Lg Electronics, Inc. v. Bizcom Electronics, Inc.

• Decision Date: 07 July 2006
• Docket Number: No. 05-1304.,No. 05-1302.,No. 05-1262.,No. 05-1261.,No. 05-1263.,No. 05-1264.,No. 05-1303.,05-1261.,05-1262.,05-1263.,05-1264.,05-1302.,05-1303.,05-1304.
• Citation: 453 F.3d 1364
• Parties: LG ELECTRONICS, INC., Plaintiff-Appellant, v. BIZCOM ELECTRONICS, INC., Compal Electronics, Inc., and Sceptre Technologies, Inc., Defendants-Cross Appellants, and Everex Systems, Inc., Defendant-Appellee, and First International Computer Inc. and First International Computer of America, Inc., Defendants-Cross Appellants, and Q-Lity Computer, Inc., Quanta Computer, Inc., and Quanta Computer USA, Inc., Defendants-Cross Appellants.
• Court: U.S. Court of Appeals — Federal Circuit

453 F.3d 1364

LG ELECTRONICS, INC., Plaintiff-Appellant, v. BIZCOM ELECTRONICS, INC., Compal Electronics, Inc., and Sceptre Technologies, Inc., Defendants-Cross Appellants, and Everex Systems, Inc., Defendant-Appellee, and First International Computer Inc. and First International Computer of America, Inc., Defendants-Cross Appellants, and Q-Lity Computer, Inc., Quanta Computer, Inc., and Quanta Computer USA, Inc., Defendants-Cross Appellants.

No. 05-1261.

No. 05-1262.

No. 05-1263.

No. 05-1264.

No. 05-1302.

No. 05-1303.

No. 05-1304.

United States Court of Appeals, Federal Circuit.

July 7, 2006.

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Richard G. Taranto, Farr & Taranto, of Washington, DC, argued for plaintiff-appellant. On the brief was Michael J. Schaengold, Patton Boggs LLP, of Washington, DC.

William J. Anthony, Jr., Orrick, Herrington & Sutcliffe LLP, of Menlo Park, California, argued for defendants-cross appellants Bizcom Electronics, Inc., et al. With him on the brief were Eric L. Wesenberg, Kaiwen Tseng, Matthew J. Hult and Rowena Y. Young.

Joseph L. Strabala, Law offices of Joseph L. Strabala, of San Francisco, California for defendant-appellee Everex Systems, Inc., joined in the co-defendants' briefs.

Ronald S. Lemieux, Paul, Hastings, Janofsky & Walker LLP, of Palo Alto, California for defendants-cross appellants First International Computer, Inc., et al. Of counsel on the brief was James M. Smith, Squire, Sanders & Dempsey L.L.P., of Palo Alto, California.

Terry D. Garnett, Paul, Hastings, Janofsky & Walker LLP, of Los Angeles, California for defendants-cross appellants Q-Lity Computer, Inc., et al. With him on the brief were Vinent K. Yip, Maxwell A. Fox, Peter J. Wied, Sang N. Dang and Jay C. Chiu. Of counsel was Jeffrey D. Mills, Fulbright & Jaworski L.L.P., of Austin, Texas.

Joel E. Lutzker, Schulte Roth & Zabel LLP, of New York, New York, for amicus curiae Minebea Co., Ltd. With him on the brief were David H. Kagan and Richard Chern.

Steven E. Feldman, Welsh & Katz, Ltd., of Chicago, Illinois, for amicus curiae Papst Licensing GmbH & Co. KG.

Before MICHEL, Chief Judge, NEWMAN, and MAYER, Circuit Judges.

MAYER, Circuit Judge.

LG Electronics, Inc. ("LGE") appeals from the final judgment of the United States District Court for the Northern District of California, which granted summary judgment of non-infringement of U.S. Patent Nos. 4,918,645; 5,077,733; 4,939,641; 5,379,379; and 5,892,509 in favor of Bizcom Electronics, Inc.; Compal Electronics, Inc.; Sceptre Technologies, Inc.; First International Computer, Inc.; First International Computer of America, Inc.; Q-Lity Computer, Inc.; Quanta Computer, Inc.; Quanta Computer USA, Inc.; and Everex Systems, Inc. (collectively "defendants"). LG Elecs., Inc. v. Ausustek Computer, Inc., Nos. C-01-1375, -1552, -1594, -2187 (N.D.Cal. Jan. 31, 2005); LG Elecs., Inc. v. Ausustek Computer, Inc., Nos. C-01-1375, -1594, -2187, -1552 (N.D.Cal. Nov. 30, 2004); LG Elecs., Inc. v. Asustek Computer, Inc., 248 F.Supp.2d 912 (N.D.Cal.2003); LG Elecs., Inc. v. Ausustek Computer, Inc., Nos. C-01-326, -1375, -1594, -2187, -1552 (N.D.Cal. Aug. 20, 2002) ("Intel I"). LGE also appeals and defendants cross appeal various claim construction rulings by the trial court. LG Elecs., Inc. v. Ausustek Computer, Inc., Nos. C-01-00326, -01375, -01594, -02187, -01552 (N.D.Cal. Aug. 20, 2002) ("Claim Construction Order"). Defendants First International Computer, Inc.; First International Computer of America, Inc.; Q-Lity Computer, Inc.; Quanta Computer, Inc.; and Quanta Computer USA, Inc. also cross appeal the denial of summary judgment based on their implied license defense. LG Elecs., Inc., 248 F.Supp.2d 912.

