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									1036                  655 FEDERAL SUPPLEMENT, 2d SERIES

ed suspicion for detaining the Defendant.        best when he testified: ‘‘I don’t know who
The Court finds suspect the Government’s         Miranda is.’’ According to the facts pre-
proposition that the ammunition being            sented to this Court, there is no reason he
quickly placed in a bag was suspicious.          should, but he should have been made
The Court is unaware that there are legiti-      aware of Miranda.
mate or illegal ways of placing items in a
bag, especially when there is no evidence
of furtive conduct, i.e. looking around as
the ammunition is placed in the bag. The           It is the recommendation of this Court
Court also expresses some disbelief that a       that the District Judge, after his indepen-
person who purchases something at a ven-         dent review and consideration, enter an
ue or goes in for a specific purpose is          Order GRANTING Defendant’s Motion to
required to remain at that venue for an          Suppress Evidence and Statements [Doc.
undetermined ‘‘legitimate’’ period of time.      13].
This rule does not seem to apply at gas            Pursuant to 28 U.S.C. § 636(b)(1)(B),
stations, grocery stores, firearms stores, or    the parties have ten (10) days from the
public restrooms. In this Court’s experi-        date of this Report and Recommendation
ence, a person goes somewhere to pur-
                                                 to file written objections to these findings
chase an item, purchases it, and then
                                                 and recommendations with the District
                                                 Court. Any objections filed should be filed
   The Government has cited a number of          as CR 09–00231–TUC–RCC.
cases that allow very restrictive measures
pursuant to stops based on founded suspi-
cions. These cases do not apply to sei-
zures on something less than founded sus-
picion. Agent Celaya had a hunch, and
nothing more. A hunch does not justify
the activity that took place in this instance.
   This situation could have gone much dif-
ferently if Agent Celaya had a little more         LG ELECTRONICS, INC., Plaintiff
respect for the Fourth Amendment and                 and Counterclaim Defendant,
had used his head more thoughtfully. For                              v.
example, Agent Celaya could have dis-
played his badge; the Defendant could            HITACHI, LTD.; Hitachi America, Ltd;
have rolled down his window; Agent Cela-          Hitachi Data Systems Corporation;
ya could have asked the Defendant if he           and Hitachi Computer Products
lived in Mexico; the Defendant might have         (America), Inc., Defendants and Coun-
said yes. Probable cause would have been          terclaimants.
established and the occupants could then                    No. C 07–6511 CW.
be removed from the minivan, the engine
turned off, and the keys taken. Instead,               United States District Court,
Agent Celaya effectively placed Defendant                    N.D. California.
under arrest without probable cause, failed
to advise him of his rights, and turned him                   March 13, 2009.
over for questioning to Agent Wayas with-        Background: Owner of computer device
out telling him that the Defendant had not       and method patents filed patent infringe-
been Mirandized. The Defendant said it           ment action against computer manufactur-
                     LG ELECTRONICS, INC. v. HITACHI, LTD.                               1037
                            Cite as 655 F.Supp.2d 1036 (N.D.Cal. 2009)

ers. Manufacturers moved for partial sum-         method patents held by patentee was ‘‘au-
mary judgment.                                    thorized’’ by patent holder, and had effect
Holdings: The District Court, Claudia             of exhausting patent holder’s patents,
Wilken, J., held that:                            even if some inventive aspects of patents-
(1) patentee was not collaterally estopped        in-suit were not practiced by components
    from asserting that computer chips            manufactured by licensee, where patentee
    manufactured by its licensee did not          alleged that fact that accused products
    substantially embody its patents;             contained components manufactured by li-
(2) licensee’s sale of component computer         censee in combination with other standard
    parts that substantially embodied             components was sufficient to demonstrate
    method patents had effect of exhaust-         infringement.
    ing patent holder’s patents;                  5. Patents O191
(3) licensee’s foreign sales were sufficient           Licensee’s foreign sales of products
    to exhaust patentee’s rights; and             substantially embodying method patent
(4) patentee’s grant of license constituted       were sufficient to exhaust patent holder’s
    ‘‘sale’’ for exhaustion purposes.             rights, where licensee’s foreign sales were
Motion granted.                                   specifically authorized by worldwide li-
                                                  cense agreement.
1. Patents O191                                   6. Patents O191
    Authorized sale of article that sub-                Patent holder’s grant of license cover-
stantially embodies patent exhausts patent        ing its entire portfolio of patents on com-
holder’s rights.
                                                  puter systems and components constituted
2. Judgment O715(1), 720, 724                     ‘‘sale’’ for exhaustion purposes.
     In order for collateral estoppel to ap-             See publication Words and Phras-
ply: (1) issue at stake must be identical to           es for other judicial constructions
                                                       and definitions.
issue alleged in prior litigation; (2) issue
must have been actually litigated by party        Patents O328(2)
against whom preclusion is asserted in pri-           4,918,645, 4,939,641, 5,077,733, 5,379,-
or litigation; and (3) determination of is-       379. Cited.
sue in prior litigation must have been crit-
ical and necessary part of judgment in
earlier action.
3. Patents O327(13)                                  Marc Robert Ascolese, Peter H. Kang,
     Owner of computer device and method          Sidley Austin, LLP, San Francisco, CA,
patents was not collaterally estopped from        Thomas N. Tarnay, Sidley Austin LLP,
asserting in patent infringement action           Dallas, TX, Charles W. Goehringer, Jr.,
that computer chips manufactured by its           Lawrence Louis Germer, Germer Gertz,
licensee did not substantially embody its         L.L.P., Beaumont, TX, Clayton Edward
patents, where owner’s prior infringement         Dark, Jr., Attorney at Law, Lufklin, TX,
suit against other manufacturers involved         Andrew C. Sonu, Finnegan Henderson
different components, and current suit in-
                                                  Farabow Garrett & Dunner LLP, Reston,
volved additional patent.
                                                  VA, Christopher T. Blackford, D. Patrick
4. Patents O191                                   O’Reilley, Finnegan Henderson Farabow
    Licensee’s sale of component comput-          Garrett & Dunner LLP, Vincent P. Koval-
er parts that substantially embodied              ick, Attorney at Law, Washington, DC,
1038                 655 FEDERAL SUPPLEMENT, 2d SERIES

