US Supreme Court Limits Patent Claims

Aire Libre and other readers noted a unanimous Supreme Court decision that denied LG Electronics's attempt to evade the first-sale doctrine by use of "business method" patents. LG licensed patents to Intel, then attempted to dictate what use Intel's customers could make of the Intel products incorporating LG patents. The decision (PDF) notes how easily patents can be written up as "business methods" to nullify the first-sale doctrine ("exhaustion") and to give the patent owner perpetual control downstream. Aire Libre adds, "That reasoning bodes well for copyright freedom as well, in light of the growing number of copyright holders who seek to nullify the Copyright Act's limitation on the distribution right by claiming the goods are 'licensed, not sold,' or subject to some restrictive EULA."

Re:It doesn't bode anything for copyright

[taustin]

The "first sale doctrine" has already been used to kill attempts by copyright holders to limit downstream use. The rulings have been consistently correct. The general reasoning, as was used in Softman V. Adobe [wikipedia.org] is that if A) there is a one time fee, and not ongoing payments, and B) use is unlimited, not time limited, it is a "sale of goods" not a license. And if it is a sale of goods, then the first sale doctrine applies, and that's that.

It may vary somewhat from state to state, but for the most part, the Uniform Commercial Code [cornell.edu] is the standard for all state laws that will determine whether software is sold as a sale of goods or licensed. And being a copyright issue, this will generally be decided in federal court anyway.

This ia a good ruling, but for anyone who pays attention, not a big surprise.

Re:That's strange

[raehl]

Er, like their ruling that drastically reduced cases where an injunction was appropriate, this taking away the big injunction stick from patent trolls?

http://www.infoworld.com/article/06/05/15/78316_HNebaypatent_1.html?source=rss&url=http://www.infoworld.com/article/06/05/15/78316_HNebaypatent_1.html [infoworld.com]

Decision depends on license and on what was sold

[waterbear]

It clearly seems like LG was in the wrong here, but this was a case where both parties actually produce and sell goods using the patents they own. Has the US Supreme Court had anything to say about the numerous cases involving patent squatters/submarine patents? That seems like it ought to be a more serious issue.

If you look at the Supreme Court's decision (http://www.supremecourtus.gov/opinions/07pdf/06-937.pdf [supremecourtus.gov]) it will be clear how it turns, first, on whether the patent license to Intel permits Intel to sell goods that practice the patents, and second, did the goods sold by Intel practice the patents. The answer to both questions was yes, triggering the application of the doctrine of exhaustion of patent rights with respect to the product that was sold. That was true even where the patent had method claims, and when those would not be completely practiced until the sold product was combined with other components. The rationale for that aspect was that the sold items practiced the patent by embodying all of the inventive matter and having in practice no other use except to practice the patent: the components left to be added were standard stuff, while all of the inventive content was in the items sold.

None of that depended in any way on the question whether the patent licensor engaged in manufacture on its own account. The court did not need to consider that. So the decision clearly applies to patent holders who grant licenses to others to sell patented products, irrespective of whether the licensors themselves do manufacturing or not.

-wb-

This is not about "Business Methods"

[tkohler]

This is about "method" patents, not only "business method" patents. The SCOTUS maintained that the first sale doctrine applies to method patents as well. This is a big deal for industries with complex supply chains where an end product (like a laptop) has components that have passed through many hands. In the same way that a patent holder of a surface mount resistor can't charge a royalty to the PC brand if they already charged the mother-boardmaker, a holder of a method patent for example, a "method of caching operations in a processor", cannot charge a royalty to everyone who buys and sells the product. The licensors are left with the decision to pick where in the value chain to insert their bite, at the low end where their value added is great but profits are lower, or higher up where the profits are higher but the contribution of the invention is diluted. IANAL

EFF's Lessig endorsed Obama long ago.

[thtrgremlin]

http://www.lessig.org/blog/2008/02/20_minutes_or_so_on_why_i_am_4.html [lessig.org]

A 20 minute video done by Lawrence Lessig on why he supports Obama. Would it be too much to consider that the endorsement of the Electronic Freedom Foundation?

That does give me some comfort over some of the things that REALLY concern me over Obama as mentioned above.

Re:It doesn't bode anything for copyright

[mr_matticus]

This is, yet again, an overbroad reading of the state of the art. The sale of goods is a component and applies to the transaction, but it does not preclude a license to the software as well. In fact, the opinion in the very case you cite reflects that. The EULA does not apply to the distributor because the package was never opened--the distributor has every right to move the box as it likes consistent with DFS.

This has exactly zero bearing on whether the software is licensed to users (it is, and this too is established law). Of note: "Adobe frames the issue as a dispute about the ownership of intellectual property. In fact, it is a dispute about the ownership of individual pieces of Adobe software. Section 202 of the Copyright Act recognizes a distinction between tangible *1085 property rights in copies of the work and intangible property rights in the creation itself.FN11 In this case, no claim is made that transfer of the copy involves transfer of the ownership of the intellectual property within." 171 F. Supp. at 1084. This means that transfer of the medium is not governed by a copyright license. This fundamental error in Adobe's argument is the nexus of the case, not the false dichotomy of "sale or license" (where in fact, most transactions are both as respecting different element). This may seem a complicated legal construct, but it is actually one designed to preserve broad rights for non-rightsholders.

The distributor buys a box. They sell the box. It is a transaction in goods. Whether or not the goods contain a license in effect with a third party is immaterial. The ruling does not suggest anything with regard to software being "sold" to end users to the exclusion of license terms, nor does it speak in the least to the enforceability of EULAs (again, an issue specifically not addressed in Softman. In fact, the EULA itself is used to support the sale of goods determination with regard to the distributor: "However, the existence of this notice on the box cannot bind SoftMan. Reading a notice on a box is not equivalent to the degree of assent that occurs when the software is loaded onto the computer and the consumer is asked to agree to the terms of the license." Pages would not be dedicated to something viewed to have no weight.

Re:It doesn't bode anything for copyright

[harlows_monkeys]

Don't forget ProCD v. Zeidenberg [wikipedia.org], though, which upheld shrinkwrap licenses.

Re:It doesn't bode anything for copyright

[russotto]

The reason this doesn't mean anything for copyright freedom (at least in the way the summary suggests) is that the "licensed vs sold" distinction isn't as great as it might seem. You own the physical copy you buy, but you have to have a license to make copies of that. When you run software in (or install software on) a computer the computer makes copies, and you need a licence to do that. This is really not legally controversial.

You're right, it's not, not in the US. 17 USC 117(a) states specifically that if you own a copy of a piece software, further copies you make in order to use that software do not require a license.