Quanta Computer, Inc. v. LG Elecs., No. 06-937, 553 U.S. ___ (2008).
The Supreme Court concluded its latest review of the patent laws Monday when Justice Thomas delivered the Court’s succinct, unanimous decision in Quanta v. LG. Client obligations this week prevent me from providing a detailed analysis today. But, no surprise, there is plenty of commentary out there already. For more about decision, check out:
* 271 Patent Blog
* Agricultural Law
* FileWrapper
* IP Thinktank
* Patent Docs
* Patently-O
* WSJ Law Blog

Continue Reading Quanta v. LG: Patent Exhaustion

The blogs are full of commentary about yesterday’s Supreme Court patent exhaustion argument. But no one is declaring a winner. Instead, like my earlier post, people are focusing on trends in the Justices questions. Here are some of the best commentaries:
Amster, Rothstein & Ebenstein has a guest post all over the blogs — read it at Patently-O, 271 Patent Blog, and Philip Brooks’ Patent Infringement Updates.
Anticipate This!
I/P Updates — quoting Chief Judge Roberts: “We’ve had experience with the Patent Office where it tends to grant patents a lot more liberally than we would enforce under the patent law.” Ouch.
ScotusWiki — This is a companion to the well-known SCOTUSblog (which does not have any commentary about the argument posted yet). ScotusWiki does not provide any commentary, but it is a great resource for information about this case, and any other Supreme Court case.
Troll Tracker — predicting a 5-4 or 6-3 reversal of the Federal Circuit (although only “leaning” that way and only predicting a “slight” reversal) and, similar to my post, picking up on Justice Breyer’s cycling theme, but without professing a love for the sport.