David T. Pritikin, Sidley Austin LLP, Chi-    The data processed by the computer are
cago, IL, Scott Richard Mosko, Finnegan,      stored principally in random access
Henderson, Farabow, Garrett, Palo Alto,       memory, also called main memory.
CA, for Plaintiff and Counterclaim Defen-     Frequently accessed data are generally
dant.                                         stored in cache memory, which permits
  Claude Edward Welch, Law Offices of         faster access than main memory and is
Claude E. Welch, Lufkin, TX, Eric Hugh        often located on the microprocessor it-
Findlay, Ramey & Flock, Tyler, TX, Mark       self. When copies of data are stored in
Varboncouer, Paul R. Steadman, William        both the cache and main memory, prob-
E. Devitt, William A. Streff, Jr., James      lems may arise when one copy is
Brian Medek, Matthew Hertko, Robert           changed but the other still contains the
Scott Dailey, Kirkland & Ellis LLP, Mi-       original ‘‘stale’’ version of the data. The
chael Ryan Pohlman, Chicago, IL, Perry        8641 patent addresses this problem. It
Clark, Ruoyu Roy Wang, Kirkland & Ellis,      discloses a system for ensuring that the
                                              most current data are retrieved from
LLP, San Francisco, CA, for Defendants
                                              main memory by monitoring data re-
and Counterclaimants.
                                              quests and updating main memory from
 ORDER GRANTING DEFENDANTS’                   the cache when stale data are requested.
 MOTION FOR PARTIAL SUMMARY                   The 8379 patent relates to the coordina-
          JUDGMENT                            tion of requests to read from, and write
                                              to, main memory. Processing these re-
  CLAUDIA WILKEN, District Judge.
                                              quests in chronological order can slow
   Defendants Hitachi, Ltd., Hitachi Amer-    down a system because read requests
ica, Ltd., Hitachi Data Systems Corp. and     are faster to execute than write re-
Hitachi Computer Products (America), Inc.     quests. Processing all read requests
(collectively, Hitachi), move for partial     first ensures speedy access, but may
summary judgment on Plaintiff LG Elec-        result in the retrieval of outdated data if
tronics, Inc.’s (LGE) infringement claims     a read request for a certain piece of data
with respect to a subset of the accused       is processed before an outstanding write
products. LGE opposes the motion. The         request for the same data. The 8379
matter was heard on February 26, 2009.        patent discloses an efficient method of
Having considered oral argument and all       organizing read and write requests while
of the papers submitted by the parties, the   maintaining accuracy by allowing the
Court grants Hitachi’s motion.                computer to execute only read requests
                                              until it needs data for which there is an
             BACKGROUND                       outstanding write request. Upon re-
   LGE charges Hitachi with infringing        ceiving such a read request, the comput-
four of its patents: U.S. Patent Nos.         er executes pending write requests first
4,939,641, 5,379,379, 5,077,733 and 4,918,-   and only then returns to the read re-
645. The same patents were the subject        quests so that the most up-to-date data
of litigation in this Court between LGE       are retrieved.
and a number of computer manufacturers.       The 8733 patent addresses the problem
That litigation was eventually appealed to    of managing the data traffic on a bus
the United States Supreme Court. The          connecting two computer components, so
Supreme Court described the technology        that no one device monopolizes the bus.
embodied in the first three of the patents    It allows multiple devices to share the
as follows:                                   bus, giving heavy users greater access.
                      LG ELECTRONICS, INC. v. HITACHI, LTD.                               1039
                             Cite as 655 F.Supp.2d 1036 (N.D.Cal. 2009)

