JOHN W. SCHLICHER

PATENTS, PATENT LITIGATION, PATENT DISPUTE RESOLUTION AND

SETTLEMENT, LICENSING, ANTITRUST, LAW AND ECONOMICS

 

 

John W. Schlicher, “The New Patent Exhaustion Doctrine of Quanta v. LG - What It Means for Patent Owners, Licensees and Product Customers,” 90 Journal of the Patent and Trademark Office Society 758 (2008)(Article) (Table of Contents)

 

Introduction

 

I.  Introduction

The patent exhaustion doctrine has been a source of confusion and frustration for patent owners, their licensees, and their customers for 160 years.  In June 2008, the Supreme Court in Quanta v. LG changed the doctrine again.  This paper has five parts.  Section II is a summary for those who care only about the basics.  Section III is for those who wish to understand the policy and the effects of the law.  Section IV is a more detailed explanation of the Court’s decision.  Section V describes the many important errors in the Court’s discussion of its prior decisions and the law of patent exhaustion.

Section II summarizes the actual decision.  The Court reached a result that is understandable given the language of the license that created the issue.  If the only effect of a Supreme Court decision is that other cases involving the same essential facts must be decided in the same way, the Quanta decision should have little effect on future licensing.  Skilled lawyers should be able to work around it.  The decision dooms past licenses written in the same way.  The Quanta decision is likely to have broader implications, because every sentence of a Supreme Court patent decision is treated as the law.  Section II summarizes these changes.  Section II also describes something the Court did not address - what the parties were likely trying to accomplish.

Section III describes the economic policy of the law governing the ways patent owners capture the value created by use of their patent rights.  The exhaustion and implied license doctrines influence how patented inventions are used and the profits patent owners earn.  Properly defined, those doctrines increase the value of patented inventions and improve the efficiency of the patent system.  Improperly defined, they limit the value of patent rights, limit use of patented inventions, and impair the system.  Section III explains why patent owners should be permitted to sell products and separately license their patent rights to purchasers.  Section III explains why the traditional explanations for the exhaustion doctrine are misconceived.

Section IV describes in more detail the facts, the lower court decisions, and the Court’s view of the facts, the law, and the result.  The Court did not discuss why LG and Intel wrote their license the way they did or why patent owners should not be permitted to do whatever they was trying to do.  Section III discusses what the case was probably about.

Section V describes how the Court misunderstood its prior decisions about exhaustion and the law on the ability of a patent owner to limit the rights a buyer receives, when the owner sells a product and separately licenses the patent rights.  Section V explains how the Court mistakenly read its decisions in Bloomer, Mitchell, Adams, Univis Lens, Ethyl Gasoline, General Talking Pictures, and Keeler.  This section discusses in more detail how the Quanta decision is likely to be read to sweep away important principles that had little or nothing to do with the case.  Section V also describes the Court’s mistaken view of the policy of exhaustion.