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June 09, 2008


Isn't it distinguishable that the chip sets in LG and the seeds are quite different? For argument sake, the farmer can do whatever he/she wants with the original seeds he bought from the company. But the moment those seeds are planted, patentee's rights are exhausted and so does the farmer's. The resulting seeds are "new" and amounts to unlicensed copying. If Intel paid for one chip but uses the licensed chip's components (albeit by destroying) to make a second chip, would that be permissible under the exhaustion doctrine? Just a thought....

Mr. Noonan,

I am a little confused by your characterization of the LGE-Intel license in the second paragraph.

My understanding of the SCOTUS opinion is that LGE did not impose any condition on Intel to limit sales. Intel was required under a separate agreement to notify its customers that mixing Intel and non-Intel chipsets would not be covered under the LGE-Intel license. However, LGE did not require Intel to limit sales to only those customers who agreed not to mix Intel and non-Intel components.

Am I incorrect in my reading? Thanks.

Dear KK:

You are correct. Perhaps in an effort to be succinct I was unclear, but I think this passage embodies your understanding:

"Important in the Court's determination was that the license agreement did not contain the preclusive condition; a separate "Master Agreement" between the parties recited that provision. But "Intel's authority to sell its products embodying the LGE Patents was not conditioned on the notice [that the mixed combination of components was an unauthorized use] or on Quanta's decision to abide by LGE's directions in that notice," because breach of the provisions of the Master Agreement precluding sale of Intel microprocessors and chipsets to third parties who combined them with non-Intel components did not constitute a breach of the licensing agreement."

So, Intel's license from LG did not preclude LG from selling the patented chipsets to a third party regardless of whether the 3rd party complied with the provisions of the Master Agreement, and breach of those provisions was not considered breach of the patent license. This is "eating your cake and having it too" behavior; I'm not sure the outcome is different if these facts were different, but they provided further justification for the Court to rule the way it did.

Thanks for the comment. Hope this clarifies what I intended to say.

Dear Jeff:

I think the distinction you draw is certainly Monsanto's argument. The portion of the opinion that cuts against it is where the Court talks about how attaching the patented chipsets to the bus and peripherals was the intended use of the patented products, which had "no function" until you made the attachments. Sounds like they would say that planting the seed is the "intended use" and producing seeds is what plants do. It isn't like someone took the chipsets and copied them - it's more like the chipsets automatically producing a backup copy of the information (or better, logical structure) of the chip and then transferring this onto a naive chip. But even that would require an additional step (providing the naive chip) that doesn't apply to seeds.

And good luck getting the CAFC to reverse a District Court that applies Quanta to a seed case the way I postulate.

Thanks for the comment.

Jeff & Kevin,

That's how I read the Monsanto cases--the infringing (second and later generation) seeds were never sold. Only the seeds in the dirt were sold, and exhaustion attaches only to the sold item itself.

Even under Quanta, there is no authorized sale of the second and later generation seeds, and exhaustion doesn't attach to the object.

A better Quanta analogy would be if the accused infringer used the purchased chipset to make a computer-driven foundry that cranks out infringing chips.

The making of the computer-driven foundry would not be an infringement, but cranking out infringing chips would be.

My guess is that the Fed Cir would reverse a district court over this...unless it can find something in the license agreement to wiggle out of confronting the issue.

(and I don't mean "wiggle" in a bad way, that's what they should do).

The Monsanto cases will be a very big deal now, especially with the seed folks openly promising to increase yields for "green" energy + food. They won't do it without patent protection, and contract won't hack it (privity).

clarification on my analogy:

my chipsets' only substantial use was in making a chipset foundry. No naive-chip step required.

Here's where I see some potential ambiguity in the decision, and would like to know what others think.

It seems that there are two requirements for exhaustion:

1) The sold article is capable of use only in practicing the patent.
2) The sold article embodies essential features of the patented invention.

Now, in applying 2) on the facts of this case, the Court highlights the fact that ALL the inventive aspects of the patent were already contained in the chipsets. (Query: is the Court essentially saying that the PTO was wrong to issue the method claims as a separate patent? Didn't LGE argue in its briefs that the PTO must have determined the method to contain inventive aspects beyond what was already contained in the chipsets?) So there would appear to be room for future owners of method patents to argue that those patents are not exhausted by sale of an article of which 1) is true, and that embody SOME essential features of the invention, so long as there are other essential features of the invention that are not embodied in the article.

Say for example that LGE’s chipsets came in two flavors, A and B. Each embodies a different essential feature of the patent, and to work, you have to combine an A with a B (and a bus and memory). So what if LGE makes unrestricted sales of A sets, but keeps the authorization to sell B sets subject to strict license restrictions? Can it still enforce its method patent against purchasers of A who practice the method in violation of the restrictions on B sets?

Or what if the B component isn’t independently patented at all, but the idea of combining it with A to achieve the desired result was inventive? Can the method patent still be enforced against purchasers of A?

Dear Mouse:

If the seeds were not "sold," then infringement would lie for making and using, and that sounds reasonable.

