U.S. District Judge Gonzalo Curiel.

Qualcomm Inc. has successfully dodged a potentially crippling ruling on patent exhaustion in its San Diego antitrust dispute with Apple Inc.

Patent exhaustion is a doctrine recently revitalized by the U.S. Supreme Court which holds that the right to sue for patent infringement is exhausted on the sale of a patented product. Exhaustion is a cornerstone of Apple's and its contract manufacturers' accusation that Qualcomm “double dips” by both selling mobile phone chips and licensing the technology embodied in them.

But Qualcomm has removed that issue from Apple v. Qualcomm, at least at the summary judgment stage, by issuing a covenant not to sue Apple over the nine Qualcomm patents identified in its declaratory judgment action.

Over Apple's protests, Curiel granted Qualcomm's motion to dismiss declarations of noninfringement, invalidity, and unenforceability due to exhaustion for each of the nine patents.

Apple had argued that even without the patent claims, exhaustion is relevant to Qualcomm's contract and tortious interference counterclaims, but Curiel disagreed in a 16-page order. “Apple has not shown that a declaratory relief on the exhaustion of the patents would finally and conclusively resolve whether Qualcomm can enforce” its licensing agreements with the companies, he wrote.

The decision empties a large bullet from Apple's chamber, though it still could play a role if the case goes to trial as scheduled next year. Curiel noted that Qualcomm attorney Evan Chesler of Cravath Swaine & Moore had promised that exhaustion “will absolutely, undoubtedly, be part of this trial” at argument last month on Qualcomm's motion to dismiss. Curiel's order leaves Apple's contract, monopolization and unfair competition claims in place.

Exhaustion became a key issue after the Supreme Court issued its Lexmark decision last year indicating that patentees lose their right to sue for infringement upon sale of a patented product. Apple argued that should apply to Qualcomm, which both supplies and licenses chips that are essential to various smartphone technologies. Qualcomm then granted Apple its covenant on the nine patents being litigated in the case, and asked Curiel to dismiss those claims.

“They’re trying to destroy our business,” Chesler said at one point during October's hearing on Qualcomm's motion to dismiss. But in light of the covenant, “respectfully, your honor, you have no jurisdiction to rule.”

Apple attorney Ruffin Cordell of Fish & Richardson argued that even without the patent infringement causes of action, exhaustion was still relevant to the overall licensing dispute between the parties. Qualcomm can’t get into a time machine and undo the leverage it gained from the nine patents in licensing discussions years ago, Cordell told Curiel.

Curiel sided with Qualcomm, noting that the Supreme Court stated in Lexmark that parties can contract around exhaustion. Lexmark “makes clear that sales exhausts patent rights, which is distinct and not dispositive of contract rights,” he wrote.

Apple also argued that exhaustion is critical to defending Qualcomm's counterclaim for a declaration that it complied with its obligation to offer fair, reasonable and nondiscriminatory royalty rates on its standard-essential patents.

But Qualcomm's patent portfolio numbers are in the tens of thousands, Curiel wrote. "Apple has not shown that a declaration that a minuscule fraction of Qualcomm’s portfolio is exhausted would finally and conclusively resolve the underlying controversy,” he wrote.

In a footnote he added a jab at Apple, noting that it has previously taken the position in the litigation that Curiel lacks subject matter jurisdiction over Qualcomm’s FRAND claim.