Supreme Court Overturns Ruling on Patent Royalties

The Supreme Court yesterday limited the ability of companies to collect multiple royalties on their patents, the latest step by the justices to scale back the power of patent holders.

The unanimous decision, helpful to Intel customers, involved a longtime Supreme Court doctrine that in recent years had been eroded by the U.S. Court of Appeals for the Federal Circuit in Washington. The court handles patent cases nationally.

Justice Clarence Thomas reined in the appeals court, saying that "for over 150 years the Supreme Court has applied the doctrine of patent exhaustion" and that it applies in this case. The doctrine says that the sale of an invention exhausts the patent holder's right to control how the purchaser uses it.

In the case before the Supreme Court, a South Korean company, LG Electronics, licensed some of its patents to Intel.

LG then sued some of Intel's customers for patent infringement, saying they owed royalties to LG because the customers combined Intel's microprocessors and chipsets with non-Intel products.

Patent laws can carry triple-damage awards when a court finds willful infringement.

Thomas said that "everything inventive about each patent is embodied in the Intel products" and that the non-Intel devices with which they are combined are "standard parts."

The Intel customers are computer system manufacturers that include Taiwan-based Quanta Computer. System manufacturers sell to industry brand names such as Dell, Hewlett-Packard, IBM and Gateway.

A number of companies, including chipmaker Qualcomm, supported LG in the court fight, saying that 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.