Re: Where LG slipped up
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Message: Where LG slipped up
From Patently-O:
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Posted: 09 Jun 2008 02:06 PM CDT
Quanta v. LG Electronics, __ U.S. __ (2008)
Justice Thomas delivered the Supreme Court’s 19–page unanimous decision that provides some new life to the doctrine of patent exhaustion. The opinion reverses the Federal Circuit and holds that under the exhaustion doctrine applies to the authorized sale of components that “substantially embody” a process patent. Here, Intel’s authorized sale of chip components to Quanta exhausted LGE’s patent rights.
Buried in this statement are two important holdings: (1) method claims can be subject to exhaustion and (2) sales of products that that do not fully practice the invention can still trigger exhaustion when the products include essential features of the patent and the “reasonable and intended use” of the product is to practice to patent.
In coming to its conclusions, the court reiterated its longstanding rule that “the right to vend is exhausted by a single, unconditional sale, the article sold being thereby carried outside the monopoly of the patent law and rendered free of every restriction which the vendor may attempt to put upon it.” Motion Picture Patents, 243 U. S. 502 (1917). The Motion Picture decision is more nuanced than the even older statement from Adams, which the opinion also quotes approvingly: “[W]hen a patented item is ‘once lawfully made and sold, there is no restriction on [its] use to be implied for the benefit of the patentee.’” Quoting Adams v. Burke (1873).
Contractual Limits: Although the defendant won in this case, the Supreme Court gave some glimmer of hope to those hoping to limit the scope of patent exhaustion through specific licensing terms. In this case, the court found that the LGE-Intel license did not limit the scope of what Intel could sell. Rather, the contract “broadly permits Intel to ‘make, use, [or] sell’” the invention. Under that interpretation of the contract, LGE’s patent rights over a particular component are extinguished as soon as that component is sold – regardless of whether the license included post-sale restrictions.
The practical impact is that the patentee has direct power through only the first level of the production/marketing process and forces the patentee to rely on contract rather than patent rules. This shift is less preferred by patentees because (1) contract law requires agreement and privity and (2) patent law typically results in stronger relief than contracts (despite eBay). Because there is usually a lack of privity with downstream users, and the manufacturer is unlikely to agree to be liable for improper downstream uses, it appears that a patentee will now have even more difficulty controling downstream users and purchasers.
Authorized: Despite the broad language of Adam v. Burke, the Supreme Court appears to have conceded that a license may include some restrictions. Interestingly, the court indicated, the sale might not have been authorized if sale had been done in a way that breached the contract between Intel and LGE.
In Footnote 7, the court limited its holding to patent exhaustion — and expressing “no opinion on whether contract damages might be available even though exhaustion operates to eliminate patent damages.” This means that violation of use restrictions associated with an authorized sale will not constitute patent infringement. However, it may still constitute a breach of contract. The case says little to nothing about the growing tendency of providing products as a service rather than through the sale of goods. Those offering the service believe that their business structure moves the deal outside of the “first sale” doctrine because the products are transferred via a license & service agreement rather than the sale of goods.
Notes:
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Posted: 09 Jun 2008 08:24 AM CDT
According to PTO figures, the Office has issued around 25,000 certificates of correction on issued patents each year since 2001. On a per patent basis, about 15% of issued patents are associated with a certificate of correction.*
Generally, a certificate of correction can be used to correct a minor mistake such as a "clerical or typographical" error or other minor error. In Superior Fireplace, the court held that a certificate of correction that broadens the claim is only permissible when it is clear from the specification and prosecution history how to correct the error. Similarly, in Central Admixture Pharmacy the CAFC found that the correction from osmolarity to osmolality was void because the error “was not clearly evident to one of skill in the art and the result was to broaden the claims.” The relief for an improper certificate of correction is simply to cancel the certificate.
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Over the past several years, a number of automated and out-sourcing services have emerged to check against PTO printing errors and other typographical errors. What are the best services and best practices regarding corrections?
- * To account for the time delay in obtaining corrections, I looked at only patents numbered 6,000,000 – 7,000,000 for the per patent estimate.
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