Negotiate License Agreements Carefully
Years ago Intel licensed a set of patents from Korean giant LG. For some strange reason, Intel obtained a license for itself, but the license expressly does not extend to Intel's customers. (Go figure). LG later sued a host of computer manufacturers who were using Intel's chips.
The defendants, who won at the district court, argue that LG has lost any claim under the first sale doctrine, which holds that an unrestricted, authorized sale of a patent product extinguishes the patent owners right to control the product. The Court of Appeals for the Federal Circuit reversed finding that the license agreement had restrictions and thus the first sale doctrine did not apply. Pargmatically, the Federal Circuit noted that Intel got a lower price for the license by including limitations and only gets what it paid for.
The Supreme Court has now asked the Solicitor General to comment on the first sale doctrine and patent exhaustion. This strongly indicates that the Supreme Court is ready for another patent case.
The prolonged fiasco demonstrates how important it is to draft agreements carefully and not to try and rely on nuance to save yourself later. I am often asked by a client not to put something unambiguously in a contract because the opposing party might object. If you try to play gotcha after the fact there are two certainties. One, you will lose your credibility with others. Utah already has a bad reputation for business people trying to pull a fast one. Second, you are likely to pay whatever advantage you gained to your attorneys when the contract ends up in litigation. You might lose the litigation as well, and end up paying even more.
Know what you want in a license agreement or any other contract, state it clearly and live with it. In the long run, you will be far better off.
The defendants, who won at the district court, argue that LG has lost any claim under the first sale doctrine, which holds that an unrestricted, authorized sale of a patent product extinguishes the patent owners right to control the product. The Court of Appeals for the Federal Circuit reversed finding that the license agreement had restrictions and thus the first sale doctrine did not apply. Pargmatically, the Federal Circuit noted that Intel got a lower price for the license by including limitations and only gets what it paid for.
The Supreme Court has now asked the Solicitor General to comment on the first sale doctrine and patent exhaustion. This strongly indicates that the Supreme Court is ready for another patent case.
The prolonged fiasco demonstrates how important it is to draft agreements carefully and not to try and rely on nuance to save yourself later. I am often asked by a client not to put something unambiguously in a contract because the opposing party might object. If you try to play gotcha after the fact there are two certainties. One, you will lose your credibility with others. Utah already has a bad reputation for business people trying to pull a fast one. Second, you are likely to pay whatever advantage you gained to your attorneys when the contract ends up in litigation. You might lose the litigation as well, and end up paying even more.
Know what you want in a license agreement or any other contract, state it clearly and live with it. In the long run, you will be far better off.
It just seems like roulette. If you are a small business and trying to rely on nuance to save you, I would imagine that the other [big] side is relying on the cost of litigation to kill you. Both sides are playing a nasty game.
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