By Mark H. Anderson
Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- The U.S. Supreme Court on Monday ruled against LG Electronics Inc. (066570.SE) in its royalties dispute with Korean computer manufacturers, limiting the ability of companies to collect royalties after the first sale of a patented product.
In a unanimous opinion, the high court said that longstanding patent law precedent extends to method patents, which are often part of high-technology components and products.
"Because the exhaustion doctrine applies to method patents and because the license authorizes the sale of components that substantially embody the patents in suit, the sale exhausted all patents," Justice Clarence Thomas wrote.
At oral arguments, several justices had indicated they were concerned that LG, which holds computer chip and system patents used in Intel Corp. (INTC) products, was wrongly using federal patent law to leverage additional royalties from Quanta Computer Inc. (2382.TW) and several other companies.
The high court's decision overturns an earlier ruling by the Federal U.S. Circuit Court of Appeals, a special appeals court that hears patent cases.
At issue in the case was whether LG could sue to force the computer suppliers to pay royalties on components they legally purchased from Intel, even though Intel already paid royalties to LG in a technology licensing agreement.
Quanta Computer makes laptops for major U.S. computer sellers and is the only company sued by LG that hasn't settled. It is among several large Korean companies that bought computer components from Intel.
Quanta then assembled the components with non-Intel parts, a move LG says was not covered by the patent licenses it reached with Intel. LG sued the Korean companies for alleged patent infringement and the Federal Circuit Court agreed LG had the right under federal law to additional royalties.
The dispute began in 2000 and 2001 when LG sued the Korean companies for refusing to pay royalties. A federal trial judge ruled against LG, saying it had already exhausted its patent rights in the sales agreement with Intel. But the Federal Circuit Court in July 2006 said that LG could pursue patent claims against the Korean manufacturers.
The case is Quanta Computer Inc. v. LG Electronics, 06-937.
-By Mark H. Anderson, Dow Jones Newswires; 202-862-9254; mark.anderson@dowjones.com
(END) Dow Jones Newswires
June 09, 2008 10:41 ET (14:41 GMT)