Litigation

U.S. Supreme Court extends patent exhaustion to method patents

By James Stewart

The U.S. Supreme Court on Monday addressed the scope of the patent exhaustion doctrine, holding that it applies to method patents. It has long been recognized that the holder of a patent in an apparatus cannot claim patent rights in an article embodying the patentee's invention once it has been sold by an authorized licensee.  But the Supreme Court in the past has not squarely articulated that method patents -- which describe an operation or process -- are also subject to the patent exhaustion doctrine.

In Quanta Computer v. LG Electronics, the method patents at issue are held by LG Electronics ("LGE").  Quanta makes and sells computers with purchased Intel chipsets inside.  The Intel chipsets embody many of the claimed method steps of patents licensed by LGE to Intel.  LGE's claims require "glue" elements such as memory devices and busses to make the chips work to certain advantage in a high-speed caching scheme.  LGE sued Quanta for infringement of its patents, and Quanta moved for summary judgment of non-infringement based on the patent exhaustion doctrine.  Quanta argued that LGE's patents were exhausted upon purchase by Quanta from Intel of chips covered by the patents.  The District Court granted the motion, but upon reconsideration, denied it because some of the claims were method claims.  The Federal Circuit affirmed in pertinent part that patent exhaustion does not apply to method patents.

A unanimous opinion authored by Justice Clarence Thomas reversed the Federal Circuit.  Its holding:  a method patent is subject to the patent exhaustion doctrine if the patented parts sold "substantially embody" the invention and include the novel elements thereof.  "Intel's microprocessors and chipsets substantially embodied the LGE Patents because they had no reasonable noninfringing use and included all the inventive aspects of the patented methods."

The Court did not decide whether a particular license agreement between a patentee and a licensee could expose a third-party purchaser to contract liability for using patented chipsets in certain ways.

See the SCOTUS blog's discussion of the case here.

Full post as published by Northwest Business Litigation Blog on June 12, 2008 (boomark / email).