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John McDermott Contact Information 919 Albany St. |
Preston v. Ferrer
U.S. Supreme Court Docket No. 06-1463
Oral Argument scheduled: January 14, 2008
Ferrer (seen on TV as "Judge Alex") contracted with Preston (an attorney) to represent him. The contract contained a “dispute settlement” provision requiring both parties to arbitrate any dispute arising out the contract, including the validity of the contract itself. When Preston commenced arbitration proceedings to collect fees for his services, Ferrer contended Preston was an unlicensed “talent agent” and as a result (1) their agreement was void under California law and (2) their dispute could only be resolved by California Labor Commissioner under California law. The California Court of Appeal agreed in a 2-1 decision; in doing so it distinguished a 2006 U.S. Supreme Court decision, Buckeye Check Cashing v. Cardegna, on the basis that it held that the Federal Arbitration Act prevented state courts from hearing disputes that the parties had agreed to resolve by arbitration while this case involves a state administrative agency with – under state law - exclusive jurisdiction over this dispute.
The California Talent Agencies Act (Lab. Code, § 1700 et seq.) regulates the activities of “talent agents” and provides that all disputes between a talent agent and his/her client can only be resolved by the Labor Commissioner. Ferrer contents that Preston is a “talent agent” while Preston maintains he was acting as a personal manager, not as a talent agent, and is, therefore, not subject to California Talent Agencies Act.
The fundamental issue at this stage of the dispute is who decides whether Preston is or is not a “talent agent.” While the facts are somewhat unique, the issue is a very common one: when the parties have contractually agreed to arbitrate a dispute but one party subsequently contends that the arbitration agreement is invalid – who makes that decision - the arbitrator – or a court?
Quanta Computer, Inc. v. LG Electronics, Inc.
Oral Argument: January 16, 2008
This case involves the patent exhaustion doctrine, a/k/a the first sale doctrine.
Under U.S. Patent Law, a patent gives the owner of the patent to right to prevent others from “making, using, selling or offering to sell” the patented device (thing) or process within the U.S. during the term of the patent. Any unauthorized use or sale of the patented device constitutes an infringement.
The exhaustion doctrine creates a rather unsurprising exception for one who has purchased or lawfully obtained the patented device from the patent owner. Were it not for this doctrine, a person who purchased a patented device from the patent owner (for example, a patented lawnmower) would infringe the patent if he tried to sell it at a “yard sale.” We seem to instinctively know – or assume – that we can use and resell any patented device we purchase. … and so we could until recently.
The economic justification for the “exhaustion doctrine” is that the patentee received a fair “bonus” (sometimes called “monopoly rent” for his/her invention when it was first sold. Obviously, the patentee would prefer to receive an additional payment (royalty) if the patented device is resold. It might justify this additional compensation because the subsequent sale might reduce its total sales. (The resale of the patented lawnmower – new or even used - might reduce the number of new patented lawnmowers the patent owner could sell.)
But could manufacturers sell patented lawn mowers with a valid and enforceable prohibition on their resale so that a purchaser could not resell them? Or, if that would conflict with the first sale doctrine, could the manufacture mere license the lawn mower - not “sell it” - with such a restriction?
That’s precisely what this case involves … but it’s microprocessors not lawnmowers that are being licensed.
LG Electronics owns patents on microprocessor chips used in personal computers. It licensed the patents to Intel but excluded from the license any Intel customer that combined a licensed Intel microprocessor chip with non-Intel components. Quanta purchased the patented microprocessor chips from Intel and used the chips to make computers for Dell, Hewlett-Packard, and Gateway. LG Electronics sued Quanta and its customers on the basis that they violated the “conditions” of Intel’s license and sale by not paying patent royalties to LG Electronics when they resold the patented chips as part of the computer.
The district court held that Intel's license exhausted LG Electronics patent royalty rights, basically on the theory mentioned above: once one link in the supply chain pays a royalty for a patented product the patent is exhausted and no other link in the chain must pay a royalty for the same patent.
But the U.S. Court of Appeals for the Federal Circuit reversed the decision. It conceded that under existing precedent an unconditional sale creates patent exhaustion but emphasized that the sale in this case was expressly conditional. This decision follows other Federal Circuit decisions which have allowed patentees to creatively avoid the “first sale” or patent exhaustion” doctrine.
Not surprisingly, this case has attracted a great deal of interest within the industry and beyond. Amicus briefs have been filed by numerous interested parties, including the Solicitor General of the United States who contends that “the first-sale doctrine has evolved in the Federal Circuit in a manner that is materially different from the doctrine expounded by this Court (which) has downgraded this Court's substantive limitation on a patent owner's exclusive rights into a mere default rule that the patentee can override by placing "conditions" on the sale of his patented invention.”