Jun. 17, 2008
In
Quanta, a unanimous Supreme Court recognized that "[f]or over 150 years this Court has applied the doctrine of patent exhaustion to limit the patent rights that survive the initial authorized sale of a patented item." (Slip op. at 1). The Court disagreed with the Federal Circuit on both issues raised on certiorari and found, "[b]ecause the exhaustion doctrine applies to method patents, and because the license authorizes the sale of components that substantially embody the patents in suit, the sale exhausts the patents." (
Id. at 1).
In particular, the Supreme Court has confirmed that "[t]he longstanding doctrine of patent exhaustion provides that the initial authorized sale of a patented item terminates all patent rights to that item." (Slip op. at 5). The Supreme Court has also confirmed that "the exhaustion doctrine applies to method patents" (Id. at 1, 9-11) and when a "license authorizes the sale of components that substantially embody the patents in suit, the sale exhaust[s] the patents." (Id. at 1, 11-16). As such, Quanta promises to provide customers of a patent licensee with greater certainty as to the rights they receive incident to their purchases of patented items.
In Part III of the Opinion, the Court addressed each of LGE's arguments in turn, and rejected them in favor of Quanta's arguments.
First, the Court found that "[n]othing in this Court's approach to patent exhaustion supports LGE's argument that method patents cannot be exhausted. It is true that a patented method may not be sold in the same way as an article or device, but methods nonetheless may be 'embodied' in a product, the sale of which exhausts patent rights." (Slip op. at 9). The Court emphasized, "this Court has repeatedly held that method patents were exhausted by the sale of an item that embodied that method." (Id.). The Court also recognized that"[e]liminating exhaustion for method patents would seriously undermine the exhaustion doctrine." (Id. at 10). Thus, the Court concluded," [w]e reject LGE's argument that method claims, as a category, are never exhaustible." (Id. at 11).
Next, the Court considered "the extent to which a product must embody a patent in order to trigger exhaustion." (Slip op. at 11). Here, the Court relied heavily upon its prior decision in Univis as governing:"As the Court there explained, exhaustion was triggered by the sale of lens blanks because their only reasonable and intended use was to practice the patent and because they 'embodie[d] essential features of [the] patented invention.' 316 U.S., at 249-251. Each of those attributes is shared by the microprocessors and chipsets Intel sold to Quanta under the License Agreement." (Slip op. at 12).
The Court first relied upon the holding in Univis that "the 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." (Slip op. at 12, quoting Univis, 316 U.S. at 249). Like Univis, the Quanta Court found that "LGE has suggested no reasonable use for the Intel Products other than incorporating them into computer systems that practice the LGE Patents." (Slip op. at 12-13). The Quanta Court specifically rejected LGE's arguments that "Intel Products would not infringe its patents if they were sold overseas, used as replacements parts, or engineered so that use with non-Intel Products would disable their patented features" as misplaced." Univis teaches that the question is whether the product is 'capable of use only in practicing the patent,' not whether those uses are infringing." (Id. at 13, n.6, quoting Univis, 316 U.S. at 249 (emphasis supplied by Court). The Court also found that "disabled features would have no real use". (Id.).
Next, the Court relied upon the holding in Univis that the lens blanks "embodie[d] essential features of [the] patented invention". (Slip op. at 13, quoting Univis, 316 U.S. at 250-51). The Court looked to the "uniqueness" of the finishing process, that it "was not central to the patents," and that it was a "standard process" not included in the details of the patent, as guiding principles coming from Univis. Quanta found, "[h]ere, 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." (Id. at 14). The Quanta Court found it significant that "[t]he Intel Products were specifically designed to function only when memory or buses are attached; Quanta was not required to make any creative or inventive decision when it added those parts, " and "[i]ndeed, Quanta had no alternative ...." (Id. at 14-15).
As a final issue, the Court "consider[ed] whether their sale to Quanta exhausted LGE's patent rights." (Slip op. at 16). In this regard, the Court recognized, "[e]xhaustion is triggered only by a sale authorized by the patent holder." (Id.). The Court rejected LGE's arguments that Intel's sale to Quanta was not authorized: "Nothing in the License Agreement restricts Intel's right to sell its microprocessors and chip-sets to purchasers who intend to combine them with non-Intel parts." (Id. at 17). The Court found it significant that "Intel's authority to sell its products embodying the LGE Patents was not conditioned on the notice or on Quanta's decision to abide by LGE's directions in that notice." (Id. at 17-18).
The Court also rejected LGE's argument that the explicit disclaimer of licenses to third parties in the License Agreement somehow precluded the patent exhaustion doctrine from applying "because Quanta asserts its right to practice the patents based not on implied license but on exhaustion. And exhaustion turns only on Intel's own license to sell products practicing the LGE Patents." (Slip op. at 18).
In the end, the Court found:
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.
(Slip op. at 18).
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Part I | Part II | Part III | Part IV
