Recently, in Quanta Computer, Inc. v. LG Electronics, Inc., 128 S.Ct. 2109, 86 USPQ2d 1673, the Supreme Court continued its recent trend of overruling the Court of Appeals for the Federal Circuit (CAFC). In a unanimous opinion, the Supreme Court determined that the doctrine of patent exhaustion, which extinguishes a patent holder’s rights to a patented device upon an unconditioned, bona fide sale, also applies to the method claims of a patent. Previously, the CAFC held that method patents were not exhausted by the sale of a device, even if the only use of that device is to substantially practice the patented method. In its ruling for Quanta, the Supreme Court specifically noted that patents are not rights for securing market dominance, but are rights granted to the patent holder to encourage the progress of science and the useful arts. However, failing to apply the doctrine of exhaustion could make any downstream purchaser of a device made by the patent process, whether by a manufacturer, a retailer, or a consumer, liable for patent infringement.
In addition, the Supreme Court determined that the doctrine of patent exhaustion applies to any sold device that substantially embodies the inventiveness of a patent, even if the sold device does not completely practice the patent. At the same time, the decision also noted that exhaustion of the patent, as a general rule, does not necessarily exhaust other patents that may be embodied within the same device. The Supreme Court provided an illustrative example. If a patented method to caching data in a processor is exhausted due to a sale of the processor, a patent to a method of compiling a computer program in the same processor is not necessarily exhausted. However, if other patents embodied within the same processor embody substantially the same inventiveness as the exhausted patent, then the other patents may be exhausted by implication. Of course, the doctrine of patent exhaustion only applies when the sale is both authorized and unconditional and, thus, the parties are free to contractually limit the doctrine’s application.