The high watermark of patent trolling receding?

The US Supreme court has overturned a lower court ruling that let South Korea's LG Electronics double-dip on royalty licensing.

In a unanimous decision today, the court favored Taiwan's Quanta Computers, delivering a ruling that will limit a patent holder's ability to collect royalties from companies at different stages of the production process.

The case reverses a previous Federal appeals circuit decision on patent exhaustion. The high court agreed to review the licensing dispute last September at the urging of the Bush administration.

LG had licensed a set of patents to Intel for use in its chips and chipsets, but the agreement specifically barred Intel from mixing the technology with components from other manufacturers.

Intel then sold the chipsets to PC manufacturers such as Quanta — which in turn used the chipsets to make computers for vendors such as Dell and Hewlett-Packard.

LG sued Quanta in 2000, accusing the manufacturer of infringing on three patents because computers with the Intel chipsets also had kit from other companies.

A US District Court in California ruled in Quanta's favor, but an appellate court overturned the decision. The Bush administration then urged the Supremes to take the case on grounds the ruling went too far in letting patent holders extract royalties from down-stream companies.

The high court ruling today said LG couldn't extract royalties from Quanta because the initial sale to Intel had "exhausted" LG's ability to control how the technology was used.

Unfortunately, the Court did not take the opportunity to issue a broad ruling on whether other sorts of labels, or licenses, or contracts might be enough to defeat the patent exhaustion doctrine. So the Court's ruling leaves the door open for patent owners to experiment with these tactics, all in a continuing effort to transform purchases into "conditional sales" and stick consumers with restrictions on post-sale activities, such as resale (as we've seen in cases like UMG v. Augusto and Vernor v. AutoDesk in the copyright context), reuse (as we've seen in the case involving Lexmark's "not for refill" printer cartridges), repair, and modification, among other things.