The U.S. Court of Appeals for the Federal Circuit recently affirmed in part, reversed in part and vacated in part a district court’s summary judgment of non-infringement in favor of third-party installers who purchase microprocessors and chipsets from Intel Corporation, which itself is authorized to sell such products under a conditional agreement with LG Electronics. LG Electronics, Inc. v. Bizcom Electronics, Inc., Case Nos. 05-1261, -1262, -1263, -1264, -1302, -1303, -1304 (Fed. Cir. July 7, 2004) (Mayer, J.).
LG is the owner of patents that relate to personal computers. LG has a conditional license with Intel under which it authorizes Intel to sell microprocessors and chipsets to third parties. LG’s patents do not cover the microprocessors or the chipsets themselves, but cover those products when combined with additional components. Under the agreement, Intel is required to notify its customers that combining Intel products with non-Intel products is not permitted. The defendants are third-party installers that purchased microprocessors and chipsets from Intel and used them to assemble computers for original equipment manufacturers.
On appeal, the Federal Circuit agreed with the district court that Intel’s sales of its licensed products to defendants do not warrant the inference of a license with respect to the asserted patents. The panel noted that, regardless of any non-infringing uses, Intel expressly informed the defendants that Intel’s license agreement with LG did not extend to any of defendants’ products made by combining an Intel product with non-Intel products. The Court concluded that, in light of this express disclaimer, no license can be implied.
With regard to the issue of patent exhaustion, the panel disagreed with the trial court that the system claims in all except one of LG's patents were exhausted, but agreed that the exhaustion doctrine did not apply to the method claims. The patent exhaustion doctrine, commonly referred to as the first sale doctrine, is triggered by an unconditional sale. The first of two sales at issue was LG's grant to Intel of a license covering its entire portfolio of patents on computer systems and components, which the panel regarded as a sale for exhaustion purposes. The second sale at issue was Intel's sale, with LG’s authorization, of its microprocessors and chipsets to each defendant. The panel pointed out that this second sale involved a component of the asserted patented invention, not the entire patented system. Although Intel was free to sell its microprocessors and chipsets, those sales were conditional, and Intel’s customers were expressly prohibited from infringing LG’s combination patents. The panel reiterated that the exhaustion doctrine does not apply to an expressly conditional sale or license and concluded that LG’s rights in asserting infringement of its system claims were not exhausted. The panel also agreed with the trial court that LG’s asserted method claims were not exhausted and pointed out that the sale of a device does not exhaust a patentee’s rights in its method claims. The Court noted that, even if the exhaustion doctrine were applicable to method claims, it would not apply because there was no unconditional sale.
With regard to the doctrine of equivalents, LG contended that performing some of the write requests is a permissible equivalent to performing all write requests as required by the claim language, and that, while performing no write requests may vitiate the claim language, performing some does not. The Court pointed out that there is inevitably a range of equivalents for performing all write requests, even if that range is narrow, and no set formula exists for determining whether a finding of equivalence would vitiate a claim limitation in violation of the all limitations rule. The panel noted that performance of substantially all or nearly all write requests by the accused devices would invoke the doctrine of equivalents without vitiating the claim language. Finding the existence of a genuine issue of material fact as to whether the accused device can function within the narrow range of equivalents, the panel vacated the trial court’s grant of summary judgment of non-infringement on this ground.
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