IP News

Supreme Court to Weigh In on Patent Exhaustion Doctrine

On Sept. 25, 2007, the Supreme Court granted certiorari in Quanta Computer, Inc. v. LG Electronics, Inc., No. 06-937, 2007 U.S. LEXIS 9068 (U.S. Sept. 25, 2007).

In 2001, LG Electronics, Inc. ('LGE') asserted five patents relating to personal computers against a number of defendants, all of whom purchased microprocessors and chipsets from Intel or its authorized distributors and installed them in computers. While Intel was authorized to sell these products under an agreement with LGE, it informed the defendants that they were not authorized under that agreement to combine the products with non-Intel products. LGE then brought suit against defendants, asserting that the combination of microprocessors or chipsets with other computer components infringed LGE's patents on those combinations. The trial court granted summary judgment of non-infringement, holding that LGE's rights were exhausted as to the asserted system claims and were contractually barred as to the asserted method claims. LGE appealed.

The Federal Circuit reversed-in-part, holding that patent exhaustion did not apply to the system claims because the exhaustion doctrine does not apply to an expressly conditional sale or license. The court determined that LGE had granted only a conditional license because the LGE-Intel agreement expressly disclaimed granting a license allowing computer system manufacturers to combine Intel's licensed parts. Further, the LGE-Intel license required Intel to notify customers of the limited scope of the license, which it did. Thus, the court concluded that Intel's customers were expressly prohibited from infringing LGE's combination patents.

The question presented for the Supreme Court's review is:

Whether the Federal Circuit erred by holding, in conflict with decisions of this Court and other courts of appeals, that respondent's patent rights were not exhausted by its license agreement with Intel Corporation, and Intel's subsequent sale of product under the license to petitioners.

Exclusive Licensee Has Standing to Appeal Without Joinder of Patent Owner

In Schwarz Pharma, Inc. v. Paddock Labs, Inc., No. 07-1074, 2007 U.S. App. LEXIS 23950 (Fed. Cir. Oct. 12, 2007), Schwarz Pharma ('Schwarz'), an exclusive licensee of U.S. Patent 4,743,450 ('the '450 patent') owned by Warner-Lambert Co., LLC, appealed the trial court's decision granting Paddock Labs' ('Paddock') motion for summary judgment of non-infringement of several claims of the '450 patent. The claims of the '450 patent at issue generally relate to an alkali or alkaline earth metal carbonate to inhibit cyclization and discoloration. Schwarz brought suit against Paddock following Paddock's filing of an Abbreviated New Drug Application for approval to market generic tablets containing magnesium oxide. Considering only infringement under the Doctrine of Equivalents (Schwarz stipulated during oral argument that there was no literal infringement), the trial court ruled that Schwarz's amendment of the claim language from a 'metal containing stabilizer' and 'an alkali or alkaline earth-metal salt' to 'an alkali or alkaline earth metal carbonate' gave rise to prosecution history estoppel that barred coverage of Paddock's product, which contained magnesium oxide.

On appeal, Paddock asserted that Schwarz lacked standing to bring the appeal because Warner-Lambert, the patent owner, did not appeal the district court's adverse judgment. The court, considering the issue to be one of first impression, held that when a patentee joins an exclusive licensee in bringing a patent infringement suit in a district court, the licensee does not lose standing to appeal even though the patentee does not join in the appeal. The court reasoned that the prudential reasons for requiring a patent owner to be joined at the trial court level were not present on appeal. Specifically, the court reasoned that Paddock Labs would not be subject to multiple actions since Warner-Lambert had already been joined in the action and, if not joined in the appeal, would continue to be bound by the judgment of the trial court and of the Federal Circuit's decision.

Having decided the standing issue raised by Paddock, the court then affirmed the trial court's award of summary judgment of non-infringement. The court reasoned that magnesium oxide fell within the scope of the original claims of the '450 patent and was thus presumptively surrendered following amendment. Further, the court reasoned that Schwarz did not rebut that presumption because magnesium oxide was a foreseeable equivalent.

Matt Berkowitz is an associate in the New York office of Kenyon & Kenyon LLP.

