Supreme Court Continues to Address Patent Concerns

The Supreme Court has taken on another possibly landscape-changing patent case that will determine if patent holders are able to sue everyone up and down the food chain for a patent infringement. "This case, officially between LG and Quanta, really concerns the question of how many times patent holders can get a cut of any component found violating a patent. Currently, patent holders will often sue up and down the food chain. So, if you happen to have a patent on a component within a motor that is used in automobile wipers, you could sue the motor maker, the wiper maker and the auto manufacturer -- and get all three to pay, even though the same product is used throughout the supply chain. This case will look at whether or not it makes sense to allow for that type of double, triple or quadruple dipping."

Comments

It doesn't...

[repvik]

Of course it doesn't make sense to sue the whole food chain. Sue the manufacturer of the specific part, and leave it at that. Imagine how much fun it'd be if someone discovered that Award (or some other major BIOS manufacturer) had violated a patent in their BIOSes. There is no way the rest of the food chain can verify that no patents have been violated. Of course they can sue Award for damages, but imagine 400 companies suing Award. Anyone get any money? Nah. It would be incredibly expensive for a large manufacturer (eg. Dell) to verify that each and every component it uses does not violate any patents or IP. Same way with a car. Car manufacturers manufacture a fraction of the components themselves, and buy eg. wiper motors from Bosch.

Re:It doesn't...

[Kjella]

Well, that was my first thought. But when I reversed it "Should you never sue anyone but the closest in the chain" it wasn't really that clear. I'm sure there are ways to construct some sort of shell company that'll be the the actual infringer, while others are turning the real profit. A classic example are all the cafes and restaurants that go bankrupt, but the building owners which are often the same, never do. Legally they have one company owning it, and one renting and operating it. Or some sort of transit company which buys legally produced goods abroad, then sells them in the US violating US patents. It can be basicly massless with no money to collect. But yes, in the general case where they've bought it at normal rates then the original producer should be the one paying.

Patent Laundering

[Nymz]

If you deny legal redress, with exception for 'first sale' defendants, then you could certainly expect to see shady companies simply subcontracting out for any possible patent infringing items.

1) Setup a puppet company
2) Infringe all you want
3) Profits!!! stay safe (safely stolen) from patent holders

What does the patent claim?

[Valdrax]

The real problem is who do you have to sue based on what your patent claims.

Let's take the example used in the summary of a component used in a motor in a windshield wiper blade. What does the new component do that made it patentable?

- Is the innovation purely in the use in a motor? (Reducing wear and tear?)
- Or maybe is the innovation in its effect on the wiper? (A smoother wiping motion with less noise?)
- Or maybe is the innovation in how the car performs? (Allowing a more aerodynamically friendly wiper?)

What if the patented item does all three and claims all three things? Does a SCOTUS decision ruling that you can only collect once open the door for a finger-pointing exercise between defendants (something the courts like to avoid) in trying assign infringement? Does going straight to the bottom of the supply chain always make sense? (For example, what if it doesn't do anything for the motor itself but only for the higher level functions?)

These are very important balance issues that the SCOTUS will have to consider.

No joke, they can.

[Kadin2048]

While you're at it.. sue the drivers of the cars with the patent-infringing wiper motor. They're obviously benefiting from the innovation without having compensated the patent-holder. They can, actually, do exactly this. "Use" of an infringing device is considered infringement. Generally, patentholders don't bother to go after end users of consumer product, because it's wringing blood from a stone and really terrible PR, but they sometimes threaten it as a way to discourage use of a possibly-infringing product. (Cf. Anti-Ford ads taken out by competitors alleging that Ford's products infringed the Selden patent.)

Re:Another /. totally BS patent story

[DRJlaw]

"First sale doctrine already does apply to patents."

True, but the article summary and your response both gloss over the interesting issue in favor of something that's irrelevant. Patent exhaustion exists. Caselaw preventing double dipping for infringement damages already exists. This situation is different.

The decision in the Federal Circuit holds that a patent is exhausted by an unconditional sale, p. 7, in line with Supreme Court precedent, but also holds that a patent rights are not exhausted by a conditional sale, pp. 7-8, in line with about 20 years of Federal Circuit precedent.

The interesting problem here is that the LGE patents do not cover the products sold by Intel. They only cover those products when combined with additional components. It appears that in the absence of a license, LGE could only have sued Intel for "contributory infringement" because Intel would be making products specially adapted to implement LGE's invention when combined with other components, see 35 U.S.C. 271(f), but not the patented combination itself. In essence, LGE and Intel negotiated a license that makes Intel a component source/supplier. Now those who purchased the specialized components and combined them in a manner that would infringe the patents are arguing that a license to manufacture a non-infringing but specialized component without fear of a patent lawsuit also conveys to the supplier's customers the right to practice the entire invention. That's not a clear cut question.

One of the axioms of property law is that you can only sell that which you yourself possess. If Intel has a license that merely permits it to manufacture and sell a specialized component, then arguably the purchasors have the right to resell the specialized component (that fraction of the patent right is exhausted), but do not have the right to manufacture or sell the patented invention because not even Intel has the right to manufacture and sell the patented invention. If Intel has a license to manufacture and sell the patented invention using its own components, with LGE getting a percentage of the revenues for the Intel components, then arguably neither Intel nor its purchasors have the right to manufacture or sell the patented invention when manufactured using non-Intel components -- LGE would be deprived it its rightful revenues, and Intel would infringe the patent for those combinations made with non-Intel parts.

The decision is unclear on the license structure, and I don't have time to dredge up the District Court decision, but there are potentially valid reasons for dividing up patent rights and royalty rates in this manner that cannot be reasonably described as double-dipping. For example, the Intel chips may still have value when combined with non-Intel chips in ways that do not produce the patented invention, but it may not make economic sense to manufacture two types of chips, one with the specialized aspect and one without. A licence with a modest royalty that is less than the entire royalty, whatever that is, benefits Intel by simplifying its product line and securing it from the potential of being sued as a result of the actions of its customers.