  This patent describes methods that es-              transferred to the requesting agent over
  tablish a rotating priority system under            the system bus.
  which each device alternately has priori-        LG Elecs., Inc. v. Bizcom Elecs., Inc. (Biz-
  ty access to the bus for a preset number         com ), 453 F.3d 1364, 1373 (Fed.Cir.2006).
  of cycles and heavier users can maintain
                                                     On September 7, 2000, LGE entered
  priority for more cycles without ‘‘hog-
                                                   into a license agreement with Intel Corpo-
  ging’’ the device indefinitely.
                                                   ration. Pursuant to this agreement, Intel
Quanta Computer, Inc. v. LG Elecs., Inc.,
                                                   paid to LGE a certain sum of money and
––– U.S. ––––, 128 S.Ct. 2109, 2113–14, 170
                                                   agreed to provide an additional amount in
L.Ed.2d 996 (2008) (citations omitted).
                                                   discounts on future purchases. It also
  Although the 8645 patent was the sub-
                                                   gave LGE a license to its own patents. In
ject of proceedings in this Court and in the
                                                   exchange, Intel received a ‘‘fully paid-up,
Federal Circuit on appeal, LGE did not
                                                   worldwide license’’ to the technology in
pursue its infringement contentions with
                                                   LGE’s patents, including the four patents
respect to the 8645 patent in the Supreme
Court. In its decision, the Federal Circuit        at issue here. The same license agree-
described the technology embodied in that          ment was involved in the Quanta litigation.
patent as follows:                                 The Supreme Court described the relevant
  The 8645 patent discloses a digital com-         provisions of the agreement as follows:
  puter system that has devices called                The License Agreement authorizes Intel
  agents that are interconnected by a sys-            to ‘‘make, use, sell (directly or indirect-
  tem bus. The claimed system and cor-                ly), offer to sell, import or otherwise
  responding method require one agent,                dispose of’’ its own products practicing
  the requesting agent, to request access             the LGE Patents. Notwithstanding this
  to a memory stored on another agent,                broad language, the License Agreement
  called the replying agent. The request-             contains some limitations. Relevant here,
  ed data is organized as a matrix of mem-            it stipulates that no license ‘‘is granted
  ory cells, having column and row coordi-            by either party hereto TTT to any third
  nates. The ‘‘memory controller’’ of the             party for the combination by a third
  replying agent processes the request                party of Licensed Products of either
  from the requesting agent by asserting a            party with items, components, or the
  plurality of memory address control sig-            like acquired TTT from sources other
  nals, including at least one row address            than a party hereto, or for the use,
  strobe (‘‘RAS’’) signal and one column
                                                      import, offer for sale or sale of such
  address strobe (‘‘CAS’’) signal. This
                                                      combination.’’ The License Agreement
  ‘‘page mode memory access’’ operates by
                                                      purports not to alter the usual rules of
  the assertion of an entire row of data
                                                      patent exhaustion, however, providing
  followed by the assertion and deasser-
                                                      that, ‘‘[n]otwithstanding anything to the
  tion of multiple column addresses. By
  the RAS signal accessing an entire row              contrary contained in this Agreement,
  followed by the assertion and deasser-              the parties agree that nothing herein
  tion of particular column addresses, this           shall in any way limit or alter the effect
  page mode memory access differs from                of patent exhaustion that would other-
  the conventional memory access, which               wise apply when a party hereto sells any
  separately accessed each memory cell by             of its Licensed Products.’’
  asserting its individual row address and            In a separate agreement (Master Agree-
  column address. In the claimed inven-               ment), Intel agreed to give written no-
  tion, after the data is accessed, it is then        tice to its own customers informing them
1040                  655 FEDERAL SUPPLEMENT, 2d SERIES

   that, while it had obtained a broad li-      of performing its task, a patent drafter
   cense ‘‘ensur[ing] that any Intel product    could shield practically any patented item
   that you purchase is licensed by LGE         from exhaustion.’’ Id. at 2117–18. The
   and thus does not infringe any patent        Court reiterated its previous holding that
   held by LGE,’’ the license ‘‘does not        ‘‘the traditional bar on patent restrictions
   extend, expressly or by implication, to      following the sale of an item applies when
   any product that you make by combin-         the item sufficiently embodies the patent—
   ing an Intel product with any non-Intel      even if it does not completely practice the
   product.’’ The Master Agreement also         patent—such that its only and intended
   provides that ‘‘a breach of this Agree-      use is to be finished under the terms of
   ment shall have no effect on and shall       the patent.’’ Id. at 2117 (following United
   not be grounds for termination of the        States v. Univis Lens Co., 316 U.S. 241, 62
   Patent License.’’                            S.Ct. 1088, 86 L.Ed. 1408 (1942)).
Quanta, 128 S.Ct. at 2114.                         The Court concluded:
   The defendant computer manufacturers            The authorized sale of an article that
in Quanta had purchased microprocessors            substantially embodies a patent exhausts
and chipsets from Intel and received the           the patent holder’s rights and prevents
notice required by the Master Agreement.           the patent holder from invoking patent
They then ‘‘manufactured computers using           law to control postsale use of the article.
Intel parts in combination with non-Intel          Here, LGE licensed Intel to practice any
memory and buses in ways that practice             of its patents and to sell products prac-
the LGE Patents,’’ but did not modify the          ticing those patents. Intel’s micropro-
Intel parts in the course of doing so. Id.         cessors and chipsets substantially em-
LGE brought suit, accusing the manufac-            bodied the LGE Patents because they
turers of infringing its patents. The de-          had no reasonable noninfringing use and
fendants asserted that LGE could not sue           included all the inventive aspects of the
for infringement because it had exhausted          patented methods. Nothing in the Li-
its rights to enforce the patents by licens-       cense Agreement limited Intel’s ability
ing the patented methods to Intel.                 to sell its products practicing the LGE
   LGE argued to the Supreme Court that:           Patents. Intel’s authorized sale to
   [B]ecause method patents are linked not         Quanta thus took its products outside
   to a tangible article but to a process,         the scope of the patent monopoly, and as
   they can never be exhausted through a           a result, LGE can no longer assert its
   sale. Rather, practicing the patent—            patent rights against Quanta.
   which occurs upon each use of an article     Id. at 2122.
   embodying a method patent—is permis-            LGE now charges Hitachi with infring-
   sible only to the extent rights are trans-   ing the patents-in-suit in the same way
   ferred in an assignment contract.            that it alleged the defendants in Quanta
Id. at 2117. The Court rejected this argu-      infringed those patents: by combining in
ment, reasoning that ‘‘[e]liminating ex-        its products Intel parts that are subject to
haustion for method patents would seri-         the license agreement with non-Intel parts
ously undermine the exhaustion doctrine’’       in a way that practices the methods taught
because any apparatus claim could be re-        in the patents.
cast as a method claim and, ‘‘[b]y charac-
terizing their claims as method instead of                 LEGAL STANDARD
apparatus claims, or including a method           Summary judgment is properly granted
claim for the machine’s patented method         when no genuine and disputed issues of
                     LG ELECTRONICS, INC. v. HITACHI, LTD.                                1041
                             Cite as 655 F.Supp.2d 1036 (N.D.Cal. 2009)