Background

LGE is the owner of patents relating to personal computers, including U.S. Patents Nos. 4,918,645 (disclosing systems and methods that increase the bandwidth efficiency of a computer's system bus); 5,077,733 (claiming, in relevant part, a method that controls the access of a device to a bus shared by multiple devices); 4,939,641 (claiming, in relevant part, a system for ensuring that outdated data is not retrieved from memory); 5,379,379 (claiming a system and method for ensuring that outdated data is not retrieved from memory); and 5,892,509 (claiming networked computers capable of sharing certain video images). LGE sued defendants alleging infringement of these patents.

Defendants purchase microprocessors and chipsets from Intel or its authorized distributors and install them in computers. Intel is authorized to sell these products to defendants under an agreement with LGE. However, pursuant to this agreement, Intel notified defendants that, although it was licensed to sell the products to them, they were not authorized under that agreement to combine the products with non-Intel products. LGE brought suit against defendants, asserting that the combination of microprocessors or chipsets with other computer components infringes LGE's patents covering those combinations. LGE did not assert patent rights in the microprocessors or chipsets themselves.

After construing the patent claims, the trial court granted summary judgment of noninfringement of each patent. It determined that there was no implied license to any defendant, but that, with the exception of the '509 patent, LGE's rights in any system claims were exhausted. The court also found that LGE was contractually barred from asserting infringement of the '509 patent against defendants. It found the '645, '733, and '379 patents not infringed after applying its claim construction to the accused methods and devices. We have jurisdiction under 28 U.S.C. § 1295(a)(1).

Discussion

"We review the trial court's grant of summary judgment without deference, reapplying the same standard as the trial court." Lacavera v. Dudas, 441 F.3d 1380 (Fed.Cir.2006) (citing Star Fruits S.N.C. v. United States, 393 F.3d 1277, 1281 (Fed. Cir.2005)). Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). We review claim construction de novo. Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1456 (Fed.Cir.1998) (en banc).

I. Implied License¹

"In a suit for patent infringement, the burden of proving the establishment of an implied license falls upon the defendant." Bandag, Inc. v. Al Bolser's Tire Stores, Inc., 750 F.2d 903, 924 (Fed. Cir.1984) (citing Bassick Mfg. Co. v. Adams Grease Gun Corp., 54 F.2d 285, 286 (2d Cir.1931)). To prevail, defendants were required to establish that the products have no noninfringing uses and that "the circumstances of the sale ... `plainly indicate that the grant of a license should be inferred.'" Met-Coil Sys. Corp. v. Korners Unlimited, Inc., 803 F.2d 684, 686 (Fed.Cir.1986) (quoting Bandag, Inc., 750 F.2d at 925). The trial court found, and we agree, that Intel's sales of its licensed products to defendants do not warrant the inference of a license with respect to the asserted patents. Regardless of any noninfringing uses, Intel expressly informed them that Intel's license agreement with LGE did not extend to any of defendants' products made by combining an Intel product with non-Intel products. In light of this express disclaimer, no license can be implied.

II. Patent Exhaustion

The patents asserted by LGE do not cover the products licensed to or sold by Intel; they cover those products when combined with additional components. The trial court, nevertheless, found that the system claims in all patents except the '509 patent were exhausted, but that the exhaustion doctrine did not apply to the method claims. We reverse the trial court's holding with respect to the system claims and affirm with respect to the method claims.

It is axiomatic that the patent exhaustion doctrine, commonly referred to as the first sale doctrine, is triggered by an unconditional sale. See Mitchell v. Hawley, 16 Wall. 544, 83 U.S. 544, 547, 21 L.Ed. 322 (1873). "[A]n unconditional sale of a patented device exhausts the patentee's right to control the purchaser's use of the device thereafter. 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. This exhaustion doctrine, however, does not apply to an expressly conditional sale or license. 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." B. Braun Med. Inc. v. Abbott Labs., 124 F.3d 1419, 1426 (Fed.Cir.1997) (discussing Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700, 708 (Fed.Cir.1992)) (emphasis added and citations omitted).

There are two sales at issue here. First, prior to this litigation, LGE granted Intel a license covering its entire portfolio of patents on computer systems and components. This transaction constitutes a sale for exhaustion purposes. See United States v. Masonite Corp., 316 U.S. 265, 278, 62 S.Ct. 1070, 86 L.Ed. 1461 (1942). Second, with LGE's authorization, Intel sold its microprocessors and chipsets to each defendant. Notably, this sale involved a component of the asserted patented invention, not the entire patented system.

The trial court issued two orders on patent exhaustion. The first is unclear about which sale the court relied upon in holding LGE's system patent rights exhausted with respect to defendants, but we understand it to be LGE's license to Intel. Intel I at 9-10. However, the second order, which reaffirmed the first, clearly relied on Intel's sale of its microprocessors and chipsets to defendants as the exhausting sale. LG Elecs., Inc., 248 F.Supp.2d at 917. In finding the unconditional sale requirement satisfied, the court concluded that...