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LG Electronics vs. Quanta

LG Electronics vs. Quanta. a case on patent exhaustion September 22, 2008 IEOR 190G – Patent Engineering. Winnie Menghan Kuo M.S., IEOR 2009 UC Berkeley wkuo@berkeley.edu. Companies Technology History CPU 101 Specifics Key Issue Rulings Implications Analysis/Opinion. Agenda.

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LG Electronics vs. Quanta

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  1. LG Electronics vs. Quanta a case on patent exhaustion September 22, 2008 IEOR 190G – Patent Engineering Winnie MenghanKuo M.S., IEOR 2009 UC Berkeley wkuo@berkeley.edu

  2. Companies • Technology • History • CPU 101 • Specifics • Key Issue • Rulings • Implications • Analysis/Opinion IEOR 190G - Patent Engineering Agenda

  3. IEOR 190G - Patent Engineering Who are the players?

  4. Original patent by Wang Laboratories filed in 1988 • Purchased by LG in late 1990’s • 3 patents in dispute: • provides method for a chip that would increase the efficiency of a computer memory system IEOR 190G - Patent Engineering Technology: history

  5. Issues arise when memory have duplicate copies on RAM and cache, but only one changes IEOR 190G - Patent Engineering Technology: CPU basics ! • Main functions of a computer carried out in the CPU • Buses (wires) connect the CPU to a chipset that transfers data between CPU and devices • Data processed by CPU are stored in RAM • Frequently accessed data stored in cache memory

  6. 4,939,641 • System for ensuring that outdated data is not retrieved from memory • 5,077,733 • Manages data traffic on a bus connecting multiple components so that none monopolize the bus • 5,379,379 • discloses an efficient method of organizing read and write requests while maintaining accuracy IEOR 190G - Patent Engineering Technology: the details

  7. Quanta & other OEMs infringed upon LG’s patents because: • LG licensed Intel to produce chips to be used by Intel • Third-parties must pay royalty to use the chips, if used in combination with generic components IEOR 190G - Patent Engineering Why did LG sue Quanta?

  8. Does the licensed sale of components used in a patented invention exhaust patent rights? • Patent Act • Grants patent owners the right to exclude others from making, using, offering for sale, or selling any patented invention in the United States • Patent Exhaustion • The first unrestricted sale of a patented device terminates a patentee’s control over subsequent uses or sales of that particular device. IEOR 190G - Patent Engineering Key Question

  9. The District Court ruled in favor of Quanta by doctrine of Patent Exhaustion • Federal Circuit reversed the decision, declaring that the doctrine does not apply to method patents IEOR 190G - Patent Engineering District Court (2000) vs. Federal Circuit (2006)

  10. Patent Exhaustion doctrine applies to patented products AND patented method components Bottom line: Conditional sales may not be used to create post-sale restrictions! IEOR 190G - Patent Engineering Supreme Court Ruling (June ‘08)

  11. Quanta has agreed to pay license fees to LG patents after the court ruling (as of August 2008) IEOR 190G - Patent Engineering Final Settlement

  12. Patentees (LG): • Licensees (Intel): • Manufacturers (Quanta): IEOR 190G - Patent Engineering Implications • Will be more difficult collecting downstream royalties • Should pay for full license upfront, without dragging downstream manufacturers • The Court ruling was limited to domestic sales. Patent exhaustion may not apply to int’l sales

  13. Instead of suing Quanta, LG should have sued Intel for breach of contract! • LG authorized Intel to “make, use, and sell” chips to be used with Intel only • Intel wrote off responsibility with letters to their customers telling them that there’s restricted use of Intel’s products with a 3rd party • Manufacturers shouldn’t be burdened with the responsibility of checking with every upstream patent IEOR 190G - Patent Engineering Analysis/Opinion

  14. http://blogs.wsj.com/law/2008/06/09/chipping-away-at-the-quanta-v-lg-electronics-patent-decision/ (background)http://blogs.wsj.com/law/2008/06/09/chipping-away-at-the-quanta-v-lg-electronics-patent-decision/ (background) http://www.iht.com/articles/2008/08/26/business/lg.php (news on agreement) http://www.scotuswiki.com/index.php?title=Quanta_v._LG (technology) http://www.supremecourtus.gov/opinions/07pdf/06-937.pdf (court opinion) http://www.scribd.com/doc/280480/Quanta-v-LG-SG-brief-supporting-cert (briefing) http://www.iam-magazine.com/blog/Detail.aspx?g=d7c155b8-f89b-441c-a285-1f89b055fa12 (implications) IEOR 190G - Patent Engineering References

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