Supreme Court Says Patent Holders Can't Shake Down Entire Supply Chain

from the big-win dept

The Supreme Court continues to bring a bit of common sense back to the patent system. While most of the tech world was sitting around paying attention to whatever Steve Jobs has to say this morning, the really big news in the tech industry may be the Supreme Court's decision that patent holders can't shake down the entire supply chain, by forcing each level of the supply chain to also license the patent (even if they bought a product from someone who had licensed the patent).

This the LG v. Quanta case that the Supreme Court agreed to hear last fall. Basically, LG had some patents that it licensed to Intel. Intel then sold products based on those patents, which its customers used to build other products. LG demanded license fees from those customers as well, even though they bought fully licensed products from Intel. LG insisted that since its contract with Intel said that the license didn't cover any additional products, then the patents had to be relicensed by each player down the supply chain. To some extent, this question of "patent exhaustion" is similar to questions about first sale doctrine when it comes to copyright, in determining if you have a right to actually resell a product that was legally purchased. And, thankfully, the Supreme Court agrees that patent exhaustion is an important concept.

This is yet another very important limitation on patent holders, preventing them from stifling innovation at every step of the product process, and double-, triple- and quadruple-dipping off a product based on a single use of their patented invention. Hopefully this will lead to the quick dismissal of a bunch of cases that were filed last fall against a ton of companies up and down various supply chains. A lot of patent hoarders, fearing this exact decision, tried to just sue everyone at once, hoping for quick settlements before the Supreme Court stepped in. It's great to see the Supreme Court taking such an active interest in rolling back massive abuses of the patent system. Update: The EFF has a good take on the ruling, noting some of the holes in it, suggesting that it's unfortunate the the Supreme Court wasn't as clear as it could/should have been.
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Filed Under: contracts, first sale, patent exhaustion, patents, supply chain, supreme court
Companies: lg, quanta

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  1. identicon
    Jason, 9 Jun 2008 @ 1:13pm

    Re: Re: Title 35

    I want to play Devil's Advocate for a minute. This example may not be the best, but I think it makes sense for this decision.

    Imagine buying pasta from a supermarket. Say you pay $1 for a pound of pasta. When you buy it, it's understood that the pasta and what you do with it is your business. You can make it that night, a month from now, even throw it out if you want, no big deal. But, let's say that you want to take that pasta, make a dish, and sell the dish for $2 per serving. How would you act if the supermarket learned of this and wants an extra $0.50 for this since you are now making a profit? What about the company that made the pasta in the first place? Do they deserve money since they first sold it to the supermarket?

    I know this might be a bad example, but in other walks of life, if you buy something, it's yours. You are liable for what happens with/to it, and you don't owe anyone else upstream anything. This is the first sale doctrine. What shouldn't this apply to licensing technology as well? I agree that the person who made the tech should get paid (while at the same time, I don't see the use of patents when we would seem to get there anyway). Just because Intel, who happened to buy LG's product is making money off of it, they should be forced to let LG double dip for more profit?

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