LG Electronics (LGE) v. BizCom (Fed. Cir. 2006, 05-1261).
LGE sued a bunch of Intel customers for infringing use of a chipset. Intel itself was not a defendant because it is licensed to sell the products under an agreement with LGE. Under the agreement, however, Intel's customers were not permitted to combine the products with non-Intel products.
LGE lost on summary judgment -- the district court found that LGE's rights were "exhausted" as to all but one asserted patent and that LGE was contractually barred from suing over the remaining patent. The appeal addressed, inter alia, implied licenses and exhaustion.
Implied License: A defendant can avoid liability for patent infringement by showing that it had an implied license to practice the patented invention. To prevail, the defendant must prove that its products (1) have no noninfringing uses and that (2) the circumstances plainly suggest that an implied license should be inferred. Here, Intel expressly informed the parties that they were not licensed to combine the Intel products with other products -- thus those combinations could not be considered licensed in any way.
Exhaustion: The patent exhaustion doctrine is triggered by an unconditional sale of a patented item -- this is commonly termed the "first sale doctrine."
The theory behind this rule is that in such a transaction, the patentee has bargained for, and received, an amount equal to the full value of the goods.
The exhaustion doctrine does not, however, apply to express conditions made upon that original sale.
"In such a transaction, it is more reasonable to infer that the parties negotiated a price that reflects only the value of the ‘use’ rights conferred by the patentee."
Exhaustion - System Claims: Regarding LGE's system claims, the appellate panel found that there was no exhaustion because there were express conditions on the use of Intel's licensed products -- specifically that they could not be combined with non-Intel parts.
Although Intel was free to sell its microprocessors and chipsets, those sales were conditional, and Intel’s customers were expressly prohibited from infringing LGE’s combination patents.
Exhaustion - Method Claims: Here, the CAFC made their statement short and to-the-point: "the sale of a device does not exhaust a patentee’s rights in its method claims."