By Christopher S. Rugaber, AP
WASHINGTON — The Supreme Court said Tuesday it will consider a technology patent case that could have far-reaching ramifications for computer makers and other industries with global supply chains.
The case was brought by a group of Taiwanese computer makers, who have accused a South Korean rival of using its patents in an effort to “shake down the entire computer industry for several billion dollars in duplicative licensing fees.”
At issue is whether a patent holder can seek royalties from multiple companies as a patented product works its way through the manufacturing process.
The Taiwanese firms, led by Quanta Computer Inc., are asking the justices to overturn a 2006 federal appeals court ruling that they say would open the door for patent holders to do just that.
Quanta and the other companies manufacture computers under contract for U.S. companies such as Hewlett-Packard Co., Gateway Inc. and Dell Inc.
The three U.S. corporations filed court papers in support of Quanta. They said the ruling, by the Court of Appeals for the Federal Circuit, “threatens to impose a huge financial and practical burden on manufacturers of technology products.” The companies outsource much of the assembly of their computers to companies like Quanta, the world’s largest contract manufacturer of laptop computers.
Other industries with far-flung facilities, such as auto manufacturers, could also be affected if the appeals court’s ruling is allowed to stand, said Scott Ballenger, an attorney for Quanta.
The case began in 2000 when the Taiwanese companies were sued by South Korea-based LG Electronics Inc. for allegedly infringing several patents LG holds on computer chip technology.
LG had entered into a broad patent licensing agreement with Intel Corp., which then sold chips with LG’s technology to Quanta and other computer manufacturers. LG argues, however, that Intel’s license didn’t extend to the computer makers.
Once Quanta combined the chips with non-Intel components, by installing them into computers, they infringed five of LG’s patents, the Korean company said in court papers.
Lawyers for the Taiwanese companies, meanwhile, responded in court filings that once Intel sold the chips, LG’s patent had run its course under the legal doctrine of “patent exhaustion.” As a result, LG cannot enforce the patent against downstream purchasers, Quanta and the others said.
Richard Taranto, the attorney for LG, said in court filings that patent holders should, in a free market, be able to essentially break up the cost of a patent license by negotiating “separate payments at separate market levels.”
Otherwise, companies like Intel, who make components, would have to pay the full cost for a license, he wrote.
The Bush administration recommended that the justices take the case. The Court of Appeals for the Federal Circuit, which handles patent appeals, has undermined the patent exhaustion doctrine in several recent rulings, said Paul Clement, the Justice Department’s Solicitor General.
The justices have recently shown a high degree of interest in patent law and ruled on several prominent patent cases in the last term. In those cases, the court overturned the Federal Circuit’s rulings and reigned in what many legal experts say are excessive patent protections.