Mary LaFrance on the Supreme Court's Broad Interpretation of Patent Exhaustion in Quanta Computer, Inc. v. LG Electronics, Inc., 2008 U.S. LEXIS 4702 (June 9, 2008)
Professor of Law, William S. Boyd School of Law, University of Nevada Las Vegas
In Quanta Computer, Inc. v. LG Electronics, Inc., 2008 U.S. LEXIS 4702 (June 9, 2008), the Supreme Court was faced with the question whether patent exhaustion applies to the sale of components of a patented system that must be combined with additional components in order to practice the patented methods. Professor Mary LaFrance analyzes the Court's decision, which answered the question in the affirmative. She writes:
Pursuant to . . . [LGE’s] License, Intel manufactured microprocessors and chipsets, and sold them to the defendants (collectively, “Quanta”). The microprocessors and chipsets were not themselves covered by LGE’s patents, but could be used in combination with other components to practice the patented inventions. . . . Quanta proceeded to manufacture computers that combined Intel’s licensed products with components from other manufacturers in a manner that practiced three of the systems and method patents that LGE had licensed to Intel.
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Disagreeing with the Federal Circuit, the Supreme Court squarely held that exhaustion applies to method claims. The Court noted that it had reached this conclusion on two previous occasions, in Ethyl Gasoline Corp. v. United States, 309 U.S. 436, 446, 457 (1940) and United States v. Univis Lens Co., 316 U.S. 241, 248–251 (1942). The Court described both cases as holding that method claims were exhausted by “the sale of an item that embodied the method.” A contrary ruling, the Court noted, would allow patentees to avoid exhaustion simply by drafting their claims to describe a method rather than an apparatus for carrying out the method.
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Quanta . . . reaffirms the Court’s willingness, as expressed in Univis, to apply exhaustion even where the item sold does not embody every element of the claimed invention. This broad interpretation of exhaustion reduces the importance of an implied license defense, because it gives rise to exhaustion whenever there is an authorized sale of an item (1) which “substantially embodies” the invention and (2) which is useful only in practicing the invention. Although the sale of a device useful only in practicing an invention can also give rise to an implied license, that implication can be overcome by express language disclaiming such a license. However, if the sale gives rise to exhaustion under Quanta, then language disclaiming an implied license will be ineffective.
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