IP News

On June 9, 2008, the Supreme Court issued its ruling in Quanta Computer, Inc. v. LG Electronics, No. 06-937 (June 9, 2008). The unanimous opinion, delivered by Justice Clarence Thomas, set limits on a patent holder's right to claim royalties for downstream use of a licensed product. Significantly, the Court held that the doctrine of patent exhaustion may apply to method claims. Further, the Court found that since the components (microprocessors and chipsets) manufactured and sold by patent licensee Intel 'substantially embody the patents in suit,' the sale of those components exhausted respondent LG's patent rights along with any entitlement to royalties from petitioner Quanta.

The Court rejected LG's argument that method claims are categorically immune to the doctrine of patent exhaustion, citing US v. Univis Lens Co., 316 U.S. 241 (1942). The Court reasoned that '[e]liminating exhaustion for method patents would seriously undermine the exhaustion doctrine,' promoting instead the drafting of claims to describe methods rather than products or apparatuses. Citing Univis, the Court held that method claims 'may be 'embodied' in a product, the sale of which exhausts patent rights.' In defining 'embodiment' for the purposes of triggering the patent exhaustion doctrine, the Court identified products that have 'no reasonable noninfringing use' and that 'include[] all inventive aspects of the patented methods.'