Quanta Computer, Inc. v. LG Electronics, Inc.
The Court ruled that once a patent holder authorizes the sale of a product that essentially contains all the inventive parts of its patents, the patent rights are used up, even if the patents describe a process or method rather than a physical object.
Because LG Electronics had licensed Intel to sell chips that already embodied LG's patented technology, LG could not sue computer makers who bought those chips and combined them with ordinary parts, resolving a growing tactic of drafting patents as 'method' claims to dodge this rule.
How it got here: A federal trial court partly ruled for Quanta but let LG's method-patent claims proceed; the Federal Circuit sided with LG on both grounds, and Quanta asked the Supreme Court to review it.
The Case in Depth
What happened
LG Electronics owned patents covering how computer memory and data traffic are managed. LG licensed these patents to Intel, letting Intel sell microprocessors and chipsets built around that technology. Quanta and other computer manufacturers bought those Intel parts, combined them with ordinary memory and wiring, and built computers. LG then sued Quanta, claiming that combining Intel's licensed chips with other parts infringed LG's patents.
The question before the Court
If a company sells a computer chip under a patent license, does that sale wipe out the patent holder's rights over how the chip is later used, even for patents describing a method rather than a physical device?
Why it matters
Technology companies that buy licensed components can build products using them without fear of a second round of patent lawsuits from the original patent holder, as long as the component already contains the heart of the invention. This curbs a strategy patent holders were using—writing claims as methods instead of devices—to squeeze extra licensing fees out of downstream manufacturers and their customers.
What changes now
The Federal Circuit's ruling for LG Electronics is reversed, meaning LG cannot pursue its patent-infringement claims against Quanta over the chips it bought from Intel. The decision is final on the merits and sets the rule other patent-licensing disputes involving component sales will follow. The Court noted it takes no position on any separate breach-of-contract claims LG might otherwise have against Intel or its customers.
What this does not decide
The Court expressly said it was not deciding whether LG could pursue separate contract-law claims against Intel or its customers for violating licensing terms; exhaustion only wipes out patent-law remedies, not necessarily contract remedies.
How the Court got there
The legal reasoning, step by step
- The Court applied the century-and-a-half-old patent exhaustion doctrine, which says that once a patent holder authorizes the sale of a patented item, its patent rights over that specific item end and it cannot impose further restrictions on how buyers use it.
- The Court rejected the idea that method patents—patents describing a process rather than a physical device—can never be exhausted, reasoning that a method can still be 'embodied' in a physical product whose sale triggers exhaustion just like a device patent would.
- Relying on its 1942 decision in United States v. Univis Lens Co., the Court held that exhaustion is triggered once a product's only reasonable use is to practice the patent and it already contains all the inventive features, even if a buyer must still add ordinary, non-inventive finishing steps.
- Applying that standard, the Court found the Intel chips had no reasonable use other than being built into computers practicing LG's patents, and that connecting them to standard memory and wiring was a routine finishing step requiring no inventiveness.
- The Court then found the sale from Intel to Quanta was authorized because LG's license agreement placed no restriction on Intel's right to sell its chips to buyers who would combine them with non-Intel parts, and a separate notice requirement did not condition or limit that authorization.
- Because the sale was authorized and the chips substantially embodied LG's patents, the Court concluded that LG's patent rights over those chips had been used up, so LG could not assert its patents against the computer makers who bought them.
Doctrinal impact
Cases affected by this decision
Reaffirms United States v. Univis Lens Co. (316 U. S. 241)
The Court relied on and extended this 1942 case's rule that partial products embodying a patent trigger exhaustion.
Distinguishes General Talking Pictures Corp. v. Western Elec. Co. (304 U. S. 175)
The Court said this case didn't apply because Intel's license, unlike the one there, had no restriction on who could buy its chips.
Distinguishes Aro Mfg. Co. v. Convertible Top Replacement Co. (365 U. S. 336)
The Court said this combination-patent case didn't apply because LG's patents weren't about combining existing parts.