Quanta Computer, Inc. v. LG Electronics, Inc.

Supreme Court Decision

On June 9, 2008, the Supreme Court rendered its verdict, reversing the Fed. Cir., in Quanta Computer Inc., et al. v. LG Electronics, Inc. The following summarizes the Court's findings:

Legal principle: “The longstanding doctrine of patent exhaustion provides that the initial authorized sale of a patented item terminates all patent rights to that item.”

  1. On whether the Intel Products are “patented,” i.e., embody the patented method:
    • “Nothing in this Court's approach to patent exhaustion supports LGE's argument that method patents cannot be exhausted. . . . [M]ethods . . . may be 'embodied' in a product, the sale of which exhausts patent rights.”
    • Quoting Univis: [T]he authorized sale of an article which is capable of use only in practicing the patent is a relinquishment of the patent monopoly with respect to the article sold.”
    • “Here, as in Univis, the incomplete article substantially embodies the patent because the only step necessary to practice the patent is the application of common processes or the addition of standard parts.”
  2. On applicability of Univis: “In each case, the final step to practice the patent is common and noninventive: grinding a lens to the customer's prescription, or connecting a microprocessor or chipset to buses or memory. The Intel Products embody the essential features of the LGE Patents because they carry out all the inventive rpocesses when combined, according to their design, with standard components.”
  3. On relevance of secondary patents: “a device that practices patent A does not, by virtue of practicing patent A, exhaust patent B. But if the device practices patent A while substantially embodying patent B, its relationship to patent A does not prevent exhaustion of patent B.”
  4. On what constitutes “an authorized sale,” the Supreme Court distinguished General Talking Pictures Corp. v. Western Elec. Co. 1): “The License Agreement authorized Intel to sell products that practiced the LGE Patents. No conditions limited Intel's authority to sell products substantially embodying the patents. Because Intel was authorized to sell its products to Quanta, the doctrine of patent exhaustion prevents LGE from further asserting its patent rights with respect to the patents substantially embodied by those products.”
  5. DICTA: “We note that the authorized nature of the sale to Quanta does not necessarily limit LGE's other contract rights. LGE's complaint does not include a breach-of-contract claim, and we express no opinion on whether contract damages might be available even though exhaustion operates to eliminate patent damages. See Keeler v. Standard Folding Bed Co., 2) ('Whether a patentee may protect himself and his assignees by special contracts brought home to the purchasers is not a question before us, and upon which we express no opinion. It is, however, obvious that such a question would arise as a question of contract, and not as under the inherent meaning and effect of the patent laws.').”

Background

Factual background

    • 4,918,645 (disclosing systems and methods that increase the bandwidth efficiency of a computer’s system bus);
    • 5,077,733 (claiming, in relevant part, a method that controls the access of a device to a bus shared by multiple devices);
    • 4,939,641 (claiming, in relevant part, a system for ensuring that outdated data is not retrieved from memory);
    • 5,379,379 (claiming a system and method for ensuring that outdated data is not retrieved from memory); and
    • 5,892,509 (claiming networked computers capable of sharing certain video images) Note: This patent was ruled contractually non-infringed by the district court. 3)

LG Electronics, Inc. (LGE) licensed a number of patents covering microprocessor and chipset technology to Intel Corporation (Intel), who manufactured microprocessors and chipsets and sold them to Defendants. In accordance with the agreement between LGE and Intel, Intel notified defendants that, although it was licensed to sell the products to them, they were not authorized under the agreement to combine the products with non-Intel products. LGE sued Defendants asserting that the combination of microprocessors or chipsets with other computer components infringed LGE's patents covering those combinations. LGE did not assert patent rights in the microprocessors or chipsets themselves.

District Court

The district court granted summary judgment of noninfringement on the grounds that, with the exception of the '509 patent (see above), LGE's rights in any system claims were exhausted and further, that LGE was contractually barred from asserting infringement of the '509 patent against the Defendants. The trial court further determined that there was no implied license to any of the Defendants.

Federal Circuit

  • Citation: LG Electronics, Inc. v. Bizcom Electronics, Inc., 453 F.3d 1364 (Fed. Cir. 2006)

The Fed. Cir. noted that the patents asserted by LGE did not cover the products licensed or sold by Intel, but only products when combined with additional components. The Fed. Cir. further noted that Intel's sale of the components to defendants were conditional in that Intel's customers were expressly prohibited from infringing LGE's combination patents. Citing Mitchell v. Hawley 4), the Fed. Cir. found that the patent exhaustion doctrine does not apply to an expressly conditional sale or license. With regard to method claims, the Fed. Cir. approved the trial court's refusal to apply the exhaustion doctrine to the method claims because “the sale of a device does not exhaust a patentee's rights in its method claims” (citing Glass Equip. Dev., Inc. v. Besten, Inc. 5).

At the Supreme Court

Amicus Briefs

On Cert

  • Brief of respondent LG Electronics, Inc. in opposition
  • Reply of petitioners Quanta Computer, Inc., et al. filed.
  • Supplemental brief of respondent LG Electronics, Inc.

Amici

  • In support of Petitioner
  • In support of Respondents
  • In support of neither or unknown
    • Brief amicus curiae of Minebea Co., Ltd.

On Merits

Amici

1) 304 U.S. 175 (1938)
2) 157 U.S. 659, 666 (1895)
3) The district court ruled that, due to a contract between LGE and Microsoft, LGE was barred from asserting this patent against defendants in the summary judgment. This ruling was overturned by the Federal Circuit, which held that the phrase, “on account of” could be construed other than “but for” construction applied by the district court, and that proper construction requires factual considerations which is incompatible with the summary judgment procedure.
4) 83 U.S. 544, 547 (1873)
5) 174 F.3d 1337, 1341 n.1 (Fed. Cir. 1999) (internal citations omitted)
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