Quanta exhaustion and its effect on licensing


Michael Mutter

In June 2008, the Supreme Court decided Quanta Computer Inc v LG Electronics Inc, strengthening the doctrine of patent exhaustion and affecting licensing strategies. Michael Mutter considers the implications.

In Quanta Computer Inc v LG Electronics Inc, the court unanimously ruled that the authorised sale of an article that substantially embodies a patent exhausts the monopoly originally granted to the patent holder, preventing the patent holder from claiming infringement against unauthorised postsale use of the article.

In the case, LG Electronics licensed a patent portfolio to Intel Corporation, authorising Intel to manufacture and sell microprocessors and chipsets that used the LG patents. In a separate agreement (the associated ‘Master Agreement’) with LG, Intel agreed to give notice to its customers that the Intel licence did not extend to “any product that you make by combining an Intel product with any non-Intel product”.

Quanta, which purchased the Intel microprocessors and chipsets, combined those products with non-Intel memory and buses in ways that practised the LG patents. While the Intel products sold to Quanta didn’t fully practise the LG patents on their own, since LG suggested no reasonable use for the Intel products other than incorporating them into computer systems— the combination of which practised the LG patents—the Intel items were seen as substantially embodying the LG patent.

Quanta, patent exhaustion, licensing strategies