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So How Far Down the Line Can Patent Royalties Go?

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So How Far Down the Line Can Patent Royalties Go?

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Having already thrown patent law for a loop last year in its decision on obviousness in the now-famous KSR v Teleflex case, the US Supreme Court is now deciding whether LG Electronics, which owns patents on IP that Intel uses in its chips and chipsets, can claim royalties from contract laptop maker Quanta Computer, which bought parts legally from Intel, understanding that Intel had already paid royalties to LG under their licensing arrangement.

See, contrary to restrictions placed on their use, Quanta mixed the parts with non-Intel widgetry in building laptops, which LG claims tears the license with Intel and makes Quanta liable for royalties.

A federal court originally found for Quanta based on the so-called doctrine of patent exhaustion, which limits the royalties a patent holder can claim to the initial sale of a product.

LG appealed to the US Circuit Court of Appeals and won.

Quanta then appealed to the Supremes. They heard the oral arguments this week and from their comments and questions it looks as if they may find for Quanta and limit downstream royalties, clarifying the contradictory applications of the exhaustion doctrine in the process.

IBM, Dell, HP, Cisco and eBay filed briefs in support of Quanta. Quanta makes boxes for Dell and HP and they want to make sure LG doesn’t chase after them next.

Yahoo and Qualcomm are backing LG. Qualcomm, for one, doesn’t want royalties restricted to the first guy in the supply chain.

A decision is expected by mid-summer.


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