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May 01, 2007

Supreme Court Limits Microsoft's Exposure

In a 7-1 decision (with Chief Justice Roberts not participating) in a case the IP Blawg has been following, the Supreme Court today held that Microsoft cannot be liable for patent infringement for Windows software that is sent overseas on a master disk, copied outside of the U.S. and then installed via those copies onto computers made offshore. Microsoft Corp. v. AT&T Corp. (April 30, 2007). The Court reversed the finding of the district court in favor of AT&T that Microsoft was liable for such overseas sales.

At issue was the scope of 35 U.S.C. section 271(f), which extends patent infringement liability to one who supplies from the United States “components of a patented invention” that are combined offshore in a way that “would infringe the patent if such combination occurred within the.” Congress enacted section 271(f) for the express purpose of overturning a 1972 Supreme Court case which held such conduct to be noninfringing.

AT&T accused Microsoft of infringing a sound-compression patent. Microsoft did not dispute that its Windows software, when loaded onto a computer, infringed the AT&T patent. It contended, however, that section 271(f) did not apply to Windows software installed on computers outside of the U.S. because the copies of Windows installed on such computers did not constitute “components” and because, in any event, Microsoft did not “supply” the software used on the foreign-made computers. Instead, Microsoft provided foreign manufacturers with a master copy of Windows, from which copies were made and installed on computers. The district court rejected Microsoft’s arguments and entered judgment in favor of AT&T. A divided panel of the Federal Circuit affirmed.

Justice Ginsburg, writing for the majority, first reasoned that “software in the abstract” does not qualify as a “component” because “software detached from an activating medium,” in this case a computer, cannot be combined with another component. It is only when the software is expressed as a computer-readable copy – such as on a CD-ROM – that software can be combined with a computer and made into a functioning – and potentially infringing product. Next, the majority held that Microsoft did not supply “components” that when installed in foreign-made computers infringed AT&T’s patent. The master copy provided to manufacturers did not infringe because it was not installed on any computers, and Microsoft could not be liable for supplying infringing components because it did not supply the copies of the software made from the master copy; rather those copies were made by the manufacturers themselves. Finally, Justice Ginsburg noted that any doubts would be resolved “by the presumption against extraterritoriality” and that any expansion in the reach of section 271(f) would have to come from Congress.

Justice Alito, joined by Justice Thomas and Justice Breyer, wrote a concurring opinion suggesting that “component” should have even a narrower meaning than that given by the majority. Justice Stevens dissented, asserting that abstract software “plainly satisfies” the definition of a “component” which, in this case, had no “substantial noninfringing use,” bringing it squarely within section 271(f)(2).

On its face, the opinion in the Microsoft case would appear to have limited effects, as it applies to software that is installed in a particular manner that involves very little contact with the U.S. As with many court opinions, however, it will likely be used in a way that neither the Court nor practitioners can anticipate at this time. Patent owners that stand to see the reduction in value of their patents will undoubtedly approach Congress to close what Justice Stevens referred to as this “loophole” in section 271(f). How will this all play out? We will let you know.

Today's Blogger: Bob Sloss

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Thank you!s

Posted by: sary | Jul 4, 2007 6:47:44 PM

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