However, you are then stuck with characterizing two types of seeds, which are identical except for when (and by whom) they were produced: seeds purchased and seeds made by plants from the purchased seeds. Although I see the distinction, the problem is that the Court has made a bright line rule for cases that are distinguishable. And since growing and producing more seed is an essential feature of the plants produced with the recombinant seed (and remember, the other aspect is that those plants are herbicide resistant), the plants have to be grown the same way the chipsets had to be attached to other components.

The infringing act would then have to be the second planting with the unsold seeds. But I'm not sure this distinction will have much weight with the Court, particularly in view of its statements that the patent laws do not exist to make inventors wealthy, and because of the herbicide sales piece. Since the second planting will only confer an advantage if the farmer buys the herbicide from the company, this may be a situation where the equities don't lie with the patentee. Recall the equitable flavor of the part of the opinion regarding (non)breach of the license by Quanta's using non-Intel components. I just see the Court going the same way on this question.

Thanks for the comment.

Dear Chris:

Your hypotheticals are interesting, but the biggest problem is that the Court made it clear that clever isn't good enough. The Court has had a disinclination to protect patent rights that stems from a 19th Century mentality regarding technology, a turn of the (last) century antipathy towards "monopolies," and a middle of the last century notion that patents are anticompetitive. Since the Court sees itself in historical continuity, its decisions are often bogged down with outdated notions (think, "separate but equal" for example).

It will take something more than clever to nudge the Court from this mindset, and figuring out ways to increase licensing fees for patentees, in my opinion, won't be enough. Now, prove that seed companies won't have the capital to do the research that will increase harvests enough to prevent Americans from starving, well, THAT may be enough. But who wants that?

Thanks for the comment.

(Query: is the Court essentially saying that the PTO was wrong to issue the method claims as a separate patent? Didn't LGE argue in its briefs that the PTO must have determined the method to contain inventive aspects beyond what was already contained in the chipsets?)

Yeah I picked up on that too. But the cout is right, and this is one reason why I believe the decision to let people claim the same invention as a method and a product is horrendously bad. Further, the problem with that situation runs deeper into the ability to distinguish method claims by the structural features of the articles on which they are performed or create. Product claims for products, method claims for methods I say. You'll notice that this approach substantially invalidates a huge portion of issued patents. Even so, it's the right thing to do.

"Say for example that LGE’s chipsets came in two flavors, A and B. Each embodies a different essential feature of the patent, and to work, you have to combine an A with a B (and a bus and memory). "

Now you're making allegations that neither A nor B are enabled unless both are disclosed together. I agree with this as well, it is through carefull drafting etc. that lawyers split this crp up and burden the office so that their clients can enjoy broader protection.

ahem, excuse me not "enabled" but "not the best mode" instead. Though, come to think of it, enabled might be sufficient to describe that situation since if you don't know how to make B then you don't really know how to practice A.

Dear Kevin,

You may be correct, but I think we're at odds on the equities.

As I read Quanta, Intel originally bargained and paid for the right to make, use, and sell the chips without restriction. It was in a separate (later, IIRC) Master Agreement that required Intel to give notice to the buyers.

In Monsanto, both sides bargained for the no-replant clause which was incorporated into the price of the seeds.

As I see it, the equities are with Monsanto.

Dear e:

But of course you recognize that the reason there are separate patents for methods and compositions is usually an Office-imposed restriction requirement (at least in the chemical/biotech arts). So although I agree with you that in the hypo where A+B are needed to be functional a claim to A or B alone may be inoperative, the fact that a patentee has multiple patents to the same "invention" can't be a basis for invalidating them.

Thanks for the comment.

Dear anon:

You may be right about the equities, and that may work in a breach-of-contract action (unless the court were persuaded that it was really an adhesion contract, since Monsanto's patent position gives it a monopoly on the recombinant seeds).

But all the Supreme Court seemed to be doing here was 1) reestablishing the principle of patent exhaustion if it had been diminished by the CAFC; 2) excluding patent infringement as a cause of action in this kind of dispute and 3) (of course) bringing the CAFC into line by exerting it supremacy. I think the case might have been different if Intel's license had been predicated on preventing non-Intel components from being used with Intel's microprocessors and chipsets. If it was a field of use license, for example, or if Intel warranted not only that it would inform but also police compliance (so that its sales were conditional and if the condition were not met Intel would be the plaintiff), it might have been a different case.

Thanks for the comment.

I rarely do not comment on blogs but yours I had to stop and say Great article!!


That is very informative and well written. Mentioned below is an excerpt from an article on Patent exhaustion in India:

"A patent grants the Patent holder exclusive rights to prevent others from making, using, selling, offering for sale in the territory of patent grant or importing an invention into the territory of patent grant. Once an unrestricted sale of the patented invention is made, the rights of the patent holder with respect to the product are exhausted and this is called as the Doctrine of Exhaustion or First Sale Doctrine......to read more please visit http://indianipinfo.blogspot.com/2010/10/patent-exhaustion-in-india.html

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