to modify the technology in such a way that it can replace the licenser's technology and stop paying royalties to the licenser. Intel had such an argument with AMD for the K5 microprocessor, AMD's clone of Intel's Pentium microprocessor. Intel asserted that K5 was derived from its own technology, originally licensed to AMD for the production of the 80286 microprocessor, but AMD countered that K5 utilized a microcode developed in house and was consequently not related to any former contract.

Sun Microsystems is still in dispute with Microsoft about Java, a new programming language for Internet-based applications. In order to make Java a new technological standard, Sun has been extensively licensing its new program to various developing companies under the condition that it be made open to any computer architecture. However, Microsoft has bought the license to include Java in its own proprietary Windows NT environment, thus making Java a nonopen-standard program.

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