WASHINGTON (Reuters) - The U.S. Supreme Court heard arguments in a dispute between LG Electronics Inc (066570.KS) and Quanta on Wednesday that will either expand or contract the rights of a patent holder.
LG Electronics, which holds patents on microprocessor chips and chip sets, had an agreement with Intel Corp (INTC.O) that allowed Intel to make the chips and chip sets but explicitly barred it from mixing the components with non-Intel parts.
Quanta Computer Inc (2382.TW), among others, bought the components from Intel and used them to make notebook computers. South Korea’s LG Electronics sued, accusing Quanta of infringing the patents not of the components themselves but “systems and methods” of using them to make a functioning computer.
LG Electronics’ attorney Carter Phillips told the high court that LG had allowed Intel to make the chips, but had placed restrictions on the companies that bought them to prevent them from infringing LG separate patents on how they were to be used.
“If the question is did Intel have the right to sell the system as a system, the answer is yes,” Phillips said. “But it didn’t sell the system as a system. It sold the components.”
Quanta’s attorney Maureen Mahoney argued that because LG Electronics collected its royalties from Intel, that Quanta owed it no further money.
“LGE did get its royalty from Intel, did give them authority to sell products which would otherwise contributorily infringe and now what it’s seeking to do is to say ... we want to collect another royalty from the buyer of the product,” she said.
Justices Stephen Breyer and David Souter both expressed concern that the fact that a computer chip has only one real use — in a computer — meant that it fell into a category of goods whose patents are exhausted. Chief Justice John Roberts seemed to agree. “You don’t put them on your shelf,” he said.
Roberts also seemed irritated with the parties’ failure to create a solid license that would have prevented the court challenges.
“So the parties are unwilling to spell out exactly how this is going to work out in their contract,” he said. “There’s a lot of uncertainty that could be resolved.., rather than take their chances in the Supreme Court.”
In a last hint of how the justices might rule, Justice John Paul Stevens said he was “puzzled” by the U.S. Court of Appeals for the Federal Circuit, which ruled in favor of LG.
Intel has not commented on the case publicly.
Both parties found support in the tech community.
“Some of the big computer makers, they like the idea of exhaustion. Where there are some other companies out there, that rely on patent licenses more, they tend to support LG,” said Pavan Agarwal, a patent attorney with Foley and Lardner.
Robert Kovelman, a patent attorney with Steptoe and Johnson LLP, said a Supreme Court ruling in favor of LG would upend current understanding of how licenses should be written.
David Kappos, International Business Machines Corp’s (IBM.N) vice president for intellectual property, said: “This is really an important case. It’s kind of a sleeper in a way... I say it’s a sleeper because it can have a pretty substantial impact on commerce.”
A Supreme Court ruling is expected by the end of June.
Editing by Dave Zimmerman