Continue Reading Quanta v. LG: Commentary Roundup

Quanta Computer, Inc. v. LG Elecs., Inc., No. 06-937 (Jan. 16, 2008).
The Supreme Court heard argument yesterday regarding the bounds of patent exhaustion, as explained in my previous posts on the case — click here to read them. The transcript was posted late yesterday and is an interesting read, although not one of the Supreme Court’s most entertaining arguments. I was thrilled to see Justice Breyer use a cycling hypothetical (regular readers will remember that I am a huge fan of cycling). Justice Breyer, apparently not 100% at ease with chipsets, used the hypothetical of selling patented bicycle pedals either as part of a bicycle or to be used with a bicycle. Here are Justice Breyer’s hypos and a few of the responses from G. Carter Phillips, arguing on behalf of LG:
JUSTICE BREYER: But you couldn’t put in –you are authorized to sell the bicycle pedals that I have patented only if you impose a restriction that will tell the bicycle user that he must send me a check for $15 in addition to whatever he pays you. That sounds unlawful under contract law.
* * *
JUSTICE BREYER: Well, there’s a reason, I guess, that would be so. Imagine that I want to buy some bicycle pedals, so I go to the bicycle shop. These are fabulous pedals. The inventor has licensed somebody to make them, and he sold them to the shop, make and sell them. He sold them to the shop. I go buy the pedals. I put it in my bicycle. I start pedaling down the road.
Now, we don’t want 19 patent inspectors chasing me or all of the other companies and there are many doctrines in the law designed to stop that. One is the equitable servitudes on chattel. Another is the exhaustion of a patent. And now you talk about implied license.
I would say, why does it make that much difference? What we’re talking about here is whether after those pedals are sold to me under an agreement that the patent — you know, you have a right to sell them to me — why can’t I look at this as saying that patent is exhausted, the patent on the pedals and the patent for those bicycles insofar as that patent for the bicycles says I have a patent on inserting the pedal into a bicycle.
Call it exhaustion, call it implied license. Who cares?
MR. PHILLIPS: I don’t have any problem with your hypothetical because it’s not this case. Your hypothetical deals with the situation of what would have happened if you had bought the chip. Would we be in a position to say, even though you bought the chip, we nevertheless want to retain some right to come out — to come after you claiming we still have a patent in that chip? And the answer is no. We exhausted — that was exhausted by the sale of the chip.
The question is if you buy a pedal, can you then take that pedal that was designed for a bicycle, put it into a Stair Master —
* * *
JUSTICE BREYER: All right, now if it should be protected — and here I’m not sure I’m understanding it, so correct me. Let’s suppose we have this contract. So everything is identical except we’ve got my bicycle example in here because I’m more comfortable with that. I know how to ride a bicycle and I don’t know how to work the chips. So what I do —
MR. PHILLIPS: Me too.
JUSTICE BREYER: But you see the analogy I’m making.
MR. PHILLIPS: Right.
JUSTICE BREYER: So what I do I go to the shop and I buy this, this mechanism with the pedals on it, and then I insert it in my bicycle. Now, actually I need help in doing that, but I do it. Okay. Now I start pedaling off, and now what is it for all these things here that would stop that original inventor from catching me and hauling me into court, and say, what you’ve done, Breyer, is you’ve put my — my mechanism here in this bicycle and I happen to have a patent on the system. And now you start talking to me about, well, the patent was exhausted on the bicycle —
MR. PHILLIPS: Pedal.
JUSTICE BREYER: — pedals, but not on the system.
MR. PHILLIPS: Right.
JUSTICE BREYER: And you agree that shouldn’t happen.
MR. PHILLIPS: Right.
JUSTICE BREYER: But if I follow you and I write an opinion just for you, what stops it from happening?
MR. PHILLIPS: Well, in that — in that particular context, in the absence of relatively clear notice, I think it would be quite reasonable to potentially find that there was an implied license to use it under those circumstances.
* * *
JUSTICE BREYER: Then explain — now this you might know because it’s just following up on what Justice Souter said better than I did. I think from these briefs I’ve gotten the impression that at least some people think that where you invent a component, say, like the bicycle pedals, and it really has only one use, which is to go into a bicycle, it’s the easiest thing in the world to get a patent not just on that component but to also get a patent on the system, which is called handlebars, body, and pedals.
And since that’s just a drafting question, all that we would do by finding in your favor is to destroy the exhaustion doctrine, because all that would happen, if it hasn’t happened already, is these brilliant patent lawyers, and they don’t even — they can be great patent lawyers, not just fine lawyers, and just draft it the way I said and that’s the end of the exhaustion doctrine. And that’s why it is preferable to say it is exhausted. What is exhausted? One, the patent on this component and, two, the patent on any system involving this component where that system is the only reasonable use of the component, rather than using the terminology “implied license.”
Now, I think that’s an argument that’s being made in some of these briefs, and if so I’d like to you reply.
MR. PHILLIPS: Well, I think that clearly understates the role of the PTO in granting a separate patent. I mean, this is not — these are not things you pick up at the corner drugstore. You have to justify them. And if you look at Section 282, “a patent shall be presumed valid,” each claim shall be presumed valid independently of the validity of other claims. And there’s an independence that’s embedded in this entire scheme. If it’s true that the PTO has in fact granted patent rights on something that’s fundamentally not different from the other — from some other patent, the solution to that is a validity challenge. And candidly, I think that’s exactly what all of those arguments are
CHIEF JUSTICE ROBERTS: Well, then —
MR. PHILLIPS: — is patent validity challenges

Continue Reading Quanta v. LG: Just Like Riding a Bike

Tomorrow, the Supreme Court hears arguments in Quanta Computer Inc. v. LG Electronics Inc., 06-937 — click here for a collection of the many briefs filed in the case at Patently-O. The Court will be deciding whether parties can contract around patent exhaustion. The patent exhaustion doctrine, also known as the first sale doctrine, holds that a royalty can only be charged once per product. Once one link in the supply chain has paid a royalty for a patented product, or a key component, the patent is exhausted and no other link in the chain must pay a royalty for the same patent. LG Electronics attempted to contract around patent exhaustion.
LG Electronics owned a group of patents claiming microprocessors used in personal computers. They licensed the patents to Intel, but expressly excluded from the license any Intel customer that combined a licensed Intel microprocessor with non-Intel components. As part of the license, Intel sent letters to its customers warning of this license exclusion. LG Electronics sued Intel’s post-license customers that were allegedly combining the licensed Intel chips with non-Intel products.
The district court held that Intel’s license exhausted LG Electronics’ downstream patent royalty rights. But the Federal Circuit reversed, holding that when parties expressly restrict a license a court should infer that the parties also negotiated a more limited royalty to reflect the limited rights given in the license. As a result, patent exhaustion should not apply to restricted licenses. Quanta argues that the Federal Circuit’s decision contradicts a long history of both Federal Circuit and Supreme Court precedent requiring that patent licenses cannot be restricted to one link in the supply chain.
This is another case that has major implications for the business of patent law. If the Supreme Court overturns the Federal Circuit it could dramatically change the model of many patent licensing programs. I will keep you posted both on what occurs during the argument and the Court’s ultimate decision.

