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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LG
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Re: LG
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Re: LG
What is Title 35? Where is it written? How does it contradict the Supreme Courts decision? More importantly though, how does Title 35 overturn the authority of the Supreme Court who has final say over what is/isn't legal inside of the United States?
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Re: Re: LG
An excellent analysis of the issue can be found at:
http://www.morganfinnegan.com/news/articles_publications/0119/_res/id=sa_File1/OsborneArticle _re_Quanta-v.-LGE.pdf
Of course, none of the actual parties took the time to study the issue, focusing instead on arguments virtually guaranteed to result in a 9-0 opinion. Much of the "hosed up" state of Supreme Court jurisprudence regarding patent law would not exist if cases such as these were argued by subject matter experts, and not generalists who limit their practice to practice before the Supreme Court.
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Re: Re: Re: LG
From reading the abstract of the link you gave, it seems (at least to me), that the document supports the Supreme Court's decisions.
"...The statute provides a right to recovery for a component embodying the essential features of a system or method patent and exhaustion precludes a further recovery for the same invention."
Notice how it says it precludes further recovery. Of course, I didn't read the full thing, so I'm taking what I read from just the abstract.
Secondly, you did not answer how the Supreme Court is the one who decides what is right and what isn't, over what some document says.
Thirdly, you didn't answer what "Title 35" is, and, doing a quick search for "Title 35" and "Title XXXV", I didn't see anything in the document linked that mentioned it. I never heard of Title 35, that's why I am asking what it is and what it says.
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Re: Re: Re: Re: LG
The Supreme Court is tasked with interpreting the law. This was not a case involving a constitutional issue. It was one involving statutory construction. Unfortunately, the Court was not directed to that portion of Title 35, which is where one finds the statutes comprising US patent law, that is an important part of situations such as this.
In all fairness, the Supreme Court does not comprise mind-readers. It takes cases as presented in briefs, and then attempt to render a decision consistent with judicial precedent. If a pertinent statutory section is not brought to its attention, it is not addressed.
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Re: Re: Re: Re: Re: LG
After a quick perusal of that particular article, it appears to support the Supreme Court's decision. In particular the article spells out that a patent's claim is exhausted after a single licensing but that does not preclude that it may infringe on a distinct separate patent (ie one that is not covered by the licensed patent). The article states that Title 35 also follows this pattern.
Though, the real issue here is that this is not the decision of the court but merely an article discussing a case before the court.
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Re: Re: Re: LG -- Osborne cite
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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Re: LG
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Re: Re: LG
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Re: Re: Re: LG
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need a job
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Good Decision!
A decision in LG's favor would have been a disaster. LG licensed their patents to Intel. Everyone knows that Intel is a chip manufacturer. What do you do with a chip? Put it on your desk and look at it? Intel paid LG to use LG technology to make chips--which of course would be used as components in subsequent products. You appear to think it's fair to sell a thing for an agreed upon price, get paid fully for it, and then start suing people if the thing is ever actually used for anything!
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Title 35
under that license. How does Title 35 apply?
Title 35 U. S. S 271(c)
"Whoever imports into the United States a component of a patented machine, manufacture, combination or composition, or a material or apparatus for use in practicing a patented process, constituting a material part of the invention, knowing the same to be especially made or especially adapted for in an infringement of such patent, and not a staple article or commodity of commerce suitable for substantial noninfringng use, shall be liable as a contributory infringer."
I'm curious.
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Re: Title 35
Intel was obviously concerned that under 271 it could be deemed a contributory infringer, so it worked out a deal with LG. Importantly, Intel could never have been deemed a direct infringer because it is not an importer of computers for sale to the public.
While the decision is contradicted by federal legislation, its import will prove largely academic by the more judicious selection of language in licensing arrangements.
I just hate to see a decision go off the deep end that adds more confusion to the current patent system. It is confusing enough without the Supreme Court's "help".
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Re: Re: Title 35
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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Re: Re: Title 35
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Re: Title 35
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hmmm
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Microsoft Software Patents?
That would be nice.
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Re:
One would like to think that. Unfortunately, it is a fact of life that many times weak arguments are presented and strong arguments overlooked.
This case was the subject of much discussion by attorneys, and one of the important parts of the discussion was befuddlement why LG went off in the direction it did in its brief to the USSC.
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Re: Re:
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@ MLS...
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MLS's opinion redirected.
--The WebMind
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MLS, You Misunderstand Title 35
2) LG spent months on its legal defenses. It spent millions of dollars. Its law firm(s) had dozens of lawyers research *every* relevant and possibly relevant case, law, and legal doctrine. They didn't use Title 35 *because it hurts their case.*
3) If Title 35 applied, *every* patent lawyer in the legal world would be up in arms. The fact that they aren't speaks volumes.
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Ahhh, yes.
Now if you have a worthy case to bring, have at it. But saying that they did not perform their duty is a bit over the top dont ya think ?
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MLS, I need your legal expertise!
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Re: MLS, I need your legal expertise!
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The forest for the trees.
Second, you claim the ruling has no basis in case law. Have you read the ruling? The court referenced multiple cases to lay the foundation in case law all the way back to 1917.
Third, patents arise out of the Constitution and thus SCOTUS certainly has broad powers over patents just as they do in copyright to set the foundation of case law in this matter.
Last of all, nothing you cite supports your position anyway. Your argument is moot.
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Re: The forest for the trees.
The "document" you mention is of course not a court decision, but it is noteworthy reading because of its thorough treatment of the concepts "patent exhaustion", "patent misuse" and "contributory infringement". These are not separate and distinct issues. They are thoroughly joined at the hip, and to understand one requires understanding the others. A failing in my view of the opinion is that by not noting and reconciling these concepts, a door has been left ajar for future litigation that will test the boundaries of the LG opinion.
Also of particular note is a footnote in the opinion suggesting that the court may countenance certain contractual arrangements where one may be able to overcome patent exhaustion and achieve substantially the same result as was attempted by LG in its arrangements with Intel.
The headline to this article concerns a patentee's attempt to control downstream users in the supply chain. In my view the decision does not slam this door shut. It closes it a bit, but not very much.
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No more blackmail!
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In many cases, including the 92-defendant case Mike linked to, the manufacturer does _not_ have a license, and is also an alleged infringer. It's just more lucrative to go after the retailer clients than the manufacturer of the device. Not sure that Quanta v. LG will stop that.
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dissembling
When corporate America agrees to not use our inventions without consent, American inventors and small entities will agree to stop suing them.
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Patent Blather
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MLS
_______
nancy
Flat Fee MLS
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