Supreme Court to Weigh In on Patent Exhaustion Doctrine

On Sept. 25, 2007, the Supreme Court granted certiorari in Quanta Computer, Inc. v. LG Electronics, Inc., No. 06-937, 2007 U.S. LEXIS 9068 (U.S. Sept. 25, 2007).

In 2001, LG Electronics, Inc. ('LGE') asserted five patents relating to personal computers against a number of defendants, all of whom purchased microprocessors and chipsets from Intel or its authorized distributors and installed them in computers. While Intel was authorized to sell these products under an agreement with LGE, it informed the defendants that they were not authorized under that agreement to combine the products with non-Intel products. LGE then brought suit against defendants, asserting that the combination of microprocessors or chipsets with other computer components infringed LGE's patents on those combinations. The trial court granted summary judgment of non-infringement, holding that LGE's rights were exhausted as to the asserted system claims and were contractually barred as to the asserted method claims. LGE appealed.

The Federal Circuit reversed-in-part, holding that patent exhaustion did not apply to the system claims because the exhaustion doctrine does not apply to an expressly conditional sale or license. The court determined that LGE had granted only a conditional license because the LGE-Intel agreement expressly disclaimed granting a license allowing computer system manufacturers to combine Intel's licensed parts. Further, the LGE-Intel license required Intel to notify customers of the limited scope of the license, which it did. Thus, the court concluded that Intel's customers were expressly prohibited from infringing LGE's combination patents.

The question presented for the Supreme Court's review is:

Whether the Federal Circuit erred by holding, in conflict with decisions of this Court and other courts of appeals, that respondent's patent rights were not exhausted by its license agreement with Intel Corporation, and Intel's subsequent sale of product under the license to petitioners.

Exclusive Licensee Has Standing to Appeal Without Joinder of Patent Owner

In Schwarz Pharma, Inc. v. Paddock Labs, Inc., No. 07-1074, 2007 U.S. App. LEXIS 23950 (Fed. Cir. Oct. 12, 2007), Schwarz Pharma ('Schwarz'), an exclusive licensee of U.S. Patent 4,743,450 ('the '450 patent') owned by Warner-Lambert Co., LLC, appealed the trial court's decision granting Paddock Labs' ('Paddock') motion for summary judgment of non-infringement of several claims of the '450 patent. The claims of the '450 patent at issue generally relate to an alkali or alkaline earth metal carbonate to inhibit cyclization and discoloration. Schwarz brought suit against Paddock following Paddock's filing of an Abbreviated New Drug Application for approval to market generic tablets containing magnesium oxide. Considering only infringement under the Doctrine of Equivalents (Schwarz stipulated during oral argument that there was no literal infringement), the trial court ruled that Schwarz's amendment of the claim language from a 'metal containing stabilizer' and 'an alkali or alkaline earth-metal salt' to 'an alkali or alkaline earth metal carbonate' gave rise to prosecution history estoppel that barred coverage of Paddock's product, which contained magnesium oxide.

On appeal, Paddock asserted that Schwarz lacked standing to bring the appeal because Warner-Lambert, the patent owner, did not appeal the district court's adverse judgment. The court, considering the issue to be one of first impression, held that when a patentee joins an exclusive licensee in bringing a patent infringement suit in a district court, the licensee does not lose standing to appeal even though the patentee does not join in the appeal. The court reasoned that the prudential reasons for requiring a patent owner to be joined at the trial court level were not present on appeal. Specifically, the court reasoned that Paddock Labs would not be subject to multiple actions since Warner-Lambert had already been joined in the action and, if not joined in the appeal, would continue to be bound by the judgment of the trial court and of the Federal Circuit's decision.

Having decided the standing issue raised by Paddock, the court then affirmed the trial court's award of summary judgment of non-infringement. The court reasoned that magnesium oxide fell within the scope of the original claims of the '450 patent and was thus presumptively surrendered following amendment. Further, the court reasoned that Schwarz did not rebut that presumption because magnesium oxide was a foreseeable equivalent.

Matt Berkowitz is an associate in the New York office of Kenyon & Kenyon LLP.