On June 9, 2008, the U.S. Supreme Court issued its eagerly awaited decision in Quanta Computer, Inc. v. L.G. Electronics, Inc., U.S. Supreme Court No. 06-937 (June 9, 2008). In a unanimous decision delivered by Justice Thomas, the Court reversed the Federal Circuit’s decision below and

held that an authorized sale of components that are later combined with other components to form a patented system and to practice patented methods results in exhaustion of all patents, including system and method patents, that are substantially embodied in those components. The Court also

clarified that a mere notice to customers regarding limited rights as to patents is not effective to avoid patent exhaustion that otherwise results from authorized sales to those customers.

The Supreme Court’s ruling clarifies important questions in an area of law marred by uncertainty. The decision provides clearer guidelines to system vendors and other downstream users trying to assess the risk of patent infringement when purchased products are put to their intended use, as well as to sellers of products (and their licensors) seeking clarity as to what extent a sale may result in patent immunity for downstream users. However, the decision leaves some important questions unanswered and does not remove the need for suppliers and purchasers to analyze carefully

remaining infringement risks. The decision will also leave patent holders and licensees considering possibilities for limiting or avoiding the effect of patent exhaustion.

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