Recent Patent Decisions And Their Impact On Your Company
By: John M. Augustyn
Corporate Counsel
The U.S. Supreme Court and the Court of Appeals for the Federal Circuit recently decided several cases which answered questions relating to patent law. This article provides a brief summary of those decisions and how these cases may impact your company in the future.
1. Patent Licensing and the Exhaustion Doctrine
In Quanta Computer, Inc. v. LG Electronics, Inc. the U.S. Supreme Court decided that the patent exhaustion doctrine applies to the authorized sale of components that “substantially embody” a patent. Quanta was a computer manufacturer and installed Intel chips in the computers which were made for other companies, such as, Dell and Hewlett-Packard. Quanta purchased the chips from Intel. LG owned several patents relating to the chips. LG licensed Intel to sell the chips, but LG did not license Intel’s customers, such as Quanta. LG sued Quanta and asserted that the combination of Intel products with non-Intel related components infringed LG’s patents. Quanta argued that the patents were exhausted based on Intel’s authorized sale of products to Quanta.
The patent exhaustion doctrine provides that the initial authorized sale of a patented item terminates patent rights to that particular item. It also applies when the patentee licenses another company to make a product. The Supreme Court stated that the authorized sale of the product embodying the method can exhaust patent rights covering the method.
Some commentators believe that the Quanta decision will likely make it more difficult for a patent owner to control downstream users and purchasers. When a patent owner wants to license the same patents to multiple parties in a supply chain for the same product, the patent owner should consider the impact of the license on subsequent licensing activities. With respect to litigation, the Quanta decision may be useful in response to a charge of patent infringement.
2. Patentability of Business Method Claims
Business method claims are often used to protect the way a business conducts the methods of performing its operations. When the Patent Office examined the patent applications, several different tests were being presented concerning patent eligibility, such as, the “machine or transformation” test, the “technological arts” test and the State Street Bank “useful, concrete, and tangible test.” In an en banc opinion, the Court of Appeals for the Federal Circuit, in In re Bilski, decided that the only test of patent eligibility for method claims is the “machine or transformation” test which was set forth by the U.S. Supreme Court in Gottschalk v. Benson in 1972. Under the test, the method claim must be tied to a particular machine or by showing that the claim transforms an article.
The Bilski decision may be useful in response to patent infringement if the claim does not meet the test. With respect to preparing patent applications, the Bilski decision means that the patent claims will need to be carefully written in order to satisfy this test. Also, the patent application may need to include additional information concerning the process in order to provide more detail for the method claims, if necessary.
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