QUANTA VS. LGE : a decision concerning licencing
QUANTAVS.LGE:ADECISIONCONCERNINGLICENSING
FRANÇOISPAINCAHUDANDCLAIRECEBRON*
LEGER
ROBICRICHARD,LLP
L
AWYERS,PATENTANDTRADE-MARKAGENTS
Generally,whenapatentownersellsapatentedproducttoafirstbuyer,the
purchaserisfreetouseorsellthatpatentedproductwithouthavingtoworryabout
beingsuedforinfringementbythepatentholder.Thisisreferredtoasthedoctrine
of“patentexhaustion”.
InacaseopposingtheKoreancompany,LGElectronics(“LGE”),andthe
TaiwanesecompanyQuantaComputers(“Quanta”),theSupremeCourtofthe
UnitedStatesrecentlyruledonthesensitivesubjectoftheapplicabilityofthe
doctrineofpatentexhaustiononmethodpatents(QuantaComputer,Inc.v.LG
Electronics,Inc.,no.06-937,2008U.S.LEXIS4702(June9
th,2008)).
TheSupremeCourtunanimouslyoverruledtheFederalCircuit’sdecisionandheld
that(i)thedoctrineofpatentexhaustionappliestomethodpatents,andthat(ii)once
aproductisunconditionallyauthorizedforsale,andthatthisproductcomprisesthe
essentialelementsofapatentedinvention,withnootherintendedusethanto
practicethepatent,thedoctrineofpatentexhaustionappliesandthepatentowner
cannolongerinvokepatentlawinanattempttoreceiveadditionalroyaltiesorlimit
therightsofthelicensee’ssubcontractorsandthelatter’sclients,since,bydoingso,
thepatentownerwouldextendthepatent’sscopeandtherightswhichthepatent
conferswithoutduecause.
Inreachingthisdecision,theSupremeCourtreaffirmeditssupportofadoctrine
which,accordingtoitsadvocates,servestomaintianacompetitivemarket.
However,theCourtdidnotruleuponthecontractualaspectofthedisputebetween
thepartiesasitdidnotdiscussorlimittherightsofthepatentownerstoimpose
restrictions/conditionstothesaleoftheirproductsbywayofalicenseagreement.
Therefore,itfollowsthatwhenpatentlawcannotbeusedtoprohibitorlimittheuse
ofaproduct,contractuallawmaycomeintoplaytoachievetheintendedresult.
Theimpactofthisdecisiongoeswellbeyondtheissueofthescopeofapplicability
ofthedoctrineofpatentexhaustion,sincepatentownerswillhaveeveryinterest,
beforemarketingtheirproduct,toreviewthewordingoftheirlicenseagreements(at
©CIPS,2008.
*WithLEGERROBICRICHARD,LLP.amultidisciplinaryfirmofLawyers,andPatentandTrade-mark
Agents.PublishedintheWinter2008Newsletterofthefirm(Vol.12,No.4).Publication068.101.
2
leastwithrespectto,directlyorindirectly,theterritoryoftheUnitedStates),for
instanceby:
1-draftinglicenseagreementswhichclearlyrestricttherightofthe
licenseetore-sellpatentedarticlesonlytopurchasersauthorizedbythe
licensor,whilepreventinganti-competitivepractices.Assuch,(i)thesale
willbedeemedconditionalandthedoctrineofpatentexhaustionwillnot
apply,(ii)everythirdpartypurchaserwillalsohavetoenterintoalicense
agreementwiththepatentowner,allowingthelattertosuperviseand
restricttheuseofthepatentedarticle,(iii)thepatentownerwillthereby
retainacertaindegreeofcontrolovergainsstemmingfromtheuseofthe
patentbyimposingaroyaltytobepaidbyeverylicensee;or
2-fullynegotiatingtheamountoftheroyaltytoretainthemaximumvalue
ofthepatentedrights,whenthelicenseisgrantedtothefirstbuyer.
AlthoughpatentownersappeartobeabletolimittheimpactoftheSupremeCourt’s
decisionbyusingcontractualclausestotheiradvantage,potentiallicenseesmight
bereluctanttoenterintoalicenseagreementwhichimposessubstantialobligations
uponthem.Itwillbeinterestingtoseehowlicensorsandlicenseeswillstrikea
balancebetweentheirrespectiveinterests.
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