This case involved a dispute over Intel’s patent for a floating-point math coprocessor.

Intel developed a line of math coprocessors and protected its innovations through patents. Intending to give each other increased freedom of design, Intel and Hewlett-Packard (“HP”) entered into a broad cross-licensing agreement, granting each other a comprehensive license to all of their present and future patents.

ULSI had developed a math coprocessor that embodied Intel’s patent and directly competed against Intel's coprocessors. Since ULSI did not have the capability to fabricate its coprocessor, it entered into a manufacturing agreement with HP. The agreement provided for HP to manufacture coprocessors designed by, and conforming to, ULSI specifications. HP then sold those coprocessors to ULSI, which then sold them on the open market.

Intel sued ULSI for patent infringement.

In this case, the Intel-HP license agreement contained no Language limiting HP’s license to “HP products.” Therefore, and unlike in the Sanyo case, ULSI was free to argue that HP’s manufacture of chips embodying Intel’s patent was protected under the Intel-HP licensing agreement. It followed that HP’s subsequent sale of those chips to ULSI exhausted Intel’s patent, granting ULSI the right to sell them in the open market without paying any license or royalty fees to Intel.

In its opposition, Intel argued that HP's sale constituted a de facto sublicense, which was prohibited by the original Intel-HP cross-license.

In rejecting this argument, the Federal Circuit analyzed the difference between a sale and a sublicense.

The Federal Circuit reasoned that a sublicense by HP would authorize ULSI to make the chips, or to use or sell any such chips other than the ones it purchased from HP. But that was not the case here. HP only sold completed products. The Federal Circuit reasoned that this transaction was not legally equivalent to an unauthorized grant of a sublicense.

Intel made a second argument: that that the transaction between HP and ULSI was not the sale of products, but rather, the sale of chip fabrication services. Thus, Intel argued, when ULSI received the chips from HP, Intel’s patent had not been exhausted.

Analyzing the plain text of the contract between HP and ULSI, the Federal Circuit noted that the contract called for sale of semiconductor wafers that incorporated ULSI's coprocessor design. Analyzing the transaction, the Federal Circuit ruled that the transaction was a straight sale of chips incorporating ULSI design specifications by HP to ULSI. The court reasoned that the fact that the chips were designed by ULSI, and manufactured to ULSI specifications did not change the nature of the transaction.