Facts of the Case

LG Electronics owned patents for a group of products, including microprocessor chips used in personal computers. It licensed the patents to Intel, but in a well-publicized separate agreement excluded from the license any Intel customer that integrated the chip with non-Intel components. One purchaser disregarded the agreement and used the chips in computers made for Dell, Hewlett-Packard and Gateway. LG Electronics sued those who passed the chips down the line of commerce to companies that had not purchased licenses.

Question

May a patent holder seek royalties from companies other than its direct purchaser as the patented product is integrated into larger components during the manufacturing process?

Conclusion

The Court concluded unanimously that it could not. Writing for the Court, Justice Clarence Thomas relied on the theory of "patent exhaustion," which provides that a patented item's initial authorized sale terminates all patent rights to that item, denying LGE royalties from companies down the line of commerce.