Quant Computer v. LG Electronics – the Supreme Court Rules on "Patent Exhaustion"

by Lee Gesmer on June 10, 2008

Yesterday’s decision in Quanta Computer, Inc. v. LG Electronics, Inc. is linked below (via scribd.com, which I am becoming quite enamored of as a place in the “cloud” to hold and link to documents or embed them in a web site or blog).

This is a very technical case, and probably is of little interest to non-patent/licensing-professionals. The holding is as follows:

The authorized sale of an article that substantially emboides a patent exhausts the patent holder’s rights and prevetns the patent holder from invoking patent law to control postsale use of the article.

Layman’s translation: once you license a patent to someone, your rights in the patented product or method are “exhausted.” You are not entitled to demand a patent royalty from subsequent purchasers “downstream” from your customer. This is analogous to the “first sale” doctrine in copyright law.

In both cases (patent and copyright) the exception is that you are able to restrict downstream uses by contract with your purchaser or licensee. However, negotiating contract rights that limit downstream use of a patented product or method is much more difficult than relying upon the operation of law; hence, the issue presented in this case.

The Supreme Court held that its ruling applied to “method patents” as well as utility patents. And, the exhaustion doctrine extends to include the sale of products that that do not fully practice the invention when the products include essential features of the patent and the “reasonable and intended use” of the product is to practice to patent.

For a more detailed treatment of this case, see this discussion at the Patent Prospector.

Read this document on Scribd: Quanta Computer v LG (patent exhaustion)

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