Good write up on What is the LG case doing in the Supreme Court...

For a clear explanation of issue to be adressed by the Supreme Court read the AMICUS BRIEF filed by the UNITED STATES...

Gil...

"Supreme Court Agreed to Hear Patent Case

25 September 2007

By Gene Quinn, Patent Attorney & Blog Editor

According to the Associated Press, the United States Supreme Court has decided to hear another patent case during its next term, which will soon be starting. This case, Quanta Computer Inc. v. LG Electronics Inc., will require the Supreme Court to address the patent exhaustion doctrine, which is sometimes referred to as the first sale doctrine. The original opinion of the United States Court of Appeals for the Federal Circuit, which was issued in July of 2006, determined that certain sales by LG Electronics to Intel were conditional sales and did not exhaust patent rights, thereby allowing LG Electronics to sue the defendants in the present case.

This dispute unfolded when the defendants purchased microprocessors and chipsets from Intel or its authorized distributors and installed them in computers. Intel was authorized to sell these products to defendants under an agreement with LG, but pursuant to the requirements of the Intel-LG agreement the defendants were not authorized to combine the products purchase from Intel with non-Intel products. Despite Intel explaining the provisions of the Intel-LG agreement the defendants, nevertheless, engaged in the activity warned against, which lead to LG suing the defendants and asserting that the combinationof microprocessors or chipsets with other computer components infringes LG patents covering those combinations. The wrinkle, however, is that LG did not assert patent rights in the microprocessors or chipsets themselves.

The Federal Circuit decision in Quanta V. LG, the Federal Circuit pointed to two possible sales that could be at issue. First, prior to this litigation, LG granted Intel a license covering its entire portfolio of patents on computer systems and components. This transaction constitutes a sale for exhaustion purposes. Second, with LG’s authorization, Intel sold its microprocessors and chipsets to each defendant. Notably, this sale involved a component of the asserted patented invention, not the entire patented system. It was this second sale that the district court relied upon as an exhausting sale. In finding the unconditional sale requirement satisfied, which must be the case in order for their to be patent exhaustion, the district court concluded that the defendants’ purchase of the microprocessors and chipsets from Intel was unconditional because the defendants’ purchase of the microprocessors and chipsets from Intel was in no way conditioned on their agreement not to combine the Intel microprocessors and chipsets with other non-Intel parts and then sell the resultant products. The Federal Circuit disagreed with the district court, explaining that although Intel was free to sell its microprocessors and chipsets, those sales were conditional, and Intel’s customers were expressly prohibited from infringing LG’s combination patents.

In its brief as Amicus Curiae, the United States explained that the question presented by this case is:

Whether a patentee's federal patent rights are exhausted by a licensee's authorized sale of an essential component that has no reasonable use other than in practicing the patented invention, when the patentee has purported to retain in its licensing agreement the right to pursue patent infringement claims against those who purchase the component from the licensee and use it for its only reasonable use.

The doctrine of patent exhaustion, also known as the first-sale doctrine, implicates fundamental questions concerning the scope of the exclusive rights conferred under the patent laws. Since this Court last squarely addressed the doctrine in United States v. Univis Lens Co., 316 U.S. 241 (1942), the doctrine has evolved in the Federal Circuit in a manner that appears to conflict with this Court's patent-exhaustion cases, thereby creating uncertainty as to when a patentee may enforce, through federal-court actions for patent infringement (as opposed to state-law contract actions), downstream limitations on purchasers following an authorized sale. Whatever rights a patentee may have to enforce such limitations as a matter of contract, the question whether a patentee may invoke federal patent law to enforce such limitations against authorized purchasers is one of considerable practical importance, and this case presents an adequate vehicle for addressing that question.