Quanta Discussion Board: More Litigation Ahead

The following post is part of a Discussion Board about yesterday’s decision in Quanta v. LG. This entry was written by Fred von Lohmann, senior intellectual property attorney with Electronic Frontier Foundation. He filed an amicus brief in support of the petitioners, on behalf of the Consumers Union, the Electronic Frontier Foundation, and Public Knowledge.

Rule of Thumb: if it’s a unanimous opinion, it means the Court ducked the hard questions. While the unanimous opinion in Quanta v. LG on first reading appears to bear out this rule, it nevertheless appears that some guidance can be wrung from it. And the guidance ought to comfort those who worried that the Court might approve (as the Federal Circuit has) broad post-sale use restrictions on patented goods, imposed by means of “conditional sales.”

This case was presented to the Court to test whether “conditional sales” (e.g., “single use only” or “for combination only with Intel parts”) can trump patent exhaustion. In its brief urging grant of cert, the USA argued that the Court should take this case to reject the Federal Circuit’s endorsement of this view, first announced in that court’s Mallinckrodt v. Medipart ruling in 1992 (see pages 14-17 of the SG’s brief urging cert). This “conditional sale” issue was extensively addressed by the parties, USA, and other amici in the merits briefing. The facts appeared to pose the issue squarely because the patented goods at issue were accompanied by an express notice to purchasers: “Please note however that while the patent license that [respondent] granted to Intel covers Intel’s products, it does not extend, expressly or by implication, to any product that you may make by combining an Intel product with any non-Intel product.”

In today’s unanimous ruling, however, the “conditional sale” issue is not mentioned. Nor are any of the relevant Federal Circuit cases cited. Instead, the Court appears to think that, on these facts, the sales of patented goods were unconditional, and thus that the patents were exhausted irrespective of what you might think about “conditional sales.”

What, then, to make of the Federal Circuit’s post-Mallinckrodt “conditional sale” precedents? On the one hand, it appears that those precedents live on to blight another day — the Court neither endorses nor condemns them. On the other hand, there may be a silver lining — the Court held that the LG patents were exhausted notwithstanding the “notice” delivered to Intel’s customers. In other words, the particular notices here did not amount to “conditional sales” and were insufficient to prevent LG’s patents from being exhausted.

So, while the Court did not see fit to wade into the heart of the conditional sale versus patent exhaustion controversy, it did let us know that mere unilateral notices to customers are not enough to prevent a patent from being exhausted. This should help those who purchase patented (and copyrighted) products festooned with “single use only” and “not for resale” notices rest a bit easier.

Unfortunately, the Court’s ruling leaves the door open for patent owners to experiment with other sorts of notices, licenses, labels, and contracts, all in a continuing effort to transform transactions into “conditional sales,” and thereby inoculate themselves against patent exhaustion.

Forecast: more litigation and, eventually, another trip to the Supreme Court to face the issue squarely.