Cato Supreme Court Review: 2007-2008

By Robert A. Levy; Ilya Shapiro et al. | Go to book overview

Quanta v. LG Electronics:
Frustrating Patent Deals by Taking
Contracting Options off the Table?

F. Scott Kieff*

The Supreme Court's unanimous decision in Quanta v. LG Electronics1 may make it significantly more difficult to structure transactions involving patents. While this decision does make a group of players into winners in the immediate term for existing patent deals (this group includes any customer who, like Quanta, buys patented parts without buying a patent license), almost everyone is likely to come out a loser going forward.

The Court in Quanta decided that a patent license that LG Electronics sold only to Intel—and explicitly limited to exclude Intel's customers, like Quanta, and priced to reflect these modest ambitions— would be treated by the Court as extending permission under the patent to those Intel customers. The legal “hook” on which the Court hung its decision is the patent law doctrine called “first sale” or “exhaustion.”2

The Quanta decision is likely to have a serious negative effect on the nuts and bolts of patent licensing agreements. On one reading, it stands for little more than the unremarkable proposition that the actual patent license contract at issue was just badly written. But that would be a simple matter of applying state contract law to the

* Kieff is Professor of Law at Washington University in St. Louis and Research
Fellow at Stanford University's Hoover Institution where he runs the Hoover Project
on Commercializing Innovation, which studies the law, economics, and politics of
innovation, and which can be found on the web at www.innovation.hoover.org.
Together with Troy A. Paredes and R. Polk Wagner, and on behalf of various law
professors, he filed an amicus brief in Quanta, on which this essay is largely based
and for which such contribution is gratefully appreciated. Comments are welcome
and may be sent to fskieff.91@alum.mit.edu.

1 Quanta Computer, Inc. v. LG Elec., Inc., 555 U.S. ———, 128 S. Ct. 2109 (2008).

2Id., 128 S. Ct. at 2118, 21–22.

-315-

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