Law School Case Brief
Quanta Comput., Inc. v. LG Elecs., Inc. - 553 U.S. 617, 128 S. Ct. 2109 (2008)
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.
Plaintiff LG Electronics, Inc. (LG) purchased the computer technology patents at issue. One disclosed a system for ensuring that most current data were retrieved from main memory, one related to the coordination of requests to read from and write to main memory, and one addressed the problem of managing data traffic on a set of wires, or “bus,” connecting two computer components. LG licensed the patents to Intel Corporation (Intel), in an agreement (License Agreement) that authorized Intel to manufacture and sell microprocessors and chipsets using the LG Patents (Intel Products) and that did not purport to alter patent exhaustion rules. A separate agreement (Master Agreement) required Intel to give its customers written notice that the license did not extend to a product made by combining an Intel Product with a non-Intel product, and provided that a breach of the agreement would not affect the License Agreement. Petitioner computer manufacturers (Quanta) purchased microprocessors and chipsets from Intel. Defendant Quanta Computers, Inc. (Quanta) then manufactured computers using Intel parts in combination with non-Intel parts, but did not modify the Intel components. LG sued, asserting that this combination infringed the LG Patents. The District Court granted Quanta summary judgment, but on reconsideration, denied summary judgment as to the LG Patents because they contained method claims. The Federal Circuit affirmed in part and reversed in part, agreeing with the District Court that the patent exhaustion doctrine did not apply to method patents, which described operations to make or use a product; and concluding, in the alternative, that exhaustion did not apply because LG did not license Intel to sell the Intel Products to Quanta to combine with non-Intel products. The United States Supreme Court granted certiorari review.
Did the patent exhaustion doctrine apply to method patents, thereby warranting the grant of summary judgment to Quanta?
The United States Supreme Court held that the authorized sale of an article that substantially embodied a patent exhausted the patent holder's rights and prevented the patent holder from invoking patent law to control post-sale use of the article. According to the Court, 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. The Intel Products embodied the patents in the present case, and the exhaustion was triggered by the sale of the lens blanks because their only reasonable and intended use was to practice the patent and because they embodied the essential features of the patented invention. Accordingly, the Court held that Intel’s sale to Quanta exhausted LGEs patent rights. Moreover, the Court determined that the License Agreement entered into by the parties did not restrict Intel’s right to sell its products to purchasers who intended to combine them with non-Intel parts. In conclusion, the Court averred that Intel’s authorized sale to Quanta took its products outside the scope of the patent monopoly, and as a result, Intel could no longer asserts its parent rights against Quanta.
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