## Facts

- LG Electronics, Inc. (LGE) owned patents covering computer components as well as computer systems and methods that used those components.
- LGE licensed Intel to manufacture and sell microprocessors and chipsets practicing the LGE patents and stated that nothing in the license would limit the effect of patent exhaustion arising from sales of licensed products.
- A separate agreement required Intel to notify customers that no license extended to products made by combining Intel components with non-Intel components; breach of that agreement would not affect Intel’s patent license.
- Quanta and other manufacturers bought Intel’s licensed microprocessors and chipsets in authorized sales and incorporated them into computers with standard non-Intel parts (e.g., memory and buses) without modifying the Intel components.
- LGE sued Quanta, alleging that combining Intel components with non-Intel components infringed LGE’s system and method claims.
- The district court ultimately held exhaustion did not apply to method claims; the Federal Circuit affirmed, also reasoning that Intel’s sales were effectively conditional due to the notice provisions.

## Issues

1. Whether the patent exhaustion doctrine applies to method claims as well as apparatus/product claims.
2. Whether Intel’s authorized sale of licensed microprocessors and chipsets exhausted LGE’s patent rights as to Quanta’s downstream use of those components in finished computers.
3. Whether a patentee can avoid exhaustion through license-related notice provisions and separate contractual restrictions while still authorizing component sales.

## Decision

- The Supreme Court unanimously reversed.
- Patent exhaustion applies to method claims when an authorized sale of an item practicing the method occurs.
- Intel’s authorized sales exhausted LGE’s patent rights because the Intel products substantially embodied the patented inventions.
- LGE could not use patent law to enforce post-sale restrictions against Quanta based on Intel’s authorized sales.

## Legal Principles

- An initial authorized sale of a patented item terminates the patentee’s patent rights to that item, preventing control over the item’s downstream use or resale via patent infringement claims.
- Exhaustion is not avoided by framing inventions as method claims; method claims may be exhausted by the authorized sale of an item whose intended use practices the method.
- A component sale can exhaust patent rights when the component substantially embodies the patent by incorporating the essential features and having no reasonable and intended use other than to practice the patented invention with standard, noninventive additions.
- Post-sale limits communicated through notices or separate agreements do not defeat exhaustion where the sale itself is authorized; any enforceable limits must arise, if at all, in contract rather than patent infringement against downstream purchasers.

## Conclusion

Because Intel made authorized sales of components that substantially embodied LGE’s system and method patents, LGE’s patent rights were exhausted, and LGE could not sue Quanta for infringement based on Quanta’s intended use of those components in finished computers.


Quanta Comput., Inc. v. LG Elecs., Inc., 553 U.S. 617 (2008)