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Licensee’s Customers NOT Required to Pay Royalties

Exhausted patents
Still yield fruit in the future
For those who use them.

In a key decision late last month, the U.S. Supreme Court declined to hear the Tessera v. ITC et al patent infringement case, where the issues in dispute included the validity of the patent for a semiconductor packaging method, the licensing of said method, and patent exhaustion in relation licenses of the method. In 2007, Tessera had brought claims accusing 10 respondents of infringing on its patents for several methods of packaging semiconductor chips.

Tessera’s patent infringement and patent rights claims were not much in dispute, although Tessera did argue in support of both.  The key issues before the Court were when Tessera’s patent rights would be exhausted, and against whom could Tessera bring a claim.  Although the majority of respondents had licenses to sell the products, the relevant licenses all included a clause that said “Licensee is licensed only to Licensed Products for which Licensee or a third party has satisfied a royalty obligation of Tessera.” Tessera brought claims against product purchasers who had bought patented products from Tessera licensees.  The relevant licensees were not up-to-date on their royalties, and Tessera argued that during the time that royalties were unpaid, Tessera’s patent rights were not exhausted.

Tessera’s position that a licensee’s sale of a patented product was unauthorized if the licensor, in this case Tessera, had not received the royalties, was found to be “unpersuasive” by the Federal Circuit.  The court also said that Tessera should seek unpaid royalties from their licensees, not their licensees’ customers. The special provision in Tessera’s licenses, therefore, which requires licensees to pay royalties to avoid being held liable for patent infringement, did not create liability in either the licensees or subsequent users of the patented item. The Federal Circuit had held that permitting such clauses to stand would be “wholly inconsistent with the fundamental purpose of patent exhaustion—to prohibit post-sale restrictions on the use of a patented article.” Slip op. at 23.

Therefore, it is likely that with the US Supreme Court declining to hear the case, such clauses will not be of much use going forward.

NOTE: Additional findings of the Federal Circuit included no infringement by the wBGA products.  The Court affirmed the finding that none of the offered references anticipate the asserted claims of the ’106 patent, which had been appealed by the respondents. The court further held that due to the ’977 and ’627 patents expiring, the related infringement claims were moot.

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