Quanta Computer, Inc. v. LG Electronics, Inc.
Headline: Sale of patented computer parts by a licensed chipmaker is held to exhaust patent rights, allowing downstream computer makers to combine Intel parts with non‑Intel parts without patent suits.
Holding: The Court ruled that patent exhaustion applies to method patents and that Intel’s authorized sale of microprocessors and chipsets substantially embodying the patents prevents the patent owner from suing downstream computer makers who combine those parts with non‑Intel components.
- Protects computer makers using licensed chips from patent suits over those patents.
- Stops patent owners from escaping limits by simply calling their claims method patents.
- Leaves contract remedies possible so parties may still sue for contract breaches.
Summary
Background
LG Electronics, a company that owned several computer-technology patents, licensed those patents to Intel so Intel could make and sell microprocessors and chipsets. A group of computer makers, including Quanta, bought Intel’s chips and combined them with non‑Intel memory and bus components to build computers without changing the Intel parts. LG sued the computer makers, saying that combining Intel parts with other components infringed LG’s patents. Lower courts disagreed about whether sales of Intel’s components exhausted LG’s patent rights, and the Federal Circuit limited exhaustion for method claims.
Reasoning
The Court asked whether patent exhaustion covers patents that claim methods and whether selling components that “substantially embody” a patent ends the patent owner’s rights. It explained that long-standing precedent (including Univis) shows exhaustion can apply when a product embodies the essential features of a patent even if a final, routine step remains. The Court held method claims can be exhausted and that Intel’s licensed sales of microprocessors and chipsets—products that have no reasonable use except when combined with standard memory and buses and that include the inventive features—exhausted LG’s patent rights against downstream buyers. The Court also found Intel’s sales were authorized under the license.
Real world impact
As a result, companies that buy and use licensed components like Intel’s chips will generally be protected from patent suits over the patents those components substantially embody. Patent owners cannot avoid exhaustion simply by framing claims as methods, though contract remedies may still be possible under separate agreements. The ruling limits patent owners’ ability to control how authorized buyers use or combine sold components.
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