Supreme Court patent decision should give some comfort to consumers

The Supreme Court yesterday issued an important decision involving patents that, although technical in nature, may end up becoming an important victory for consumers. In recent years, companies have increasingly attempted to use their patents on products to limit what people can do with those products after buying them. For example, companies attach “not for resale” labels on products, a practice that allows them to keep prices high by limiting competition from low-priced used goods. The same practice is used by copyright owners to limit the resale of software and music. In Vernor v. Autodesk, Public Citizen recently won an important victory against a software company that attempted to impose just such a limitation on the resale of software. In another case, the Electronic Frontier Foundation is challenging the recording industry’s attempt to prohibit resale of promotional CDs by labeling them “promotional use only.”

The Supreme Court’s decision yesterday in Quanta v. LG Electronics should give some reassurance to consumers who purchase products that come with limited terms of use. The case involved the doctrine of “patent exhaustion,” a legal rule providing that patent owners, once they have sold a patented product, have no further right to control what the purchaser does with it. LG had licensed its patented computer chip technology to Intel. The license agreement granted Intel the right to use the chips in its own products, but also provided that anyone who subsequently purchased the chips from Intel did not have the same right. When, in spite of the agreement, Intel sold the chips to Quanta, LG sued, arguing that Quanta had no license to use the patented technology.

The Supreme Court disagreed, holding that once LG had sold the chips to Intel, it had exhausted its rights in the chips and could no longer control what Intel did with them. Although the Court’s decision did not rule out the possibility that different sorts of license agreements might be upheld in other cases, the outcome is a step in the right direction. The decision reinforces the principle that patent owners cannot use their rights to interfere with competition and limit what people can do with the things they own.