PublishedNovember 15, 2007

Appeals Court Patent Ruling Could Hamstring Tech Markets, Cause Consumer Uncertainty, CCIA Tells Supreme Court

Patent holders should not be able to demand royalties from all subsequent buyers once a product is sold into the stream of commerce, the Computer & Communications Industry Association argued in a friend-of-the-court brief before the Supreme Court.

In documents filed earlier this week, CCIA attorneys urged the high court to invalidate so-called “conditional sales” that would give patent rights holders the ability to seek for royalties long after a sale was otherwise complete. For example, under the rule adopted by the lower court, a patent holder can “conditionally” sell a patented component of a product, and then seek patent royalties from subsequent purchasers, such as the product vendor, retailer, and even the end-user. Such arrangements eviscerate long-standing legal precedent and threaten the well being of the high-tech sector, CCIA’s brief argued, which depends on predictable transactions and the recombination of technologies long after the initial sale.

“In the long term, the rule will create a shadow economy of permissions that advantage opportunists, especially those who own patents outside their core business and so have little need to cooperate in promoting stable and predictable markets in those areas,” CCIA wrote. “It will disrupt and skew the entire business ecology of the IT sector to favor upstream patent interests at the expense of assemblers, integrators, vendors, and end users and likely return the world to a less efficient economy based on vertical integration and stovepiped products and services that do not interoperate.”

The filing in the case of Quanta Computer Inc v. LG Electronics can be found here.

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