Print 14 comment(s) - last by Pudro.. on Jun 12 at 3:39 AM

Computer builders breathe a collective sigh of relief

Companies seeking to “double dip” on patent royalties had their tactics curtailed by the Supreme Court on Monday, after it ruled against the collection of multiple royalties after a licensed product is sold by the licensee.

The Supreme Court’s ruling strengthened the idea of “patent exhaustion,” which removes the patent holder’s ability to exert patent rights over the customers of its licensees. While precedent for patent exhaustion already exists, plaintiff LG Electronics contends that it did not apply to certain kinds of patents – specifically, goods that rely on patented “methods and processes,” as was the case in its lawsuit against system builder Quanta Computer.

Specifically, LG claimed that Quanta Computer’s products “embodied” its patented methods beyond the terms of its licensing agreement with Intel. The company accused Quanta of patent infringement after it declined to pay royalties, and a federal appeals court initially sided with LG. Supreme Court Justice Clarence Thomas, in a unanimous ruling with the rest of the Court, reversed the appeals court’s decision, after it determined that patentable methods were no different than physical product with respect to how the patented idea manifests in the product itself.

“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,” wrote Thomas. “It is true that a patented method may not be sold in the same way as an article or device, but methods nonetheless may be 'embodied' in a product, the sale of which exhausts patent rights. Our precedents do not differentiate transactions involving embodiments of patented methods or processes from those involving patented apparatuses or materials.”

Quanta v. LG Electronics saw outside input from a variety of heavyweights, including chip maker Qualcomm, the Bush Administration, and Consumer Reports publisher Consumers Union.

While the Bush Administration cited the “inconvenience, annoyance, and inefficiency” of allowing patent holders to demand licenses from multiple steps in the production chain, Qualcomm said failing to allow that would create an “unworkable” situation.

An analysis at Ars Tecnica notes that a ruling in the other direction would expose a wide variety of businesses to patent liability issues, from companies as large as Dell, HP, and Cisco to groups as small as individual eBay sellers. Unclear rules on patent exhaustion have “already … subjected eBay to patent-owner pressure,” forcing the auction company to remove “allegedly infringing items” from its listings and sanction the sellers who post them.

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RE: Clear and precise rules and laws.
By gtrinku on 6/11/2008 3:39:24 AM , Rating: 5
Remember the US legal system is based on common law, so the laws are developed mostly through court decisions.

RE: Clear and precise rules and laws.
By Treckin on 6/11/2008 4:52:55 AM , Rating: 1
Basic Civics FTW!!

RE: Clear and precise rules and laws.
By Pudro on 6/12/2008 3:33:32 AM , Rating: 2
Basic civics doesn't tell you what has gone wrong. What went wrong was putting these kinds of suits under the Federal Circuit. They screw up IP cases so much it's ridiculous. Just return those cases to the courts that had them previously, then this stuff won't even go to the Supreme Court - as businesses won't waste the money to appeal to the Supreme Court when they know they (the businesses) are full of crap. They just carry it to the Federal Circuit, which is far to IP-friendly (beyond the law) and hope the Supreme Court will feel too busy to care about this IP law screw-up (indeed, it has just recently gotten to the point where the Supreme Court has started stepping in).

Then again, stuff like that would be clear to everyone here if you would just read Techdirt as well:

Covered better, and a day earlier at that. (Not slamming DailyTech, this just happens to be Techdirt's area of expertise.)

RE: Clear and precise rules and laws.
By Adonlude on 6/11/2008 12:09:42 PM , Rating: 3
Remember the US legal system is based on common law, so the laws are developed mostly through court decisions.

Exactly. This is how almost every amendment in our Bill of Rights has been bastardized and degraded.

RE: Clear and precise rules and laws.
By Pudro on 6/12/2008 3:39:20 AM , Rating: 2
Actually, if the law did not develop like this over time, then you likely wouldn't have the freedoms spelled out in the Bill of Rights - because different aspects of the Bill of Rights were gradually over time - through court decisions - found to apply to state governments. Before those rulings, a state government could deny you those freedoms.

Not that I don't get your point or anything, I was just pointing out the other side of the coin.

RE: Clear and precise rules and laws.
By sporr on 6/11/2008 12:17:33 PM , Rating: 2
Indeed, but my point being that if it is all worked out, it may save people sueing others in the future. Save court time in the long run.

But as one person pointed out in another comment, I dont think it will ever be sorted.

By pattycake0147 on 6/11/2008 5:23:58 PM , Rating: 2
You can pass bills to become laws. All it takes is some initiative from congress to pass the right ones.

By themadmilkman on 6/12/2008 1:24:25 AM , Rating: 2
You're not exactly right. Common law is not developed through the court. Instead, the courts recognize and apply common law. The term 'common law' itself refers to the law as it exists between the common people, or in other words, the rules that a particular community has made, or developed, for itself without the use of the courts/government.

In my mind, there is no common law for patents, since patents are too recent a creation for common law to exist.

"Paying an extra $500 for a computer in this environment -- same piece of hardware -- paying $500 more to get a logo on it? I think that's a more challenging proposition for the average person than it used to be." -- Steve Ballmer

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