Continue Reading Supreme Court Hears Patent Exhaustion Case Tomorrow

Many — myself included — thought the Supreme Court may have had its fill of patent law. But yesterday, the Supreme Court granted cert in Quanta Computer Inc. v. LG Electronics Inc., 06-937, to consider whether parties can contract around patent exhaustion. The patent exhaustion doctrine, also known as the first sale doctrine, holds that a royalty can only be charged once per product. Once one link in the supply chain has paid a royalty for a patented product, or a key component, the patent is exhausted and no other link in the chain must pay a royalty for the same patent. LG Electronics attempted to contract around patent exhaustion.
LG Electronics owned a group of patents claiming microprocessors used in personal computers. They licensed the patents to Intel, but expressly excluded from the license any Intel customer that combined a licensed Intel microprocessor with non-Intel components. As part of the license, Intel sent letters to its customers warning of this license exclusion. LG Electronics sued Intel’s post-license customers that were allegedly combining the licensed Intel chips with non-Intel products.
The district court held that Intel’s license exhausted LG Electronics’ downstream patent royalty rights. But the Federal Circuit reversed, holding that when parties expressly restrict a license a court should infer that the parties also negotiated a more limited royalty to reflect the limited rights given in the license. As a result, patent exhaustion should not apply to restricted licenses. Quanta argues that the Federal Circuit’s decision contradicts a long history of both Federal Circuit and Supreme Court precedent requiring that patent licenses cannot be restricted to one link in the supply chain.
This is another case that has major implications for the business of patent law. If the Supreme Court overturns the Federal Circuit it could dramatically change the model of many patent licensing programs.
For more about the Supreme Court’s decision to grant cert, check out:
Patently-O
271 Patent Blog
Patent Troll Tracker
FileWrapper

Continue Reading Supreme Court to Tackle Patent Exhaustion

Intel’s General Counsel, Bruce Sewell, had an interesting commentary piece in yesterday’s Wall Street Journal: Patent Nonsense (because it is from the Op/Ed pages, I do not think a subscription is required). On the day that the Senate Judiciary Committee renewed its consideration of the Patent Reform Act of 2007, Sewell makes many of the arguments that led to the changes proposed by the Act. Sewell argues that the number of patent law suits is increasing, damages awards are rising (he states that there have been at least four settlements or judgments in excess of $500M in the last five years) and the more and more “questionable, loosely defined patents” are being issued. Sewell’s remedies to these problems include:
limiting damages to the patented component not the entire product (i.e., a patentee’s damages should be based on its patented engine component, not the entire car);
strong post-grant PTO review;
strengthening of venue requirements so that suits must be brought in a forum with an actual connection to the alleged infringement; and
requiring a showing of actual bad faith for a willfulness finding.
Sewell also argues that the allegedly increasing number of “questionable, loosely defined patents” chills research and development in technology areas covered by the patents. But I am not sure this argument is correct. In my experience, a patentee, assignee or exclusive licensee with a broad patent tends to assert its patent when the technology is developed and a large chunk of the research investments have already been made. That is the point when the alleged infringers have developed a market and, therefore, potential damages. So, while I am all in favor of careful examination by the PTO (as are most people involved in this debate, I think), I am not sure that the problem with the broad, questionable patents is that they chill research and development investment.

Continue Reading The Case for Patent Reform