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Factual Background Edit
In 1972, the U.S. Supreme Court ruled in Deepsouth Packing Co. v. Laitram Corp. that it was not an act of patent infringement to manufacture the components of a patented invention in the United States and then ship them abroad for assembly into an end product. In response to this loophole in the patent law that would have allowed potential infringers to avoid liability, Congress added subsection (f) to §271 of the Patent Act.
The patent at issue was AT&T’s patent on a speech coder-decoder (a codec). A speech codec is a software program that is capable of converting spoken words into a compact code, or vice versa. AT&T brought suit against Microsoft in 2001, alleging that the speech codec included in Microsoft’s Windows operating system infringes its patent.
Microsoft sent master versions of the Windows operating system to foreign manufacturers which are then copied and installed on computers for foreign sale. The Windows operating system, when installed, allows a computer to digitally encode and compress speech in a manner that infringes a patent held by AT&T. Microsoft stipulated that installation of Windows during development and licensing copies of Windows to manufacturer of domestically sold computers both directly infringed AT&T’s patent but denies liability based on foreign manufacturers. The U.S. Court of Appeals for the Federal Circuit upheld a finding of infringement and Microsoft brought this appeal to the U.S. Supreme Court.
Trial Court Proceedings Edit
Microsoft filed a motion to exclude evidence of alleged liability arising from foreign sales of Windows, pursuant to §271(f) of the Patent Act. In considering Microsoft’s motion, the U.S. District Court for the Southern District of New York first cited previous Federal Circuit decisions supporting the proposition that software is patentable. Then the court explained that §271(f) does not limit “components” to only physical machines or tangible structures, but rather could include intangible information or data. Thus, the district court rejected Microsoft’s argument that software could not be a “component” of a patented invention under §271(f). As for the copies made abroad from the golden master disk sent from the United States, the district court held that such copies still came within the scope of §271(f) in light of the legislative intent of the statute to prohibit the circumvention of infringement through exportation.
Federal Circuit Court Proceedings Edit
Upon Microsoft’s appeal, a divided panel of the Federal Circuit affirmed the district court’s decision. The appellate court relied on prior Federal Circuit case law that had held that “without question, software code alone qualifies as an invention eligible for patenting, and . . . statutory language [does] not limit section 271(f) to patented ‘machines’ or patented ‘physical structures,’ such that software [can] very well be a ‘component’ of a patented invention for the purposes of §271(f).” The Federal Circuit also ruled that, because “the act of copying is subsumed in the act of ‘supplying,’” the exportation of the golden master disks, with the specific intent that they be replicated abroad, is an act that comes within the meaning of §271(f)’s “supplied or caused to be supplied in or from the United States.”
In dissent, Federal Circuit Judge Randall R. Rader objected to the majority opinion’s view that “supplies” within the meaning of §271(f) includes the act of foreign “copying.” Judge Rader expressed concerns that such an interpretation is, in effect, an impermissible “extraterritorial expansion” of U.S. patent law because it reaches “copying” activity overseas. In his view, AT&T’s remedy lies not in U.S. law, but rather the law of the foreign country in which the infringement due to copying occurred.
U.S. Supreme Court Proceedings Edit
The Supreme Court accepted Microsoft’s petition for a writ of certiorari in October 2006, in order to answer two questions:
- Whether digital software code — an intangible sequence of “1’s” and “0’s” — may be considered a “component of a patented invention” within the meaning of Section 271(f)(1); and, if so,
- Whether copies of such a “component” made in a foreign country are “supplie[d] . . . from the United States.”
In a 7-1 decision  issued in late April 2007, the Court reversed the Federal Circuit’s judgment, holding that Microsoft was not liable for patent infringement under §271(f), as the statute is currently written, when foreign-manufactured computers are loaded with Windows software that has been copied abroad from a master disk or an electronic transmission sent by Microsoft from the United States.
In regard to the first question posed in the case, Justice Ginsburg, writing for the majority, explained that there are two ways to conceptualize software:
- One can speak of software in the abstract: the instructions themselves detached from any medium. (An analogy: The notes of Beethoven’s Ninth Symphony.) One can alternatively envision a tangible “copy” of software, the instructions encoded on a medium such as a CD-ROM. (Sheet music for Beethoven’s Ninth.)
Abstract software code does not qualify as a component, for purposes of triggering liability under §271(f), because it is an “idea” lacking physical embodiment and thus it cannot be a “usable, combinable part of a computer.” Justice Ginsburg analogized software in the abstract to a detailed set of instructions, similar to that of a blueprint. But information sent abroad that instructs someone on how to build the components of a patented invention does not come within the scope of §271(f); she observed that Congress, in enacting the statutory provision, did not include the export of design tools such as blueprints, schematics, templates, and prototypes. Thus, for the Windows software to be considered a “component” under §271(f), the software code must be encoded or otherwise expressed in some sort of tangible medium — a computer-readable software “copy” such as a CD-ROM. The Court thus declined to adopt AT&T’s characterization of software in the abstract as a combinable component that qualifies for §271(f) liability.
In reaching its answer to the second question, the Court largely agreed with Judge Rader’s dissent from the Federal Circuit’s opinion. The copies of Windows used for installation on the foreign computers had been made abroad; those copies were not “supplied” from the United States, even though the master disk from which they were duplicated had been exported, Justice Ginsburg noted. According to her, this distinction is legally relevant for liability purposes under §271(f); further, such liability is not affected by the ease of copying software.
