The Supreme Court's QUANTA Decision: Non-Issue for QCOM

Implications: The investment community has been quietly waiting to see if the Supreme Court would decide the QUANTA case in a way that could disrupt QCOM's licensing practices.  But the decision turns out to be a complete non-event.  As long as QCOM is careful, it can continue to license its patents using the exact two-part pricing strategy it has employed for years.

Analysis: The media coverage was not quite sure what to say about the new Supreme Court QUANTA decision, but from both a QCOM perspective and from a broader business perspective, the reality is that QUANTA is a complete non-event.

Why?

Patent law has an exhaustion doctrine which says that the unconditional sale of a patented good by the patent owner serves to end the patent owner's rights vis-a-vis that sale.  So if I sell you my widget, and you then sell it to someone else, I can't sue that third person because my rights ended when I sold the widget to you.

In the QUANTA case, the facts are messier, but basically LG sold to Intel a patented widget and told Intel that it could resell to anyone. Yes, LG went on to tell Intel that, if it chose to resell to certain buyers, it should tell those buyers that they need to get a patent license. But the key point is that Intel was allowed to sell to anyone, and that right (the right to sell to anyone) triggered exhaustion.

QCOM (and most everyone else) writes its contracts better. A standard QCOM contract would likely say that a buyer of a patented component can resell that component but only to a buyer who himself has purchased a license from QCOM. Note the key difference in the contract language. QCOM allows resale only to the people who are themselves licensed, whereas LG (in the QUANTA case) allowed resale to anyone but reserved its right to sue the buyers. QCOM's approach does not trigger exhaustion under today's ruling, even though the LG approach does.

The real puzzle of the QUANTA decision, then, is why the Supreme Court even bothered.  After all, everyone from now on will just write their contracts the QCOM way and, in so doing, render the QUANTA decision meaningless.  As a matter of public policy, I'm fine with that.  Exhaustion is a silly rule, so long as buyers understand exactly what they are buying.  But still; the rhetoric of the Court's opinion seems to imply that exhaustion is an important rule that does real work.  Given how the decision ends up, however, it isn't and won't.