Page 116 - Intellectual Property Disputes

In Quanta Computer, Inc. v. LG Electronics, Inc., fn 18 LG Electronics (LGE) licensed the patents to
Intel that authorized Intel to manufacture and sell microprocessors and chipsets using the LGE patents.
A separate agreement required Intel to notify its customers in writing that the LGE license does not
extend to a product made by combining an Intel product with a non-Intel product. Quanta purchased
microprocessors and chipsets from Intel and then manufactured computers using Intel parts in
combination with non-Intel parts but did not modify any of the Intel components.

The patent holder sued computer manufacturers, alleging that the combination of products purchased
from the patent holder’s licensee and non-licensee memory and buses infringed its computer technology
patents. The U.S. Court of Appeals for the Federal Circuit affirmed the district court’s conclusion that
the doctrine of patent exhaustion did not apply because the patents included method claims. The
Supreme Court reversed the decision. fn 19

The Federal Circuit found that the doctrine of patent exhaustion does not apply to method patent claims,
which describe operations to make or use a product, and "concluded that exhaustion did not apply [in the
instant case] because LGE did not license Intel to sell the Intel Products to Quanta for use in
combination with non-Intel products." fn 20

The Supreme Court concluded that the "authorized sale of an article that substantially embodies a patent
exhausts the patent holder’s rights and prevents the patent holder from invoking patent law to control
post sale use of the article." "Exhaustion is triggered only by a sale authorized by the patent holder." The
circumstances in this case were that LG Electronics had licensed its patents to Intel, and that Intel’s
"microprocessors and chipsets substantially embodied the LGE patents because they had no reasonable
non-infringing use and included all the inventive aspects of the patented methods." The Supreme Court
held that "[n]othing in the License Agreement limited Intel’s ability to sell its products practicing the
LGE Patents." Accordingly, "Intel's authorized sale to Quanta, thus, took its products outside the scope
of the patent monopoly, and as a result, LGE can no longer assert its patent rights against Quanta." fn 21

The Supreme Court, however, in reversing the lower court’s decision found that the doctrine of patent
exhaustion does apply to method patents, and because LGE’s license with Intel authorized the sale of
components with the patents at issue, LGE could not assert its patent rights on products that embody the
licensed patents. In Justice Thomas’s opinion, he remarked, "[n]othing in this Court's approach to patent
exhaustion supports LGE's argument that method patents cannot be exhausted." The Supreme Court
determined 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 authorized sale of which exhausts patent rights." fn 22

fn 18 Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617 (2008). The patents at issue relate to computer memory technology, some
of which are utility patents and one of which was a method patent.

fn 19 Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617 (2008).

fn 20 Id. (discussing the Federal Circuit court decision in 453 F.3d 1364).

fn 21 Id.

fn 22 Id.

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