SCOTUS: No Double-Dipping on Patent Royalties

scotus.gifIn a sizable decision for Quanta Computer Inc. in Quanta v. LG Electronics, Inc., the U.S. Supreme Court unanimously ruled to uphold the doctrine of patent exhaustion, which states that once an entity licenses its patent rights to another, it no longer has control over how the purchaser uses it.

The case involved LG Electronics of South Korea and customers of Intel products. LG licensed the patents to Intel, but then claimed royalties from Intel customers who used Intel and non-Intel products together. In essence, LG tried to double-dip.

A number of big-name companies would have been affected, including Dell, Hewlett-Packard, IBM Corp. and Gateway, because they in turn purchase components, made by manufacturers like Quanta, that could have been liable for royalties and damages.

According to an AP article:

A number of companies including chip maker Qualcomm Inc. supported LG in the court fight, saying any rule that forces patent owners to license only one level in the production chain is unworkable.

The Bush administration supported Intel’s customers. It cited inconvenience, annoyance and inefficiency of multiple royalty payments being passed down the chain of distribution with no obvious stopping point.

Also weighing in against multiple royalties was the private group Consumers Union.

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