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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 CONCLUSION 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 leaves. 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-  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.  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 system. 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  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-  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- CONCLUSION 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 law. , 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-
"fs2d rep bv 655"