Quanta Computer, Inc. v. LG Electronics, Inc.
170 L. Ed. 2d 996, 128 S. Ct. 2109 (2008)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
The authorized sale of an article that substantially embodies a patent exhausts the patent holder's rights, preventing the holder from controlling the article's post-sale use. This doctrine of patent exhaustion applies to both method and apparatus patents.
Facts:
- LG Electronics, Inc. (LGE) owned several patents related to computer system functions, including methods for managing data between memory, microprocessors, and other components.
- LGE granted a license to Intel Corporation (Intel) to manufacture and sell microprocessors and chipsets that used the LGE patents.
- The license agreement specified that no license was granted to any third party for the combination of Intel products with non-Intel components.
- However, the agreement also contained a clause stating that nothing in the agreement would limit or alter the effect of the patent exhaustion doctrine.
- Intel sold microprocessors and chipsets to Quanta Computer (Quanta) and other computer manufacturers.
- As required by a separate agreement with LGE, Intel notified Quanta that LGE's license did not extend to products made by combining an Intel product with any non-Intel product.
- Quanta manufactured computers by incorporating the Intel components with non-Intel memory and buses in a way that practiced LGE's patents.
- The Intel components had no reasonable use other than being combined with standard computer parts like memory and buses to practice the patents.
Procedural Posture:
- LG Electronics, Inc. (LGE) filed a complaint against Quanta Computer (Quanta) in the U.S. District Court for the Northern District of California, alleging patent infringement.
- The District Court granted summary judgment to Quanta, holding that LGE's patent rights were exhausted by the authorized sale of the Intel components.
- Upon reconsideration, the District Court limited its ruling, holding that the patent exhaustion doctrine does not apply to method claims, which were part of LGE's patents.
- Both parties appealed to the U.S. Court of Appeals for the Federal Circuit.
- The Federal Circuit affirmed in part, agreeing with the District Court that patent exhaustion does not apply to method claims.
- The Federal Circuit also held, as an alternative ground, that exhaustion did not apply because Intel's license from LGE did not authorize the sale to Quanta for the purpose of combining Intel products with non-Intel components.
- The U.S. Supreme Court granted certiorari to review the Federal Circuit's decision.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does the authorized sale of a component that does not by itself practice a patented method, but substantially embodies the patent, exhaust the patent holder's rights to control the use of that component when it is combined with standard parts to practice the method?
Opinions:
Majority - Justice Thomas
Yes, the authorized sale of a component that substantially embodies a patent exhausts the patent holder's rights. The Court held that the doctrine of patent exhaustion applies to method patents just as it does to apparatus patents. The reasoning is that to hold otherwise would allow patent holders to easily circumvent the exhaustion doctrine by simply drafting their claims to describe a method rather than an apparatus. The Court then applied the test from United States v. Univis Lens Co., holding that an incomplete article exhausts a patent upon sale if it substantially embodies the patent. An item substantially embodies a patent if (1) its only reasonable and intended use is to practice the patent, and (2) it includes the essential and inventive features of the patent. Here, the Intel products met this test because their only reasonable use was to be incorporated into computers that practiced the LGE patents, and they contained all the inventive aspects of those patents. The addition of standard memory and buses was a common, non-inventive step. Finally, the Court found the sale from Intel to Quanta was 'authorized' because the license agreement gave Intel a broad right to sell its products, and the clauses about third-party combinations did not condition or limit Intel's authority to make the sale itself.
Analysis:
This decision significantly strengthens and clarifies the patent exhaustion doctrine, particularly in the context of modern, complex technologies. By explicitly extending exhaustion to method patents, the Court closed a potential loophole that could have allowed patentees to control products far downstream in the stream of commerce. The ruling's reaffirmation of the 'substantial embodiment' test from Univis provides crucial protection for manufacturers who assemble products from various components, ensuring that once an essential component is sold under authorization, the patent holder cannot use infringement claims to control how that component is integrated with other standard parts. This precedent limits a patentee's control post-sale and promotes the free trade of components used in complex devices like computers and electronics.
Unlock the full brief for Quanta Computer, Inc. v. LG Electronics, Inc.