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.

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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.

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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.

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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.

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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.

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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.

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Tomorrow the Supreme Court will hear oral argument in Quanta Computer, Inc. v. LG Electronics, Inc. (No. 06-937). The case will determine whether patent owners who sell products embodying their patents conditionally are able to recover damages for patent infringement if the products are subsequently sold beyond the scope permitted by the original sale.

The question presented is:

Whether the Federal Circuit erred by holding, in conflict with decisions of this Court and other courts of appeals, that respondent's patent rights were not exhausted by its license agreement with Intel Corporation, and Intel's subsequent sale of the product under the license to petitioners.

The outcome of the case will determine whether patent holders can obtain damages for infringement when they conditionally sell products embodying their patent if the product is subsequently used beyond the scope of those conditions.  Under the Federal Circuit's decision, such a conditional sale did not exhaust LG's patent rights, and therefore LG could pursue claims of patent infringement against those downstream purchasers and users of the product, even though the products were purchased from Intel, who was licensed by LG, the patent holder.  If the court sides with the petitioners, it could result in some cases that are, in essence, patent cases being heard by the regional circuits or even state courts.  This is because that outcome could essentially change the cause of action for the patent holder for these "downstream" sales from one of patent infringement (which carries with it exclusive federal jurisdiction and the Federal Circuit as the exclusive court of appeal), to one of breach of contract, which would not necessary even have to be heard in federal court, let alone by the Federal Circuit on appeal. 

It will also have an effect on how license agreements are written and potentially the amount of royalties that patent holders may want to pursue in such license agreements.  If the patentee is not able to obtain a royalty for downstream purchasers or use of their patented goods, the royalty that would otherwise have been spread over several levels of the distribution chain may have to be borne by the original purchaser.  Patentees may also begin seeking liquidated damages clauses in agreements with licensees to ensure compliance with the conditions of the sale, as the patentee would arguably no longer have a cause of action against the downstream purchaser.  The result is likely to be greater risk and investment costs incurred by the party making the original purchase from the patentee.

Our summary of the Federal Circuit decision being appealed may be found in this post, and our other coverage of the case may be found in these three posts. 

The ABA has posted all the merits briefs in the case on its site here.  SCOTUSBlog has also provided a preview of the case here.

Sometime in the afternoon, the transcript of the oral argument will be available here.

Update (1/16):  Some media sources have also now published previews of the arguments:

• Wall Street Journal
• CNN
• Bloomberg
  

Earlier this month, amicus briefs either supporting the Petitioner or neither party were filed with the Supreme Court in connection with Quanta Computer, Inc. v. LG Electronics, Inc (No. 06-937).  Our previous coverage of the case can be found in these three posts.  The Court also set oral argument for January 16, 2008.

Some discussion of the amicus filings and links to the briefs after the jump.

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