The case (Quanta Computer v LG Electronics) arises from suits filed by LG Electronics in 2000 and 2001 alleging that Quanta and other computer makers infringed several of its patents for microprocessor chips in personal computers.
LG had licensed the patents to Intel, which then sold the chips to the computer companies. However, the licence agreement did not expressly authorize Intel’s customers to combine the chips with non-Intel products.
The Supreme Court will address the question “whether the Federal Circuit erred by holding, in conflict with decisions of this Court and other courts of appeals, that respondent’s patent rights were not exhausted by its license agreement with Intel Corporation, and Intel’s subsequent sale of products under the license to petitioners”.
In December 2004, a trial court ruled in favour of Quanta and other manufacturers, citing the doctrine of patent exhaustion, also commonly known as the “first sale” doctrine. Under this principle, a patent owner’s right is exhausted upon the first sale of the patented product.
However, the US Court of Appeals for the Federal Circuit overturned the district court’s ruling in July 2006, arguing that patent exhaustion "does not apply to an expressly conditional sale or license" and that “regardless of any noninfringing uses, Intel expressly informed [the defendants] that Intel’s license agreement with LGE did not extend to any of defendants’ products made by combining an Intel product with non-Intel products.”
The Supreme Court is expected to hear the case early next year. Companies including Dell and Hewlett Packard (HP) have filed amicus briefs in support of Quanta.
LG also filed a separate patent-infringement suit against Quanta earlier this year, alleging that it infringed four patents used to make DVDs.
In a statement released on Friday, Quanta Computer said: “The company welcomes the US Supreme Court's decision to consider the LG patent case ... Quanta respects intellectual property and is committed to defending its reputation and acting in the best interest of its shareholders.”
Carter Phillips of Sidley Austin, who is representing LG in the case, said that a victory for Quanta could result in significant problems for patent owners. “The licensing schemes that have been in place for 20 years are predicated on the assumption that patent owners can do what they want with their patents,” he said. “If we don’t retain the current system, it could deter licensing in general and will create greater expense for first licensees.”
In its petition to the Supreme Court, Quanta argued that “[T]he Federal Circuit’s new jurisprudence threatens to kick off a new era of ‘notices’ attached to sold goods.”
The case is the latest in a string of important patent cases to be heard by the Supreme Court.
Seth Ostrow, chair of the patent department at Dreier, told MIP Week: “The trend in the Court taking these cases is that they’re looking to curtail patent licensing royalties and give more power to licensees.”
“Whatever the Supreme Court does here will be directed to curtailing the amount of patent licensing royalties that a patent holder can get,” Ostrow said. “They won’t make a broad, sweeping change in the law, they’ll make a ruling based on this specific type of licence.”
