WASHINGTON (AP) --
The Supreme Court will hear oral arguments Wednesday in a patent case that could have significant ramifications for computer makers and other industries with global supply chains. The case was brought by Quanta Computer Inc., a Taiwanese computer maker, which has accused a South Korean rival of using its patents in an effort to "shake down the entire computer industry for several billion dollars in duplicative licensing fees."
At issue is whether a patent holder can seek royalties from multiple companies as a patented product works its way through the manufacturing process
The case began in 2000 when Quanta and several other Taiwanese companies were sued by South Korea-based LG Electronics Inc. for allegedly infringing three patents LG holds on computer-chip technology. Except for Quanta, the other Taiwanese firms have since settled with LG.
LG had entered into a broad patent licensing agreement with Intel Corp., which then sold chips with LG's technology to Quanta and other computer manufacturers. LG argues, however, that Intel's license didn't extend to the computer makers and Quanta should pay an additional royalty.
Otherwise, once Quanta combines the chips with non-Intel components by installing them into computers, they infringe LG's patents, the Korean company said in court papers.
Lawyers for Quanta, meanwhile, responded in court filings that once Intel sold the chips, LG's patent had run its course under the legal doctrine of "patent exhaustion." As a result, LG cannot enforce the patent against downstream purchasers, Quanta said.
Quanta is the world's largest contract manufacturer of laptop computers. Many U.S. computer makers, such as Hewlett-Packard Co. and Dell Inc., outsource the assembly of their computers to Quanta and other Taiwanese firms.
The two U.S. companies, along with Cisco Systems Inc. and eBay Inc., filed court papers in support of Quanta. They argued that a federal appeals court decision in 2006, which sided with LG, would allow the South Korean company to eventually seek additional royalties from them.
The case has divided patent lawyers. Some argue that companies should be able to seek royalties from multiple parties to reap the full value of their invention. The full value may not be apparent until components such as computer chips are installed into products such as computers, cell phones and other electronics, they argue.
But Robert Kovelman, a lawyer at Steptoe and Johnson, said allowing companies to seek payments along the manufacturing process is a competition stifler that "increases the burden" on companies throughout a supply chain.
The case is Quanta Computer Inc. v. LG Electronics Inc., 06-937. Oral argument is scheduled to begin at 10 am.