material fact remain, and when, viewing            Nissan Fire & Marine Ins. Co., Ltd. v.
the evidence most favorably to the non-            Fritz Cos., Inc., 210 F.3d 1099, 1106 (9th
moving party, the movant is clearly enti-          Cir.2000).
tled to prevail as a matter of law. Fed.              If the moving party discharges its bur-
R.Civ.P. 56; Celotex Corp. v. Catrett, 477         den by showing an absence of evidence to
U.S. 317, 322–23, 106 S.Ct. 2548, 91               support an essential element of a claim or
L.Ed.2d 265 (1986); Eisenberg v. Ins. Co.          defense, it is not required to produce evi-
of N. Am., 815 F.2d 1285, 1288–89 (9th             dence showing the absence of a material
Cir.1987).                                         fact on such issues, or to support its mo-
   The moving party bears the burden of            tion with evidence negating the non-mov-
showing that there is no material factual          ing party’s claim. Id.; see also Lujan v.
dispute. Therefore, the court must regard          Nat’l Wildlife Fed’n, 497 U.S. 871, 885, 110
as true the opposing party’s evidence, if it       S.Ct. 3177, 111 L.Ed.2d 695 (1990); Bhan
is supported by affidavits or other eviden-        v. NME Hosps., Inc., 929 F.2d 1404, 1409
tiary material. Celotex, 477 U.S. at 324,          (9th Cir.1991). If the moving party shows
106 S.Ct. 2548; Eisenberg, 815 F.2d at             an absence of evidence to support the non-
1289. The court must draw all reasonable           moving party’s case, the burden then shifts
inferences in favor of the party against           to the non-moving party to produce ‘‘spe-
whom summary judgment is sought. Mat-              cific evidence, through affidavits or admis-
sushita Elec. Indus. Co. v. Zenith Radio           sible discovery material, to show that the
Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89       dispute exists.’’ Bhan, 929 F.2d at 1409.
L.Ed.2d 538 (1986); Intel Corp. v. Hart-             If the moving party discharges its bur-
ford Accident & Indem. Co., 952 F.2d               den by negating an essential element of
1551, 1558 (9th Cir.1991).                         the non-moving party’s claim or defense, it
                                                   must produce affirmative evidence of such
   Material facts which would preclude en-
                                                   negation. Nissan, 210 F.3d at 1105. If
try of summary judgment are those which,
                                                   the moving party produces such evidence,
under applicable substantive law, may af-
                                                   the burden then shifts to the non-moving
fect the outcome of the case. The substan-
                                                   party to produce specific evidence to show
tive law will identify which facts are mate-
                                                   that a dispute of material fact exists. Id.
rial. Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d             If the moving party does not meet its
202 (1986).                                        initial burden of production by either
                                                   method, the non-moving party is under no
  Where the moving party does not bear             obligation to offer any evidence in support
the burden of proof on an issue at trial, the      of its opposition. Id. This is true even
moving party may discharge its burden of           though the non-moving party bears the
production by either of two methods:               ultimate burden of persuasion at trial. Id.
  The moving party may produce evidence            at 1107.
  negating an essential element of the
  nonmoving party’s case, or, after suit-                            DISCUSSION
  able discovery, the moving party may               Although the present case is similar to
  show that the nonmoving party does not           Quanta in many respects, LGE argues
  have enough evidence of an essential             that Quanta is distinguishable. In partic-
  element of its claim or defense to carry         ular, it argues that the Intel parts at issue
  its ultimate burden of persuasion at tri-        here do not substantially embody the pat-
  al.                                              ents-in-suit as did the Intel parts that the
1042                   655 FEDERAL SUPPLEMENT, 2d SERIES

Supreme Court considered in Quanta. It            Court. Thus, the substantial embodiment
also argues that, even if the parts do sub-       issue here is not identical to the substan-
stantially embody the patents, Quanta’ s          tial embodiment issue in Quanta, and LGE
holding regarding exhaustion applies only         is not estopped from arguing that the
when the first authorized sale of patented        parts at issue here do not substantially
items occurs in the United States. Hitachi        embody the patents-in-suit.
disputes both of these points, and also             Notwithstanding the unavailability of
contends that, even if Quanta does not            collateral estoppel, the Supreme Court’s
apply to foreign sales, the relevant sales        discussion of substantial embodiment in
here took place in the United States.             Quanta speaks directly to the issues pre-
                                                  sented in this case. Quanta held that
I.   Substantial Embodiment
                                                  exhaustion is triggered by the sale of prod-
   [1] As noted above, the Supreme                ucts that embody ‘‘essential features of the
Court’s decision in Quanta provides that          patented invention’’ and whose ‘‘only rea-
the authorized sale of an article that sub-       sonable and intended use [is] to practice
stantially embodies a patent exhausts the         the patent.’’ 128 S.Ct. at 2119. There,
patent holder’s rights. Because exhaus-
                                                  exhaustion was triggered because ‘‘[e]very-
tion is an affirmative defense, Hitachi
                                                  thing inventive about each patent [was]
bears the burden on this motion of demon-
                                                  embodied in the Intel Products’’ and ‘‘the
strating that the Intel parts substantially
                                                  only step necessary to practice the patent
embody the patents-at-issue and that there
                                                  [was] the application of common processes
is no evidence by which a reasonable juror
                                                  or the addition of standard parts.’’ 128
could conclude otherwise. LGE argues
                                                  S.Ct. at 2120.
that Hitachi has not met this burden.
                                                     [4] LGE’s preliminary infringement
   [2, 3] First, Hitachi asserts that LGE
                                                  contentions demonstrate that here, as in
is collaterally estopped from arguing that
                                                  Quanta, the Intel parts substantially em-
the Intel parts do not substantially em-
                                                  body the patents-in-suit. According to
body its patents. However, in order for
                                                  those contentions, the fact that the Hitachi
collateral estoppel to apply,
                                                  products contain Intel components in com-
   (1) the issue at stake must be identical
                                                  bination with other standard components
   to the one alleged in the prior litigation;
                                                  is sufficient to demonstrate infringement.
   (2) the issue must have been actually
                                                  The contentions do not premise infringe-
   litigated by the party against whom pre-
                                                  ment on ‘‘any creative or inventive deci-
   clusion is asserted in the prior litigation;
   and (3) the determination of the issue in      sion’’ on Hitachi’s part when it determined
   the prior litigation must have been a          how to combine the various components,
   critical and necessary part of the judg-       nor do they allege that any non-Intel com-
   ment in the earlier action.                    ponent necessary fully to practice the pat-
                                                  ents-in-suit was anything other than a
Trevino v. Gates, 99 F.3d 911, 926 (9th
                                                  standard part.
Cir.1996) (quoting Town of North Bonne-
ville v. Callaway, 10 F.3d 1505, 1508 (9th          LGE points to four ‘‘exemplary inventive
Cir.1993)). As LGE notes, the Intel com-          aspects’’ of the patents-in-suit that are not
ponents in this case are not the same             practiced by the licensed Intel parts.
components that were the subject of the           However, none of these examples survives
Quanta litigation, nor was the issue of           scrutiny because in each case, LGE’s argu-
whether any Intel parts substantially em-         ment amounts to saying that, because a
body the 8645 patent before the Supreme           non-Intel component performs a role that
                     LG ELECTRONICS, INC. v. HITACHI, LTD.                                1043
                             Cite as 655 F.Supp.2d 1036 (N.D.Cal. 2009)

