SUPREME COURT RULES IN FAVOR OF QUANTA IN IMPORTANT PATENT INFRINGEMENT CASE ADDRESSING THE DOCTRINE OF PATENT EXHAUSTION

On June 9, 2008, the Supreme Court, in a unanimous decision, ruled in favor of Quanta and against LG Electronics, holding that the doctrine of patent exhaustion applies to the authorized sale of components that “substantially embody” a process patent.

Patent exhaustion means that any single sale of the patented component to another manufacturer effectively ends the life of the component's patent protection.

The Supreme Court opinion (QUANTA COMPUTER, INC. v. LG ELECTRONICS, INC.), delivered by Justice Thomas, affirms the longstanding rule that “the right to vend is exhausted by a single, unconditional sale, the article sold being thereby carried outside the monopoly of the patent law and rendered free of every restriction which the vendor may attempt to put upon it.” Motion Picture Patents, 243 U. S. 502 (1917).

The ruling states that the "patent exhaustion doctrine provides that a patented item’s initial authorized sale terminates all patent rights to that item." See, e.g., Bloomer v. McQuewan, 14 How. 539. In the Court’s most recent discussion of the doctrine, United States v. Univis Lens Co., 316 U. S. 241.

In short, the patent exhaustion doctrine, also referred to as the "first sale" doctrine in patent and copyright case law, is alive and well.

The ruling, reversing the Federal Circuit, also states that, among other things, "...the doctrine of patent exhaustion applies to method patents, and because the License Agreement [between Intel (for LG) and Quanta] authorizes the sale of components that substantially embody the patents in suit, the exhaustion doctrine prevents LGE from further asserting its patent rights with respect to the patents substantially embodied by those products."

The decision, Patently-O suggests in a June 9 article, supports two patent dictates: (1) method claims can be subject to exhaustion and (2) sales of products that that do not fully practice the invention can still trigger exhaustion when the products include essential features of the patent and the “reasonable and intended use” of the product is important to the patent.

Here is the Patently-O article from June 9 (Supreme Court Decides Quanta v. LG ...) and another article from WallStreetJournal.com, with an interview with WSJ Supreme Court reporter Jess Bravin (Chipping Away at the Quanta v. LG Electronics ...).