US Supreme Court Strengthens the Doctrine of Patent Exhaustion

In a recent unanimous decision, Quanta Computer Inc v LG Electronics Inc (No 06-937) (Quanta), the US Supreme Court has limited the rights of patent holders by broadening the doctrine of patent exhaustion to include method patents. The case involved a series of computer technology patents (LG Patents) that LG Electronics Inc (LG) licensed to Intel Corporation (Intel). They covered a system for retrieving data from memory, a method of coordinating requests to read and write from memory, and a method of managing data traffic on a set of wires connecting two computers. The license agreement allowed Intel to manufacture and sell microprocessors using the LG Patents. A separate agreement between the parties required Intel to give written notice to its customers that the license did not extend to the combination of the Intel product with a non-Intel product. However, breach of this second agreement did not constitute breach of the license agreement. Quanta Computers Inc (Quanta) purchased microprocessors and chipsets from Intel, and proceeded to combine them with non-Intel parts. LG sued Quanta asserting that the combination infringed LG's patent rights. The District and Federal Circuit Courts held that the doctrine of patent exhaustion did not apply to method claims and ruled in favour of Quanta. The Supreme Court overruled the Federal Circuit, holding that the doctrine of patent exhaustion applies equally to method patents – that is, when the patented method is embodied in a product, once that product is sold into the marketplace, the patentee's rights have been exhausted. It is interesting to speculate whether there would have been a different result if the license agreement itself did not provide Intel the right to sell its products to purchasers who intend to combine the Intel products with non-Intel parts. For the text of the decision, see: http://www.law.cornell.edu/supct/pdf/06-937P.ZO Summary by: Michael Migus