is necessary to the proper functioning of          mean that the chipset itself embodies an
the patented system, the Intel components          inventive aspect of the 8641 patent. In
do not substantially embody the patent.            fact, LGE’s infringement contentions do
This is exactly the reasoning the Supreme          not depend on the unique nature of the
Court rejected in Quanta. The mere fact            communication between the central pro-
that a component is necessary to practice          cessing unit and main memory provided by
the patent does not mean that it reflects          the proprietary chipset; they only depend
an inventive aspect of the patent—it must          on the fact that such communication exists.
also be a unique feature of the patented
                                                      Third, LGE notes that one claim of the
                                                   8733 patent requires ‘‘counting a number of
  First, LGE maintains that one inventive          accesses by the device to the bus; and in
aspect of the 8645 patent is embodied by           response to a predetermined number of
non-Intel memory—as opposed to the li-             accesses to the bus, giving another node
censed Intel memory controller—because             the highest priority.’’ Id. at 11. LGE
the patent involves ‘‘providing page mode          asserts that the Intel components do not
access to memory over a system bus in
                                                   embody the patent because non-Intel com-
response to a request from a requesting
                                                   ponents perform the step of counting the
agent.’’ Pl.’s Opp. at 9. It is true that one
                                                   number of accesses by a particular device
inventive aspect of the 8645 patent is the
                                                   to the bus. The inventive aspect of the
provision of page mode access to memory,
                                                   patent, however, is not its method of
but this is accomplished by the memory
                                                   counting accesses, but rather its method of
controller that is the subject of the pat-
                                                   determining priority after the number of
ented claims, not the memory itself. In
                                                   accesses has been determined.              As
order for certain limitations of the assert-
                                                   stressed by the Supreme Court in Quanta,
ed claims to be satisfied, the memory con-
troller obviously must be connected to             the mere fact that certain limitations of the
memory. But Hitachi’s infringement con-            claim are satisfied by non-Intel compo-
tentions do not suggest that infringement          nents does not mean that the Intel compo-
depends on the connection of something             nents do not embody the patent. Similar-
other than a standard memory chip.                 ly, although some claims of the patent
                                                   require an initial step of ‘‘providing a value
    Second, with respect to the 8641 patent,
                                                   indicating a predetermined number of ac-
LGE asserts that a proprietary Hitachi
                                                   cesses that a device may make to the bus,’’
chipset ‘‘is an essential component in pro-
                                                   id. at 12—a step that occurs when regis-
viding communications between the
                                                   ters for latency timers are configured by
claimed ‘central processing units’ and
                                                   the accused product’s BIOS or operating
‘main memory means,’ ’’ and therefore is
                                                   systems—the inventive aspect of the 8733
‘‘integral to maintaining cache coherency
                                                   patent is not defining the access limit, but
as recited in the 8641 patent claims.’’ Id.
                                                   rather using the predefined limit to estab-
at 10. But the observation that it is im-
                                                   lish a priority system.
portant to have accurate communication
between the central processing unit and              Fourth, LGE contends that the licensed
main memory is not remarkable and does             Intel memory controller chipset does not
not render the mode of communication an            substantially embody the 8379 patent be-
inventive aspect of the patent. The fact           cause it ‘‘depends on software and the
that the communication is accomplished by          ultimate configuration of that software as
a proprietary (and, by implication, non-           part of its structure.’’ Id. at 12–13. LGE
‘‘standard’’) chipset does not necessarily         makes the same argument more generally
1044                  655 FEDERAL SUPPLEMENT, 2d SERIES

