LG Electronics (LGE) sued Quanta Computer and other computer manufacturers for the alleged infringement of its patents. LGE gave permission to Intel to sell its microprocessors and chips to third-party computer manufacturers like Quanta. However, Intel agreed to inform the purchasers that they were not allowed to combine the Intel processors and chips with any other non-Intel components, because this would violate LGE's patents for such combinations. LGE alleged that Quanta's combining of Intel processors with other parts in its computers infringed on LGE's combination patents. The trial court dismissed LGE's claims, holding that LGE's patent rights to the combinations had been "exhausted," meaning that when LGE sold the patents for the processors and chips to Intel, its ability to control their subsequent use had ended.
The Federal Circuit Court of Appeals reversed the trial court's decision, holding that the exhaustion doctrine only applies to unconditional sales of patented devices. The agreement between LGE and Intel expressly prohibited subsequent purchasers of Intel's licensed components from combining the components with non-Intel parts. LGE therefore did not sell its patents to Intel in their entirety, but instead only sold the rights to use the patents in a specified manner. Therefore, Intel's sale of parts to Quanta was conditional on not infringing LGE's combination patents, and the exhaustion doctrine did not apply.
Whether the Federal Circuit erred by holding, in conflict with decisions of this Court and other courts of appeals, that respondent's patent rights were not exhausted by its license agreement with Intel Corporation, and Intel's subsequent sale of product under the license to petitioners.