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Consumer groups urge Supreme Court to curb patent power

Selling second-hand patented goods should not be illegal

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The US Supreme Court has been urged not to make it illegal to sell second-hand patented goods. Digital rights activists have begun a campaign to keep a buyer's right to sell on used goods.

The part of US patent law that allows an owner of a computer or camera to sell it after use is called patent exhaustion. It restricts the right of a patent holder to stop the sale of goods containing their patented inventions so it only applies to the first sale of goods to consumers.

The case in question is between Quanta Computer and LG Electronics and concerns the use of labels on products stipulating that the product is "not for resale" or "single use only".

Digital rights group the Electronic Frontier Foundation (EFF) and consumer advocacy body Consumers Union have filed a brief to the Supreme Court supporting the restriction on patent law that the patent exhaustion principle creates.

"In the words of this court, 'in the essential nature of things, when the patentee, or the person having his rights, sells a machine or instrument whose sole value is in its use, he receives the consideration for its use and he parts with the right to restrict that use'," said the document filed to the Supreme Court.

"Consequently, according to a century old line of supreme court and lower court precedents, when a consumer purchases a patented product, that consumer owns it outright, and the patent owner may not thereafter invoke patent law to restrict its post-sale use, repair, or resale," it said.

The EFF said a ruling in the early 1990s from a federal circuit court in a case involving a healthcare company Mallinckrodt called the patent exhaustion principle an 'implied licence', which opened the door to a greatly increased number of stickers on products which attempted to restrict consumers' use of products they had bought.

It said the existence of vibrant markets for second-hand goods such as eBay or Craigslist meant such attempts to hamper second hand sales affected consumers greatly.

"By empowering patent owners to conjure what amount to servitudes that run with patented goods, the federal circuit has impermissibly and unwisely expanded patent scope by judicial fiat," said the document.

The case centres on wholesale computer maker Quanta's use of Intel chips that in turn used LG Electronics' technology. LG had licensed the technology to Intel, which sold chips to Quanta, which built PCs for Dell, Hewlett-Packard, and others.

LG then sued Quanta for patent infringement for its use of LG technology in the machines. "LG's effort here is just one example of the mischief that unleashed by Mallinckrodt ushering in an era of chattel servitudes backed by patent law," said the EFF submission.

"The patent exhaustion doctrine allows consumers to trust that the ordinary use, repair, and resale of the tangible goods they purchase will not give rise to an infringement suit at the hands of the patentee who sold it to them."

The brief submitted to the court said undermining patent exhaustion tipped the balance of power away from consumers. "By disregarding more than a century of patent exhaustion precedent and legislative acquiescence, the federal circuit has worked an unsupportable judicial expansion of the scope of the patent monopoly. With this expansion of patent scope will come a net wealth transfer from consumers to patent owners," it said.

See: The brief to the Supreme Court (28 page/123KB PDF)

Copyright © 2007, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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