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.

Filed Under: contracts, first sale, patent exhaustion, patents, supply chain, supreme court
Companies: lg, quanta

Supreme Court Sounds Skeptical About Suing Up And Down The Supply Chain For Patent Infringement

from the fingers-crossed dept

Last fall, we mentioned that the Supreme Court had agreed to hear yet another interesting patent case, looking at whether companies could sue up and down the supply chain for patent infringement. If you're familiar with the concept of the "first sale doctrine" in copyright law, this case looks at whether or not the same concept applies to patents as well. Basically, if Company A legitimately licenses a patent from Company B and then sells a product based on that product to Company C, who turns around and resells it (perhaps as a component of a larger product), can Company B sue Company C for patent infringement? Or, did Company B "exhaust" the right to control Company A's products once it licensed the patent? That's what happened in the case. LG licensed a patent to Intel, who used the patent to make some chips. Intel turned around and sold those chips to computer makers, such as Quanta, who put them in laptops, which they then sold. LG claims that all those laptop makers also need to license the patents, even though they bought the chips from someone who had already licensed them. Basically, it's LG trying to get paid multiple times for the same patent.

On Wednesday, the Supreme Court actually heard the case, and most of the mainstream press coverage suggests that the Justices were extremely skeptical of LG's position, though others note that Supreme Court Justice tea leaves aren't so easy to read. It does sound like the Justices did focus in on the key issues, though, and were concerned about the absurdity of a situation where a company is still controlling the sale of a product after it's been sold. While we wait for a decision, expect to see a few more patent hoarders try to rush through infringement lawsuits where they sue up and down the supply chain. In the meantime, we're still curious to know why Yahoo sided with LG, while most tech firms sided with Quanta on the other side.

Filed Under: patents, supply chain, supreme court
Companies: lg, quanta