On July 7, 2006, in LG Electronics, Inc. (LGE) v. Bizcom Electronics, Inc., Civ. 05-1261, the Federal Circuit ruled that a license agreement that disclaimed an implied license may establish a conditional sale, overcoming the patent exhaustion doctrine.
LGE brought patent infringement lawsuits against personal computer industry defendants. Prior to the lawsuit, LGE granted Intel Corporation (Intel) a license that covered LGE’s patent portfolio on computer systems and components.
The defendants purchased microprocessors and chipsets from Intel and installed them in computers. The LGE license with Intel disclaimed any implied license to Intel’s customers who combined the microprocessors or chipsets with non-Intel products. Intel notified customers of the combination restrictions.
LGE claimed that the combination of Intel microprocessors or chipsets with other computer components infringed its patents.
The Federal Circuit found that no implied license existed because Intel informed defendants that its license with LGE did not extend to the combination of Intel products with non-Intel products.
Under the patent exhaustion doctrine, an unconditional sale of a patented device exhausts the patentee’s right to control a purchaser’s use of the device. If a condition is placed on a license, it may be inferred that the parties negotiated a price that reflected only the value of the use rights. Otherwise, it is reasoned that the patentee bargained for, and received, an amount equal to full value.
The Federal Circuit stated that LGE’s license created a conditional sale by disclaiming a license to combinations of Intel and non-Intel products, and requiring Intel to notify its customers of the limitations. LGE’s rights in asserting infringement were not exhausted.
A patentee may avoid the implied license and patent exhaustion doctrine by placing restrictions in licenses and requiring licensees to notify customers of those restrictions.
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