The Supreme Court's recent unanimous decision in Quanta Computer, Inc., et. al. v. LG Electronics, Inc., 553 U.S. ___, 2008 U.S. LEXIS 4702 (June 9, 2008), expands the scope of the patent exhaustion doctrine and redefines an area of patent law that had been subject to considerable confusion for decades. Holding that method claims and so-called 'combination' claims (covering a component with other items) can be exhausted by the sale of a component, the Supreme Court reversed decades-old Federal Circuit precedent. At the same time, however, the Court left open the extent to which application of the exhaustion doctrine may be contractually limited.
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Quanta: Supreme Court Expands the Scope of Exhaustion; Redefines Licensing Principles
The Landscape Before Quanta
Patent exhaustion (also known as the 'first-sale doctrine') is a judicially created doctrine that holds that the first authorized sale of a patented product by a patentee or its licensee places that product outside the patent owner's rights of exclusion. See United States v. Univis Lens Co., 316 U.S. 241, 249 (1942) (acknowledging that 'the authorized sale of an article which is capable of use only in practicing the patent is a relinquishment of the patent monopoly with respect to the article sold'). The theory behind this doctrine is that once the patentee has received consideration for releasing the product from the patent's sphere of exclusion through an authorized sale, the patentee can no longer restrict its use.
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