Supreme Court hears patent case

The Supreme Court granted certiorari to hear arguments in a case in which Taiwanese manufacturers - led by Quanta Computer - have accused their South Korean rival of using its patents to "shake down the entire computer industry for several billion dollars in duplicative licensing fees," the Associated Press reports. The issue: whether LG Electronics, the Korean firm, can seek patent royalties from different companies in the manufacturing chain. A decision by the Federal Circuit Court of Appeals held that it could.

That decision "threatens to impose a huge financial and practical burden on manufacturers of technology products."

The case began in 2000 when the Taiwanese companies were sued by LG for infringing several computer chip patents. The appellants are complaining that LG is double-dipping. The company licensed its patents to Intel and should now be able to go after Quanta and the other companies for violating licenses it already granted. The Patently O blog explains the legal theories:

Exhaustion – also known as the first sale doctrine – serves as a default rule in both patent and copyright laws. Under the principle, a license fee is only be charged one time per object. Thus, a rights holder controls the first sale of a protected object, but does not control subsequent sales. The copyright rule is codified in Section 109. The patent rule, however, is only based on case law.

On appeal, the Court of Appeals for the Federal Circuit (CAFC) reversed, finding that when restrictions are placed on a license, "it is more reasonable to infer that the parties negotiated a price that reflects only the value of the ‘use’ rights conferred by the patentee." The appellate panel found that there was no exhaustion because of express conditions on the use of Intel's licensed products -- specifically that the products could not be combined with non-Intel parts.

LG's argument is that Intel chose to pay less for the patents and expressly chose not to cover its partners. Therefore, LG should be able to claim its royalties from nonlicensed users of its technology.

Oral arguments have not yet been scheduled.