The Supreme Court decided Quanta v. LGE on June 9, 2008, marking the first time the Court had addressed the topic of patent exhaustion in sixty-six years. This paper provides an in-depth analysis of the law of patent exhaustion and analyzes the holding in Quanta in the context of past Supreme Court jurisprudence. In determining when a patent may be exhausted by the sale of a component embodying that patent, Quanta merely followed the test first enunciated by the Court decades ago. Although the Supreme Court in Quanta did determine for the first time that process patents can be exhausted, that conclusion also followed directly from the test for components.
This paper also applies an in-depth analysis of Supreme Court jurisprudence to elucidate questions that Quanta left wide open—to what extent a patent owner can contract around the principles of exhaustion, and what types of remedies are available to those patent owners. The prior case law shows that license restrictions that are within the scope of patent rights have always been allowed. License restrictions that are not within the scope of patent rights, however, are considered patent misuse; attempts to contract around exhaustion through these impermissible restrictions are ineffective, and patent exhaustion applies. Finally, this paper argues that the distinction between restrictions on sale and restrictions on use is likely untenable, and it proposes a rule to determine whether remedies are available in patent law, contract law, or neither.