Quanta Brief (John Gallagher)

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Appellate Brief by Aerotel (on Behalf of LG Electronics)

   In the CAFC, it was ruled that the LGE patents were not exhausted by the sale of the Intel made products under these patents to Quanta Computer.  Therefore, LG had the right to limit the way in which the components were used by Quanta, including prohibiting them from combining the Intel made components with other non-Intel components.  
   In this brief, Aerotel argues that the holder of a patent can exercise rights over a patented product in the hands of a downstream user under certain conditions.  The patent is exhausted only if the maker sells the product unconditionally.  In this case however, LG imposed restrictions on the way in which Intel could sell the products, preventing exhaustion.
   Aerotel also argues that the theory of exhaustion requires that the holder of the patent has received the full value of the goods in the sale.  In this case, there is no way that LG could bargain for and receive the full value for the licenced goods because it is impossible to predict the value of the products as they are sold further downstream.  They only way in which LG could receive the full value for its patents is to separately licence Intel's customers to use the products.   It would be impossible to obtain the full value of the patent from the Intel licence agreement only, because the full value is unknown until the product reaches the downstream market.  
   Exhaustion should not apply, therefore, in the case in which the patentee forgoes monetary compensation for his patent, and instead reserves the rights over the patented products against downstream users.