The Federal Circuit defines implied licenses and examines exhaustion doctrineJuly 11, 2006

LG Electronics (‘LGE’) sued BizCom Electronics and other defendants (collectively ‘BizCom’), alleging infringement of its patents relating to personal computers.BizCom purchases microprocessors and chipsets to install into computers from distributors such as Intel. Intel is licensed by LGE to sell the product under an agreement which informs buyers that they are not authorized to combine LGE products with non-Intel products. The lawsuit alleges that this agreement was violated and therefore infringes LGE’s patents for combination products. The trial court granted summary judgment in favor of BizCom, finding noninfringement of all patents. The Federal Circuit engaged in a fairly typical discussion of claim interpretation and the application of the doctrine of equivalents to determine if patent infringement has taken place. The Court also discussed implied licenses and the exhaustion doctrine. BizCom asserted it had an implied license to make use of LGE’s patents based on the nature of its purchases from Intel. A defendant must show two things in order to prove implied license. First, the products have no noninfringing uses. Second, the circumstances of the sale plainly point out that an implied license is inferred. Since Intel informed all purchasers that they were not authorized to combine Intel products with other products, the Court determined that any subsequent combinations could not be considered under the implied license rules.The Court then turned to BizCom’s argument that LGE’s patent rights had been exhausted by LGE’s sales to Intel. The patent exhaustion doctrine is commonly called the ‘first sale doctrine’, and is triggered by an unconditional sale of a patented product. By definition, an unconditional sale exhausts a patentee’s right to control the use of the product after the sale. This doctrine does not apply to sales or licenses with express conditions. In these transactions, the parties negotiated a price that represents only the value of the ‘use’ rights that the patentee conferred on the licensee. The two sales at issue in the case involved the system claims and the method claims. The Court determined there was no exhaustion for the system claims because of the express condition prohibiting the purchasers from combining Intel’s licensed products with non-Intel products. Thus, the sale was not ‘unconditional,’ and the exhaustion doctrine did not apply. The Court then affirmed the trial court’s ruling that the method claims were not exhausted, because the sale of a device does not exhaust the patentee’s rights in method claims.This case illustrates the potential difficulty in asserting the defenses of implied license and patent exhaustion, as the burden to prove each is on the defendant. If there are conditions to a sale of patented products, neither of these defenses will likely apply.To read the complete decision, log on to http://fedcir.gov/opinions/05-1261.pdf