Patent Law

Supreme Court whacks CAFC over doctrine of exhaustion

By Lawrence B. Ebert, Esq.

The U.S. Supreme Court on Monday, June 9 limited the ability of patent holders to extract royalties from companies at each stage of the production process, throwing out a lawsuit by LG Electronics against Quanta Computer of Taiwan.

The justices unanimously said LG could not enforce its memory-technology patents against both Intel and the computer makers that install Intel's chips in their machines. The judges said LG's power to extract royalties was "exhausted" by its licensing agreement with Intel, of the United States.

Mike Masnick at TechDirt wrote:

This the LG v. Quanta case that the Supreme Court agreed to hear last fall. Basically, LG had some patents that it licensed to Intel. Intel then sold products based on those patents, which its customers used to build other products. LG demanded license fees from those customers as well, even though they bought fully licensed products from Intel. LG insisted that since its contract with Intel said that the license didn't cover any additional products, then the patents had to be relicensed by each player down the supply chain. To some extent, this question of "patent exhaustion" is similar to questions about first sale doctrine when it comes to copyright, in determining if you have a right to actually resell a product that was legally purchased. And, thankfully, the Supreme Court agrees that patent exhaustion is an important concept.

The CAFC was turning on a finer point: that the claims in question were METHOD claims, not apparatus claims. The Supreme Court didn't find much significance to the distinction.

Full post as published by IPBiz on June 09, 2008 (boomark / email).