with respect the other three patents-in-        that discovery may potentially enable it to
suit. The fact that the Intel components        come up with new infringement theories
rely on software to ‘‘be configured in a        that are not similarly barred.
specific way depending on the design of
Hitachi’s products,’’ however, does not         II.   Foreign Sales
mean that the software is an inventive
                                                   [5] LGE argues that, although sales in
aspect of the patents. The Intel products
                                                the United States of products substantially
at issue in the Quanta litigation also re-
                                                embodying a method patent serve to ex-
quired configuration by software, and yet
                                                haust the patent holder’s rights, foreign
the Supreme Court held that the products
                                                sales do not. It is true that the Supreme
substantially embodied the patents-in-suit.
                                                Court did not specifically state in Quanta
   LGE objects to the use of its prelimi-
                                                that its holding applied to foreign sales.
nary infringement contentions to resolve
                                                However, the Court was unequivocal in
the substantial embodiment issue. There
                                                stating that the ‘‘authorized sale of an
appear to be two aspects to this argument.
                                                article that substantially embodies a patent
First, LGE apparently asserts that, be-
                                                exhausts the patent holder’s rights and
cause its contentions are not ‘‘facts,’’ they
are not properly considered on a summary        prevents the patent holder from invoking
judgment motion. But LGE is bound by            patent law to control postsale use of the
its contentions, and those contentions as-      article.’’ 128 S.Ct. at 2122. It is undisput-
sert that the accused products infringe the     ed that Intel’s foreign sales to Hitachi
patents-in-suit based on nothing more than      were specifically authorized by the world-
the fact that they contain licensed Intel       wide license agreement, and thus these
parts in combination with other unspeci-        sales fall squarely within the ambit of
fied standard parts. This establishes that,     Quanta. Moreover, the Supreme Court’s
according to LGE’s own theory of infringe-      rationale for its decision supports the con-
ment, the parts substantially embody the        clusion that it meant ‘‘authorized sales’’ to
patents, and LGE cannot claim otherwise.        include ‘‘authorized foreign sales.’’ In re-
Moreover, it is not clear what ‘‘facts’’ LGE    jecting LGE’s argument that method
proposes Hitachi should be required to          claims, as a category, are never exhausti-
introduce in support of the present motion.     ble, the Court stated:
The substantial embodiment issue is inti-          This case illustrates the danger of allow-
mately connected with the question of              ing such an end-run around exhaustion.
whether and in what manner the Intel               On LGE’s theory, although Intel is au-
parts infringe. The only way Hitachi can           thorized to sell a completed computer
demonstrate that the Intel parts substan-
                                                   system that practices the LGE Patents,
tially embody the patents is by relying on
                                                   any downstream purchasers of the sys-
LGE’s infringement contentions. Second,
                                                   tem could nonetheless be liable for pat-
LGE objects to reliance on its preliminary
                                                   ent infringement. Such a result would
infringement contentions (as opposed to its
                                                   violate the longstanding principle that,
final infringement contentions) to establish
                                                   when a patented item is once lawfully
the absence of a triable issue of fact. But
the contentions are only preliminary in the        made and sold, there is no restriction on
sense that they may be amended if infor-           its use to be implied for the benefit of
mation unearthed during discovery so war-          the patentee.
rants. LGE may not litigate infringement        Id. at 2118 (internal quotation marks omit-
claims based solely on a theory that is         ted). Accepting LGE’s argument that au-
barred by patent exhaustion in the hope         thorized foreign sales do not exhaust a
                     LG ELECTRONICS, INC. v. HITACHI, LTD.                                1045
                             Cite as 655 F.Supp.2d 1036 (N.D.Cal. 2009)

patentee’s rights would permit the type of         ucts covered by a United States patent do
‘‘end-run around exhaustion’’ disapproved          not serve to exhaust the patent holder’s
in Quanta, because ‘‘any downstream pur-           rights with respect to those products. The
chasers’’ of an Hitachi product could be           first case to address this issue was Jazz
liable for infringement even though the            Photo Corp. v. International Trade Com-
product had been ‘‘once lawfully made and          mission, 264 F.3d 1094 (Fed.Cir.2001).
sold’’ pursuant to the license agreement           That case involved Jazz Photo’s importa-
between LGE and Intel.                             tion of refurbished single-use cameras, also
   In addition, the Supreme Court in               known as lens-fitted film packages
Quanta was aware that some sales under             (LFFP’s), covered by United States pat-
the license agreement were made over-              ents owned by Fuji Photo Film Co. The
seas: In considering whether the Intel             primary issue was whether the refurbish-
parts had reasonable non-infringing uses,          ment constituted repair (which is permit-
which was relevant to the question of              ted under the patent laws) or reconstruc-
whether they substantially embodied the            tion (which is not). The court noted that
patents-in-suit, the Court stated in a foot-       the dichotomy between repair and recon-
note:                                              struction is based on the principle of ex-
   LGE suggests that the Intel Products            haustion: Once a product is lawfully sold,
   would not infringe its patents if they          the purchaser obtains the right to repair it.
   were sold overseas, used as replacement         Because of the doctrine of patent exhaus-
   parts, or engineered so that use with           tion, this right inures to all subsequent
   non-Intel Products would disable their          purchasers.      Reconstruction, however,
   patented features. But Univis teaches           amounts to a ‘‘second creation’’ that ex-
   that the question is whether the product        ceeds the rights that accompanied the ini-
   is ‘‘capable of use only in practicing the      tial sale. Thus, neither the first purchaser
   patent,’’ not whether those uses are in-        nor subsequent purchasers may invoke ex-
   fringing. Whether outside the country           haustion to defend against a charge of
   or functioning as replacement parts, the        infringement based on reconstruction of a
   Intel Products would still be practicing        patented product. In this context, the
   the patent, even if not infringing it.          court addressed whether Jazz Photo could
   And since the features partially practic-       invoke the repair defense with respect to
   ing the patent are what must have an            LFFP’s that were originally sold overseas:
   alternative use, suggesting that they be           Fuji states that some of the imported
   disabled is no solution. The disabled              LFFP cameras originated and were sold
   features would have no real use.                   only overseas, but are included in the
Id. at 2119 n. 6 (citations omitted) (empha-          refurbished importations by some of the
sis in original). Although this discussion            respondentsTTTT United States patent
relates to the ‘‘substantial embodiment’’             rights are not exhausted by products of
issue, not the ‘‘authorized sale’’ issue, the         foreign provenance. To invoke the pro-
fact that the Court was aware of foreign              tection of the first sale doctrine, the
sales of the Intel parts, yet declined to             authorized first sale must have occurred
limit its holding to sales in the United              under the United States patent. See
States, suggests that interpreting Quanta             Boesch v. Graff, 133 U.S. 697, 701–703,
so as to impose such a limitation would be            10 S.Ct. 378, 33 L.Ed. 787 (1890) (a
incorrect.                                            lawful foreign purchase does not obviate
  As LGE notes, the Federal Circuit has               the need for license from the United
previously held that foreign sales of prod-           States patentee before importation into
1046                  655 FEDERAL SUPPLEMENT, 2d SERIES