Furthermore, Justice Ginsburg argued that the traditional presumption against extraterritorial application of U.S. law, particularly in patent law, would help favor the Court construing §271(f) in a manner that excludes intangible software code and copies of software made abroad. Echoing Judge Rader’s advice, Justice Ginsburg observed that “[i]f AT&T desires to prevent copying abroad, its remedy lies in obtaining and enforcing foreign patents.”
At the end of the opinion, Justice Ginsburg conceded that the Court’s decision effectively creates a “loophole” for software makers to avoid liability under §271(f). However, she explained that the Court would resist using the “dynamic judicial interpretation” that would be needed to adjust the patent law “to account for the realities of software distribution.” The majority opinion expressly invited Congress to consider whether this apparent loophole in favor of software companies, to the extent that it may exist, merits closing.
Interestingly, the majority opinion of the Court excluded footnote number 14, which was supported by only four justices (Justices Kennedy, Scalia, Souter, and Ginsburg). This footnote reads as follows:
- Microsoft suggests that even a disk shipped from the United States, and used to install Windows directly on a foreign computer, would not give rise to liability under §271(f) if the disk were removed after installation. We need not and do not reach that issue here.
Associate Justice Samuel Alito, in a concurrence joined by Justices Thomas and Breyer, would have decided that particular issue raised in footnote 14 in favor of Microsoft’s assessment of liability under §271(f). Justice Alito, joined by Justices Thomas and Breyer, filed a concurring opinion in which he asserted that a “component” of an infringing physical device under §271(f) “must be something physical”; thus, “[b]ecause no physical object originating in the United States was combined with these computers, there was no violation of §271(f).” He further observed that “[n]o physical aspect of a Windows CD-ROM — original disk or copy — is ever incorporated into the computer itself” because the CD-ROM is removed from the computer after the installation process copies the Windows code to the computer’s hard drive.
In lone dissent, Justice Stevens explained that he would affirm the Federal Circuit’s majority opinion in the case, because he deemed that judgment to be “more faithful to the intent of the Congress that enacted §271(f).” In his view, abstract software code, as well as the master disks that Microsoft had exported for copying abroad, should be considered “components” within the meaning of §271(f). Justice Stevens also objected to the Court’s comparison of abstract software to blueprints: “[U]nlike a blueprint that merely instructs a user how to do something, software actually causes infringing conduct to occur. It is more like a roller that causes a player piano to produce sound than sheet music that tells a pianist what to do.”
- ↑ 406 U.S. 518 (1972)(ful-text).
- ↑ Patent Law Amendments Act of 1984, P.L. 98-622, Title I, §101(a) (1984).
- ↑ AT&T Corp. v. Microsoft Corp., 2004 U.S. Dist. LEXIS 3340, at *1 n.1 (2004); AT&T Corp. v. Microsoft Corp., 2003 U.S. Dist. LEXIS 10716, at 2-3 (2003).
- ↑ AT&T, 71 U.S.P.Q.2d (BNA) 1118, at *15-17.
- ↑ Id. at *17-24.
- ↑ AT&T, 414 F.3d at 1368; AT&T, 71 U.S.P.Q.2d (BNA) 1118, at *25.
- ↑ AT&T, 414 F.3d at 1369, citing Eolas Techs. Inc. v. Microsoft Corp., 399 F.3d 1325, 1339 (Fed. Cir. 2005) (internal quotations omitted).
- ↑ AT&T, 414 F.3d at 1370.
- ↑ Id. at 1372-73 (Rader, J., dissenting). Patent rights are effective only in the United States. Dowagiac Mfg. Co. v. Minnesota Moline Plow Co., 235 U.S. 641, 650 (1915)(full-text) (“The right conferred by a patent under our law is confined to the United States and its Territories . . . and infringement of this right cannot be predicated of acts wholly done in a foreign country.”).
- ↑ AT&T, 414 F.3d at 1373 (Rader, J., dissenting).
- ↑ Microsoft Corp. v. AT&T Corp., 549 U.S. 991 (2006).
- ↑ Chief Justice John G. Roberts Jr. recused himself from consideration of and the rendering of a decision in this case.
- ↑ 550 U.S. ___, 127 S.Ct. 1746, 1750-51 (2007).
- ↑ Id. at ___, 127 S.Ct. at 1754.
- ↑ Id. at __, 127 S.Ct. at 1755-56.
- ↑ Id. at __, 127 S.Ct. at 1755.
- ↑ Id. at __, 127 S.Ct. at 1756, 1759.
- ↑ Id. at __, 127 S.Ct. at 1755-56..
- ↑ Indeed, the Court acknowledged that if it were to accept AT&T’s position, “it would not matter that the master copies of Windows software dispatched from the United States were not themselves installed abroad as working parts of the foreign computers.” Id. at __, 127 S.Ct. at 1754.
- ↑ Id. at __, 127 S.Ct. at 1757.
- ↑ Id. at __, 127 S.Ct. at 1758.
- ↑ Id. at __, 127 S.Ct. at 1759.
- ↑ Id.
- ↑ Id. at __, 127 S.Ct. at 1759-60 (citation omitted).
- ↑ Id. at __, 127 S.Ct. at 1759.
- ↑ Id. at ___, 127 S.Ct. at 1757 (emphasis added and internal citation omitted).
- ↑ Id. at __, 127 S.Ct. at 1761 (Alito, J., concurring).
- ↑ Id. at __, 127 S.Ct. at 1762.
- ↑ Id. at __, 127 S.Ct. at 1761-62.
- ↑ Id. at __, 127 S.Ct. at 1762 (Stevens, J., dissenting).
- ↑ Id.