Supreme Court Reinvigorates Patent Exhaustion
By Andrew Ungberg — Edited by Joshua Gruenspecht
Quanta Computers, Inc. v. LG Electronics, Inc.
Supreme Court of the United States, June 9, 2008, No. 2006-937
Slip Opinion
The Supreme Court reversed the Federal Circuit, which had held that patent holders could seek infringement damages from subsequent purchasers further “downstream” provided that the initial transfer had imposed some type of restriction on the initial purchaser. The Federal Circuit’s ruling, had it been upheld, would have effectively extinguished the doctrine of patent exhaustion and allowed patent holders the ability to control the use of their patents far beyond traditional limits.
Justice Thomas delivered the unanimous decision, holding that the 155-year-old doctrine of patent exhaustion limits the patentee’s power to dictate the terms of use through the first level of sales only. In an opinion steeped in tradition, the Court held that the reasoning of United States v. Univis Lens Co. 316 U.S. 241 (1942) controlled the case. The Univis Court held that a patentee’s rights were extinguished because the finished product (cut eyeglass lenses) embodied essential features of the patented product (unfinished eyeglass lens blanks). While this has long been the standard for process patents, the Court for the first time here extended that same logic to method patents. The Court also stated that a use “substantially embodying” the patent, rather than fully practicing it, was sufficient to exhaust the patent-holder’s rights.
Overviews of the case are available at Patently-O, the SCOTUS Blog and Law.com.
The full transcript of the oral argument is available here.
Professor Mark R. Patterson of Fordham University authored an article last November advocating a broad overruling of the Federal Circuit decision on Patently-O, which outlined the negative implications of allowing the lower court’s decision to stand.