  and sale in the United States). Our             intended to, operate beyond the limits of
  decision applies only to LFFPs for              the United States,’ ’’ quoting Brown v.
  which the United States patent right has        Duchesne, 60 U.S. 183, 195, 19 How. 183,
  been exhausted by first sale in the Unit-       15 L.Ed. 595 (1856)). In Jazz, there-
  ed States. Imported LFFPs of solely             fore, this court expressly limited first
  foreign provenance are not immunized            sales under the exhaustion doctrine to
  from infringement of United States pat-         those occurring within the United
  ents by the nature of their refurbish-          States.
  ment.                                         Fuji Photo, 394 F.3d at 1368 (additional
Jazz Photo, 264 F.3d at 1105.                   citation omitted).
  In Fuji Photo Film Co., Ltd. v. Jazz             Although Fuji Photo’ s holding would
Photo Corp., 394 F.3d 1368 (Fed.Cir.2005),      foreclose granting summary judgment
the Federal Circuit elaborated on its rea-      against LGE with respect to accused prod-
soning in Jazz Photo:                           ucts containing Intel products that were
  This court does not construe the ‘‘solely     first sold abroad, such a result would be
  foreign provenance’’ language [in Jazz        inconsistent with Quanta. Drawing such a
  Photo ] or the Boesch citation to dictate     distinction between authorized domestic
  a narrow application of the exhaustion        sales and authorized foreign sales would
  principle. Specifically, this court does      negate the Supreme Court’s stated intent
  not read Boesch or the above language         in Quanta to eliminate the possibility of a
  to limit the exhaustion principle to unau-
                                                patent holder doing an ‘‘end-run’’ around
  thorized sales. Jazz therefore does not
                                                the exhaustion doctrine by authorizing a
  escape application of the exhaustion
                                                sale, thereby reaping the benefit of its
  principle because Fuji or its licensees
                                                patent, then suing a downstream purchas-
  authorized the international first sales of
                                                er for patent infringement. District courts
  these LFFPs. The patentee’s authori-
                                                may not follow circuit court precedent
  zation of an international first sale does
                                                where a subsequent Supreme Court deci-
  not affect exhaustion of that patentee’s
                                                sion has ‘‘undercut the theory or reasoning
  rights in the United States. Moreover,
                                                underlying the prior circuit precedent in
  the ‘‘solely foreign provenance’’ lan-
                                                such a way that the cases are clearly irrec-
  guage does not negate the exhaustion
                                                oncilable.’’ Miller v. Gammie, 335 F.3d
  doctrine when either the patentee or its
                                                889 (9th Cir.2003). This is such an in-
  licensee sells the patented article
  abroad.                                       stance.
  Read in full context, this court in Jazz         Furthermore, Boesch, the Supreme
  stated that only LFFPs sold within the        Court case upon which the Federal Circuit
  United States under a United States           relied in Jazz Photo in concluding that an
  patent qualify for the repair defense un-     authorized sale ‘‘must have occurred under
  der the exhaustion doctrine. Moreover,        [a] United States patent,’’ does not conflict
  Fuji’s foreign sales can never occur un-      with this Court’s holding that the foreign
  der a United States patent because the        sale of a product licensed under a United
  United States patent system does not          States patent exhausts the patent holder’s
  provide for extraterritorial effect. Int’l    rights. The plaintiffs in Boesch held pat-
  Rectifier Corp. v. Samsung Elecs. Co.,        ents for the same invention in both the
  361 F.3d 1355, 1360 (Fed.Cir.2004)            United States and Germany. The defen-
  (‘‘Further, it is well known that United      dants purchased the patented device in
  States patent laws ‘do not, and were not      Germany from a person who had the right
                      LG ELECTRONICS, INC. v. HITACHI, LTD.                                 1047
                             Cite as 655 F.Supp.2d 1036 (N.D.Cal. 2009)

