Chipping Away at the Quanta v. LG Electronics Patent Decision

In a follow-up to the January 11, 2008 guest post authored by  Michael J. Kasdan, Esq. and  Charles R. Macedo , Esq. of Amster, Rothstein & Ebenstein, LLP, Michael writes, "the Supreme Court resolved in its Quanta decision yesterday the three major exhaustion issues - (i) method claims; (ii) contracting around exhaustion; and (iii) the issue of when components exhaust finished products."

Ashby Jones writing for The Wall Street Journal yesterday, June 9, 2008, writes, in part:

Earlier today, the Court unveiled four opinions, the most interesting of which, in our opinion, is Quanta Computer Inc. v. LG Electronics Inc. In a 9-0 opinion, delivered by Justice Clarence Thomas, the Court limited a patent-holder’s ability to demand royalties on the use of a product after it’s sold. We checked in with WSJ Supreme Court reporter Jess Bravin to get the skinny on what happened and why it matters in the long run.

LG Electronics bought up a bunch of patents in 1999, including patents for computer chips, which they later licensed to Intel. Intel then used the patents in making chips, which they sold to computer manufacturers. When they sold them, however, they included a provision in the sale agreement — insisted upon by LG Electronics — that said you, the purchaser, can’t combine these products with any others—that is, you can’t install them in a computer—without an additional license from LG.

Basically LG demanded a royalty, saying to the purchasers, “you may have bought these chips from Intel, but you just can’t use them in computers without paying royalties.” Some purchasers paid the royalties, but Quanta — a Taiwanese manufacturer — didn’t and was sued in federal court.

The [Supreme Court's] ruling relaxes the grip of the patent owner on downstream uses. This could apply to many many other products, even more nowadays when you have much more complicated devices. The Court relied on this notion of patent exhaustion, the idea that once you buy something, you’re entitled to use it, even if there’s a patent on the product. To hold otherwise would place too great a burden on trade.

Read the full interview with Jess Bravin here.