This morning the Supreme Court will hear oral argument in Costco Wholesale Corp. v. Omega S.A., a case regarding the potential international scope of the first sale doctrine.  Costco lawfully purchased authentic Omega watches abroad and imported them to the United States for sale in its stores.  Omega sued for copyright infringement, arguing the watches bore a copyrighted design and the purchase abroad did not exhaust its rights under the first sale doctrine.

The Ninth Circuit agreed with Omega, holding the foreign purchase did not exhaust Omega's copyright rights in the United States (our post regarding the Ninth Circuit's decision is here).  Costco sought review by the Supreme Court, which granted certiorari in April after inviting the United States to file a brief with its views on the matter.  The Solicitor General (at the time, Elena Kagan) filed a brief recommending the Court deny certiorari.  As a result of her involvement, Justice Kagan is recused from the case.

For our discussion of the Ninth Circuit decision being reviewed, click here.

For SCOTUS Blog's collection of documents relevant to the case, click here. 

In a decision last week, the Ninth Circuit held the purchaser of a copy of AutoCAD software was not an owner of the copy, but instead a licensee.  As a result, the purchaser did not have the protection of the first sale doctrine (codified in 17 U.S.C. § 109(a)) when attempting to resell the software to a third party.  

The declaratory judgment plaintiff was attempting to sell used copies of AutoCAD on eBay.  Autodesk, makers of AutoCAD, sent takedown notices to eBay asserting copyright infringement, which resulted in eBay removing the auctions.  The plaintiff sued to have the sales declared noninfringing based on the first sale doctrine.  The district court agreed, holding the first sale doctrine protected the sales of the used copies of AutoCAD. 

The Ninth Circuit reversed.  Reconciling its earlier precedent, the court identified conditions where a purchaser is a licensee, rather than an owner of a copy.  Specifically, a purchaser is a licensee when:

[T]he copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user's ability to transfer the software; and (3) imposes notable use restrictions.

In this case it was undisputed the agreement stated the user was granted a license.  Further, the shrinkwrap license from Autodesk prohibited:  transfer of the software without its consent, transfer or use outside the Western Hemisphere, reverse engineering or modifying the software.  In addition, the license required destruction of prior versions of the software upon upgrading if an upgrade license was purchased.  Based on all of these restrictions, the court held the three criteria were satisfied, and the purchaser of the software was a licensee, not an owner, and therefore could not rely on the first sale doctrine as a defense to copyright infringement.

More detail of Vernor v. Autodesk, Inc. after the jump.

[More]

In a decision Wednesday, the Federal Circuit affirmed a district court's finding that a patentee's claims for patent infringement were barred by patent exhaustion in view of a settlement agreement between the patentee and a previous defendant in an infringement suit.  The patentee previously sued a third party, and the suit was resolved by a settlement agreement granting the third party a covenant not to sue under several patents.  The defendant in this case purchased and used products from the previously-sued third party.  The patentee sued, arguing the current defendant infringed even though it obtained the products from the party who had the covenant not to sue.  

In affirming the district court, the Federal Circuit held an unconditional covenant not to sue is, for purposes of a patent exhaustion analysis, the equivalent of a license under a patent.  Here, because the defendant purchased the allegedly infringing products from the party with the unconditional covenant not to sue, the patentee's rights were exhausted, and it could not assert the patents against the current defendant.

More detail regarding Transcore, L.P. v. Elec. Transaction Consultants Corp. after the jump.

[More]

In a decision last week, the Ninth Circuit reversed a district court's grant of summary judgment to a copyright defendant on the basis of the "first sale" doctrine, codified at 17 U.S.C. § 109(a).  The defendant obtained the products bearing the copyright from a third party who legally purchased them outside the United States.  The court held that the first sale doctrine did not insulate this action from liability under 17 U.D.C. § 602(a), which states unauthorized importation is a violation of the copyright holder's distribution right. 

In doing so, the court held there was no clear inconsistency with its precedents allowing a defendant in a copyright infringement action to claim the "first sale doctrine" as a defense only where the disputed copies of a copyrighted work were either made or previously sold in the United States with the authority of the copyright owner, and the Supreme Court's decision in Quality King Distributors, Inc. v. L'anza Research International, Inc..  There, the issue was whether copies produced in the United States, shipped abroad, and then ultimately re-imported and sold without consent constituted infringement; the Court held it did not.  Here, it was undisputed the copies were manufactured and obtained abroad, thus taking them outside the decision in Quality King.  As a result, the defendant could not use the first sale doctrine as a defense to avoid liability for infringement.
 
More concerning Omega S.A. v. Costco Wholesale Corp. after the jump.

[More]

The media and legal blogs have begun to weigh in on yesterday's decision in Quanta Computer, Inc. v. LG Electronics, Inc. , holding method claims can be exhausted by the sale of a product substantially embodying the claim.  Click below for a sampling of the coverage from various sources.

[More]

The Supreme Court today decided Quanta Computer, Inc. v. LG Electronics, Inc., dealing with the doctrine of patent exhaustion (also called the first sale doctrine).  In a nutshell, the Court made it more difficult for patent holders to maintain a claim for infringement down the distribution chain of a product.  There were three main aspects to the decision:

1. Method claims, like product claims, are subject to exhaustion
2. Sale of a product whose only reasonable and intended use is to practice the patent and that "substantially embodies" the essential features of the patented method can trigger exhaustion
3. In order for a downstream sale to constitute an infringement, it must be outside the scope of the original license

More detail of these aspects of the holding and additional thoughts below the fold.

[More]

The opinion of the Court in Quanta Computer, Inc. v. LG Electronics, Inc. is now available here.

Thanks to SCOTUSBlog for making a copy of the decision available online.

Update (10:45):  The closing paragraph of the decision is a good, concise summary:

The authorized sale of an article that substantially embodies a patent exhausts the patent holder’s rights and prevents the patent holder from invoking patent law to control postsale use of the article. Here, LGE licensed Intel to practice any of its patents and to sell products practicing those patents. Intel’s microprocessors and chipsets substantially embodied the LGE Patents because they had no reasonable noninfringing use and included all the inventive aspects of the patented methods. Nothing in the License Agreement limited Intel’s ability to sell its products practicing the LGE Patents. Intel’s authorized sale to Quanta thus took its products outside the scope of the patent monopoly, and as a result, LGE can no longer assert its patent rights against Quanta. Accordingly, the judgment of the Court of Appeals is reversed.

We'll have a more detailed analysis later today.

This morning the Supreme Court decided Quanta v. LG, reversing the Federal Circuit's decision.  We'll post a link to the decision (written by Justice Thomas) as soon as it's available.

After the Supreme Court heard oral argument last week in Quanta Computer, Inc. v. LG Electronics, Inc. (No. 06-937), the media and blogosphere have begun to weigh in on the arguments.  You can find our take on the arguments in this post, or click below for a sampling of the coverage from other sources.  A decision is not expected until late spring.

[More]

On Wednesday, the Supreme Court heard oral argument in Quanta Computer, Inc. v. LG Electronics, Inc. (No. 06-937), a case regarding the scope of the concept of patent exhaustion, also known as the first sale doctrine.  While the entirety of the arguments is worth a read (the transcript is available here), click below for our impressions of the arguments.

[More]