to sell it under German law because he             plies to authorized foreign sales as well as
‘‘had made preparations to manufacture             authorized sales in the United States.
the [device] prior to the application for the
German patent.’’ 133 U.S. at 701, 10 S.Ct.         III.    Location of the Relevant Sales
378. The Supreme Court held that, be-                 The Federal Circuit noted in Quanta
cause the German purchase was made                 (sub nom Bizcom ) that there were two
‘‘without the license or consent of the own-
                                                   sales at issue in that case: ‘‘First, prior to
ers of the United States patent,’’ the de-
                                                   this litigation, LGE granted Intel a license
fendants were not permitted to sell the
                                                   covering its entire portfolio of patents on
invention in the United States. Id. at 701,
                                                   computer systems and components. This
10 S.Ct. 378. In other words, the unautho-
                                                   transaction constitutes a sale for exhaus-
rized foreign sale of the device did not
                                                   tion purposes. See United States v. Ma-
exhaust the United States patent holder’s
                                                   sonite Corp., 316 U.S. 265, 278, 62 S.Ct.
rights to enforce the patent with respect to
                                                   1070, 86 L.Ed. 1461 (1942). Second, with
sales in the United States. The present
                                                   LGE’s authorization, Intel sold its micro-
case, in contrast, involves an authorized
sale made pursuant to a license under a            processors and chipsets to each defen-
United States patent. Boesch does not              dant.’’ Bizcom, 453 F.3d at 1370. Al-
speak to this issue.                               though the Federal Circuit was reversed,
                                                   the Supreme Court’s decision did not ad-
   The Fuji Photo court also noted that the
                                                   dress the issue of whether the license
‘‘United States patent system does not
                                                   grant constituted a sale for exhaustion
provide for extraterritorial effect.’’ 394
                                                   purposes. While the decision repeatedly
F.3d at 1368. But in patent cases—includ-
                                                   refers to the authorized sale as the sale of
ing the cases cited in Fuji Photo itself—
                                                   the licensed Intel products to the comput-
the concept of ‘‘extraterritorial effect’’ re-
                                                   er manufacturers, there was no need for
fers to imposing liability under United
                                                   the Court to distinguish between the two
States law for conduct occurring outside
the United States. See, e.g., Microsoft            sales identified by the Federal Circuit, and
Corp. v. AT & T Corp., 550 U.S. 437, 127           nothing in the Court’s decision suggests
S.Ct. 1746, 1751–52, 167 L.Ed.2d 737               that it disapproved of the Federal Circuit’s
(2007); Deepsouth Packing Co. v. Laitram           holding in this regard.
Corp., 406 U.S. 518, 531, 92 S.Ct. 1700, 32           Moreover, the Federal Circuit’s decision
L.Ed.2d 273 (1972); Brown v. Duchesne,             that the license transaction represented an
60 U.S. 183, 195, 19 How. 183, 15 L.Ed.            authorized sale of the patented method
595 (1856); Int’l Rectifier Corp. v. Sam-          finds support in Masonite, the Supreme
sung Elecs. Co., 361 F.3d 1355, 1360 (Fed.         Court case it cited. In that case, the
Cir.2004); Rotec Indus., Inc. v. Mitsubishi        Court explained that exhaustion depends
Corp., 215 F.3d 1246, 1251 (Fed.Cir.2000).         on ‘‘whether or not there has been such a
Holding that exhaustion is triggered by            disposition of the article that it may fairly
the authorized foreign sale of a patented          be said that the patentee has received his
product does not impose liability of this          reward for the use of the article.’’ 316
sort, and thus does not amount to giving           U.S. at 278, 62 S.Ct. 1070. LGE received
extraterritorial effect to the patent law.         its reward for the use of its patented
  The Court therefore concludes that               methods, in the form of a payment and a
Quanta’ s holding—that exhaustion is trig-         cross-license, when it entered into the li-
gered by the authorized sale of an article         cense agreement with Intel. And although
that substantially embodies a patent—ap-           Masonite referred to the patentee’s re-
1048                 655 FEDERAL SUPPLEMENT, 2d SERIES

ward for the use of a patented ‘‘article,’’
Masonite’ s focus was on the patentee’s          SANTA CLARA VALLEY WATER
‘‘reward’’ for possessing the monopoly                DISTRICT, Plaintiff,
rights that accompany a patent. Here, the                           v.
reward occurred when LGE licensed its
patents to Intel; it did not receive a re-        OLIN CORPORATION; and Does
ward when the articles that embodied                1–10, inclusive, Defendants.
those patents were sold from LGE to In-                 No. C–07–03756 RMW.
tel. The license agreement was governed
                                                     United States District Court,
by New York law, and LGE appears to
                                                           N.D. California,
concede that the license grant, to the ex-
                                                          San Jose Division.
tent it may be considered a sale, took place
in the United States.                                        Aug. 19, 2009.
                                               Background: Water district brought ac-
   [6] In short, although LGE disagrees
                                               tion against corporation alleged to have
with the Federal Circuit’s holding that the
                                               contaminated groundwater, under Com-
license agreement represented a sale for
                                               prehensive Environmental Resources,
exhaustion purposes, this holding remains      Compensation, and Liability Act (CERC-
good law and is binding on this Court.         LA) and California law, seeking to recover
Accordingly, even if the exhaustion doc-       costs incurred in response to contamina-
trine expressed in Quanta applies only to      tion. Corporation moved for partial sum-
first sales in the United States, LGE ex-      mary judgment.
hausted its rights with respect to the Hita-
                                               Holdings: The District Court, Ronald M.
chi products at issue here because the first
                                               Whyte, J., held that:
authorized sale under the patents-in-suit
occurred within the United States.             (1) district had standing to assert claim to
                                                   recover recharge costs;
                                               (2) district was not entitled to recover re-
                                                   charge costs under CERCLA or Cali-
   For the foregoing reasons, Hitachi’s mo-        fornia law;
tion for partial summary judgment (Dock-       (3) district could not recover as damages
et No. 81) is GRANTED.                             legal expenses it incurred in third par-
  IT IS SO ORDERED.                                ty litigation; and
                                               (4) district was not entitled to restitution
                                                   for recharge costs under California

                                               Motion granted in part and denied in part.

                                               1. Environmental Law O654
                                                    Water district had standing to assert
                                               a claim to recover its recharge costs fol-
                                               lowing corporations’s alleged contamina-
                                               tion of groundwater, even if district passed
                                               recharge costs onto customers, where dis-

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