Anticipate This!™ | Patent and Trademark Law Blog

Quanta Computer v. LG Electronics: Notable Quotes from the Oral Arguments.

Posted in Litigation Commentary by Jake Ward on January 16, 2008

Per usual, we will preface our thoughts with the following disclaimer:  “It is generally a futile effort to predict how the Supreme Court will rule on any given issue.”  That being said, below are some quotes that we found of particular interest:

Transcript at page 4.

JUSTICE STEVENS: Ms. Mahoney, can I just get one thing straight in my mind. Which transaction triggered the exhaustion doctrine in your judgment, the general license to Intel or the sale by Intel to Quanta.

MS. MAHONEY (ON BEHALF OF PETITIONERS): I think they work in combination here, Your Honor, because once the sale was — once the license was entered into with Intel and once unrestricted rights were given to make, use and sell components that would infringe, otherwise infringe these patents, there was really nothing else that could happen – 

Transcript at page 8.

CHIEF JUSTICE ROBERTS: So the parties are unwilling to spell out exactly how this is going to work out in their contract, and each side, it prefers to take their chances on how the Federal Circuit’s going to rule. It’s easier to sell these things if they’re not encumbered by these additional license requirements and the manufacturer presumably gets a lot more, but there’s a lot of uncertainty, uncertainty that could have been cured by how the contract was drafted, and people prefer to live with that uncertainty and litigate rather than clear it up in the contract.

Transcript at pages 19-20.

CHIEF JUSTICE ROBERTS: A mere license can prevent the application of the patent-exhaustion doctrine?

MR. HUNGAR (ON BEHALF OF THE UNITED STATES, SUPPORTING THE PETITIONERS): Well, only at the — only at the level of the licensee. That is, if it is true, as Ms. Mahoney said, if the — if LG here had given a restricted license that restricted the right to sell, that said you can only sell in these instances, and if Intel then sold outside those permitted instances, that would be patent infringement.

CHIEF JUSTICE ROBERTS: And it would be patent infringement by the use of the product by the people that Intel sold to?

MR. HUNGAR: Yes, because it was an unauthorized sale.

Transcript at page 21.

JUSTICE BREYER: But you couldn’t put in -you are authorized to sell the bicycle pedals that I have patented only if you impose a restriction that will tell the bicycle user that he must send me a check for $15 in addition to whatever he pays you. That sounds unlawful under contract law.

MR. HUNGAR: Well, it might be lawful. You could certainly do what, in fact, I think some of the seed companies –

JUSTICE BREYER: Or you are going to have -I mean, there’s a doctrine that you cannot impose equitable servitude’s upon chattel.


Transcript at pages 23-24.

MR. HUNGAR: Fine. If they have that restriction and they sell and they do not — they do not obtain the contractual promise of the party that they are obligated to obtain, they’re violating the terms of their right to sell. It’s patent infringement by the seller, and if the buyer uses it it’s patent infringement by them as well.

CHIEF JUSTICE ROBERTS: Exactly. That’s the critical point. You’re telling me that if the buyer, in other words, the kind of third person in this chain, uses the patented article in a way that is contrary to the license that was given to the second person in the chain, then he is liable for contributory infringement under the patent laws and not, as I understood you to answer to Justice Breyer, only under contract law.

Transcript at page 44.

JUSTICE SOUTER: They’re saying the reason they have done so is that the following distinction is significant. There’s a distinction between a license that says you can’t sell this unless certain conditions are satisfied and, on the other hand, a license that says you can sell this, but if you sell it to a buyer who is described by conditions A and B, you’ve got to tell the buyer that we’re going to make a claim against A and B. And the ones — in the first example, there is a limit to the right to sell. In the second example, there is no limit on the right to sell, but there’s a warning about what we’re going to do if you do sell under certain conditions. And I think they’re saying that unless you have a contract of the former sort which limits your right to sell, then when you do sell, exhaustion applies and whatever you may do against the ultimate buyer is — is a contract problem or what-not, but it’s not — it’s not a matter of patent.

MR. PHILLIPS (ON BEHALF OF THE RESPONDENT): Right, and the problem –

JUSTICE SOUTER: Number one, do you think I am being correct in characterizing, describing the distinction they make?

MR. PHILLIPS: I think so.

JUSTICE SOUTER: And B, if I am, why isn’t that distinction an answer to your argument?

MR. PHILLIPS: Because, because it ignores the fact that there are separate patents involved in this case. There is no question that — there is an issue. I mean I don’t think there’s a question that -you know, as to how far you can go down the road in trying to condition a particular sale. I thought this Court may have resolved this already. Mallinckrodt leaves that issue open, but that’s not — that’s not the question.

The issue here is if I sell to you, Justice Souter, a particular chip, whether I condition it or not, I think that’s — to me that’s unenforceable. But the question is, can you then take that chip and use it to violate a separate patent? And the reason you know that it’s not exhaustion –

Transcript at page 50.

MR. PHILLIPS: To be sure, Intel has the authority to sell these things, and it has the authority to sell — it depends on what the things are. It has the authority to sell the chips. It has the authority to sell the systems, but what it doesn’t have the authority to do is to allow somebody downstream to take the chips and put them into the separately patented systems, and the — and the people downstream know that they don’t have that entitlement.

Transcript at page 53. 

MR. PHILLIPS: . . .It seems to me the fundamental issue here is they have a limited right when they purchase that product. They didn’t get the right to make other products. They didn’t get the right to breach or infringe a completely separate patent. And that is the basis on which the judgment of the Court of Appeals, which is all that is before the Court, should be affirmed.

2 Responses

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  1. tekel said, on January 24, 2008 at 5:53 pm

    So first-sale doctrine simply doesn’t apply? Intel’s whole argument seems like bullshit to me.

    And even if the condition on resale is not an unlawful equitable servitude on chattel, isn’t it an unreasonable restraint on trade? This should have been an antitrust case.

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