Supreme Court Victory for Patent First Sale Doctrine

The Supreme Court today issued a unanimous opinion in Quanta v. LG Electronics, its first ruling in 66 years addressing the patent exhaustion doctrine. Patent exhaustion is the patent law equivalent to copyright law's first sale doctrine -- once you buy a product, you own it and the patent owner generally can't interfere with your subsequent use. EFF filed an amicus brief on behalf of itself, Consumers Union, and Public Knowledge in the case.

Today's ruling was relatively narrow in scope, but what news there is, is good. The case involved an effort by the patent owner, LG Electronics, to sue Quanta for patent infringement. Quanta, for its part, had purchased patented chipsets from Intel, which was authorized by LG to manufacture and sell the chipsets. Huh, you may ask -- how can Quanta be a patent infringer when it purchased perfectly legit chipsets from a perfectly legit, licensed manufacturer? LG argued that its license only reached Intel, not its customers. Moreover, LG required Intel to give customers a "notice" that explicitly said as much. This is exactly the kind of downstream "double-dipping" that the patent exhaustion doctrine was meant to prevent (for more on this, read the EFF-CU-PK amicus brief).

The Supreme Court today ruled against LG Electronics. So the upshot is a victory for the principle of "you bought it, you own it:" a mere unilateral notice to customers is not enough to prevent a patent from being exhausted upon first authorized sale. This should help consumers who purchase patented (and copyrighted) products festooned with "single use only" and "not for resale" notices rest a bit easier. Today's ruling suggests that those kinds of notices, too, would have no force under patent law.

Unfortunately, the Court did not take the opportunity to issue a broad ruling on whether other sorts of labels, or licenses, or contracts might be enough to defeat the patent exhaustion doctrine. So the Court's ruling leaves the door open for patent owners to experiment with these tactics, all in a continuing effort to transform purchases into "conditional sales" and stick consumers with restrictions on post-sale activities, such as resale (as we've seen in cases like UMG v. Augusto and Vernor v. AutoDesk in the copyright context), reuse (as we've seen in the case involving Lexmark's "not for refill" printer cartridges), repair, and modification, among other things.

Above was an issue we spent much time arguing with Mark#### about different types of licenses. ie Chip Manufacturers Vs System Manufacturers. Got this from a sleezy site but has valuable info.