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
    Chiropetra, 9 Jun 2008 @ 9:32pm

    Re: Re: Re: LG -- Osborne cite

    I'd suggest anyone who's interested in this case read this article -- at least the first few pages and preferably all of it.

    Basically what the author is arguing is that neither side was right in this case. The plaintiff wanted to greatly restrict the doctrine of exhaustion from its traditional limits and the defendant wanted to extend it all the way to the wall.

    IANAL, but what follows is my interpretation of what's going on.

    The problem is that traditionally, patent holders have had some ability to restrict what a particular licensee can do with their patent. IE you could license a device for medical applications, say, but not for agricultural applications. Kind of like assigning exclusive sales territories. In general that's worked pretty well since it lets a licensee save money by licensing a patent for a specific field of use, presumably at a lower cost than a broad general license.

    Anyway, read the article. You probably won't agree with it (I don't), but it's enlightening.

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