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

PETITIONER: Quanta Computer, Inc., et al.
RESPONDENT: LG Electronics, Inc.
LOCATION: U.S. Naval Base at Guantanamo Bay

DOCKET NO.: 06-937
DECIDED BY: Roberts Court (2006-2009)
LOWER COURT: United States Court of Appeals for the Federal Circuit

CITATION: 553 US 617 (2008)
GRANTED: Sep 25, 2007
ARGUED: Jan 16, 2008
DECIDED: Jun 09, 2008

ADVOCATES:
Carter G. Phillips - on behalf of the Respondent
Maureen E. Mahoney - on behalf of the Petitioners
Thomas G. Hungar - on behalf of the United States, as amicus curiae, supporting the Petitioners

Facts of the case

LG Electronics owned patents for a group of products, including microprocessor chips used in personal computers. It licensed the patents to Intel, but in a well-publicized separate agreement excluded from the license any Intel customer that integrated the chip with non-Intel components. One purchaser disregarded the agreement and used the chips in computers made for Dell, Hewlett-Packard and Gateway. LG Electronics sued those who passed the chips down the line of commerce to companies that had not purchased licenses.

Question

May a patent holder seek royalties from companies other than its direct purchaser as the patented product is integrated into larger components during the manufacturing process?

Media for Quanta Computer, Inc., et al. v. LG Electronics, Inc.

Audio Transcription for Oral Argument - January 16, 2008 in Quanta Computer, Inc., et al. v. LG Electronics, Inc.

Audio Transcription for Opinion Announcement - June 09, 2008 in Quanta Computer, Inc., et al. v. LG Electronics, Inc.

Clarence Thomas:

The first case is Quanta Computers -- Computer versus LG Electronics, Number 06-937.

This case comes to us on a writ of certiorari to the United States Court of Appeals for the Federal Circuit.

Respondent owns a portfolio of computer related patents and licensed rather broadly those patents to Intel Corporation to make use and sell products practicing those patents.

A separate agreement required Intel to give notice to its customers that the customers had not been granted a license to practice the patents using non-Intel parts.

Petitioners purchased microprocessors and chipsets from Intel that were designed to practice the patents when connected to memory and buses, and buses here of course, computer buses are just connections that carry data from one computer component to another or from one computer to another.

Petitioners constructed computers that practiced the patents using the Intel products combined with memory and buses and respondents sued, alleging patent infringement.

Petitioners countered, invoking the longstanding doctrine of -- of patent exhaustion whereby the first authorized sale of a patented item exhausts the patent holder's rights to that item.

The Court of Appeals for the Federal Circuit disagreed.

It held that exhaustion is limited to patent claims for physical objects and does not apply to patent claims for methods or process like those included in respondent's patents.

In the alternative, it held that the sale of the Intel products to petitioners was not authorized by the license.

In an opinion filed with the clerk today, we reverse the judgment of the Court of Appeals.

First, nothing in this Court's approach to patent exhaustion supports respondent's argument that method patents cannot be exhausted.

We have previously applied the doctrine to method patents and failure to do so here would undermine the purposes of exhaustion.

Second, we consider the extent to which a product must embody a patent in order to trigger exhaustion.

Applying the analysis used in United States versus Univis Lens Company, we hold that exhaustion was triggered by the sale of the Intel parts because their only reasonable and intended use was to practice the patent and because they embodied essential features of the patented invention.

The Intel products embody the essential features of respondent's patents because they were designed to carry out all of the patent's inventive -- inventive processes and need only be combined with standard components.

Finally, we note that Intel's sale of the products to petitioner was authorized.

Nothing in the license agreement restricts Intel's right to sell its products to purchasers who intend to combine them with non-Intel parts nor can a notice provision in the separate agreement create limitations not contained in the license itself.

Intel's authorized sale to petitioner thus exhausted the patents and as a result, respondent can no longer assert its patent rights against petitioners.

The opinion of the Court is unanimous.