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On the impact of LG vs. Quanta

By Lawrence B. Ebert, Esq.

New England In-House has an article on LG v. Quanta titled: Supreme Court expands ?exhaustion? doctrine: Patent owners? right to collect downstream royalties restricted.

The end of the article noted:

Although Quanta would seem to rule that a license would exhaust the patent owner?s patent rights, the license agreement could create a contractual (as opposed to statutory) obligation on the licensee to pay a royalty on its customers? uses of a product. A patent owner can draft its license agreement to make its licensee financially responsible for any downstream use by the licensee?s customers.

Although such contractual clauses could blunt the impact of this decision, persuading a licensee to agree to such clauses might present an insuperable problem, particularly where the clauses would substantially burden the licensee. In this case, for instance, Intel clearly would not have entered into any such agreement.

Subsequent cases may present varying circumstances where lower courts will not rigorously apply the exhaustion doctrine. For instance, the Supreme Court appeared to except from its ruling that an exhausting sale need not embody the entire claimed invention where the novelty of the invention resided in the entire combination of elements, rather than in a particular element.

As another example, the courts might treat differently those biotechnology inventions that are self-replicating, where a license to use the invention does not ordinarily confer a right to make as well. Quanta did not raise the unique issues such cases present.

IPBiz notes that the parties SHOULD work out the details upfront in the contract.

See also

http://ipbiz.blogspot.com/2008/06/supreme-court-whacks-cafc-over-doctrine.html

Full post as published by IPBiz on August 15, 2008 (boomark / email).