Supreme Court Likely to Hear Transnational Patent Law Dispute

Microsoft v. AT&T (on petition for certiorari).

The DOJ and PTO have given their solid support to Microsoft’s petition for certiorari in its battle over transnational patent infringement. This support makes grant of the petition highly likely.

This case, like Eolas and Pellegrini before, questions the scope of Section 271(f) of the Patent Act.  That statute allows a U.S. patentee to collect damages for foreign sales of a patented invention based on the export of one or more of its components from the U.S.  Recently, the CAFC has expanded the common interpretation of the statute to include the export of software code (AT&T, Eolas) as well as to the export of elements used in a patented method (Union Carbide).  In a case that is difficult to square with AT&T or Eolas, the court held that the “component” does not apply to plans or instructions.

In this case, Microsoft’s software code was generated in the U.S. and then shipped abroad where copies were then generated and distributed.  AT&T claims (and courts have thus far agreed) that sales of those foreign copies infringe the U.S. patent and create liability.  The chart below gives my loose graphical interpretation of the events.

AIPLATalk149

If it stands, this case could have far-reaching effects in the fields of biotechnology (DNA/cell replication) as well as foreign piracy (shipping product from the U.S. to reverse engineer and copy in a foreign country).

From a business perspective, this interpretation of the statute gives business executives another reason to send software jobs overseas.  If the component was not exported from the U.S., there will be no damages under 271(f).

In their brief supporting the petition, Daryl Joseffer and the DOJ crew agree that software can be a component of a patented invention.  They argue, however, that the foreign replicas do not create liability under the act because the replicas themselves were not supplied from the United States (as is required by the statute). According to the brief, the lower court’s interpretation “improperly extends United States patent law to foreign markets and puts United States software companies at a competitive disadvantage vis-a-vis their foreign competitors in foreign markets.”

The Government argues that the extraterritorial nature of U.S. patents should be narrowly construed and that if someone wants rights to stop foreign infringement, then they should get foreign patents.

Respondent’s remedy lies in obtaining and enforcing foreign patents, not in attempting to extend United States patent law to overseas activities.

Important recent 271(f) cases:

  • NTP v. Research in Motion, (271(f) “component” would rarely if ever apply to method claims).
  • AT&T v. Microsoft, 414 F.3d 1366 (Fed. Cir. 2005) (271(f) “component” applies to method claims and software being sold abroad);
  • Eolas v. Microsoft, 399 F.3d 1325 (Fed. Cir. 2005) (271(f) “component” applies to method claims and software);
  • Pellegrini v. Analog Devices, 375 F.3d 1113 (Fed. Cir. 2004) (271(f) “component” does not cover export of plans/instructions of patented item to be manufactured abroad);
  • Bayer v. Housey Pharms, 340 F.3d 1367 (Fed. Cir. 2003) (271(g) “component” does not apply to importation of ‘intangible information’).

Documents:

Notes:

  • SCOTUS blog has more here.

23 thoughts on “Supreme Court Likely to Hear Transnational Patent Law Dispute

  1. “It is the most unnatural alliance formed lately – big and fat corporate infringers (MS, Oracle etxc) joined by small clueless FOSS developers on one side of the fence.On the other side are all small innovative high-tech startups and independent inventors (do not confuse them with FOSS programmers)”

    I think though, at a very basic level, there’s a common personality trait between the big corporate staffer and the FOSS developers.

    They both are very eager — even desperate — to submerge their individual personality in the larger group. Really, they are just voluntary members of different Borgs.

    What scares both types is the rise of people who want to retain their individuality and pursue their own goals, building their own inventions and creating their own businesses.

    Reply
  2. Alan wrote:
    “The data center could be located in any country in which the patent holder has not obtained a patent, which means that the patent holder would need to get coverage in all countries.”

    Good comment but the upcoming reality is even more difficult for patent holders:
    The server can actually be located on somebody’s ship, say in the middle of the Pacific Ocean, on a satellite in outer space, or on the Moon :)
    This is not science fiction anymore, it is an upcoming reality…

    Reply
  3. Jan Hornbøll Hansen wrote:
    “Finally there is a line somewhere between patentable subject matter and unpatentable subject matter. Ideas and discoveries are not patentable, only inventions are. With software proved to be math (Touring) software should obviously be excluded from patentability. You shouldn’t be able to patent software anymore than E=mc^2 or a^2+b^2=c^2.”

    This is completely clueless point of view…
    Math is not patentable indeed, but when you write software and embed it in your cell’s phone DSP chip, for example, it’s not pure math anymore – it’s a physical apparatus performing some function – communicating acoustical signals between 2 people in this example…
    Dude, you should educate yourself more about computer science in general (Turing equivalence: software == hardware, at least as far as computer science is concerned) and patent system in particular…
    There is also a non-obviousness requirement for patentabity (not that this reqiorement is actually implemented in practice with all those MS and IBM junk patents, but it is in the patent law at least…)

    Reply
  4. While all this venting on the patent system is fun to read, the practical answer is that until Congress or the Supreme Court decides otherwise, there is little that is going to change.

    In business, there are always going to be big players that play hardball with the small guys. However, one hopes that the various anti-trust laws will be somewhat helpful. Regarding lawsuits, there are a number of attorneys who work on a contingency fee basis or a payment plan so hopefully a smaller entity would be able to be successful in asserting a patent.

    Jan is correct in the bargain, but I have to believe that there are novel software concepts out there.

    While the patent (and litigation) system may not be perfect, like other governmental systems, it has tended to serve the public better than no system. Anyone who thinks otherwise should try to come up with their own system and see the holes people can poke through it…

    Reply
  5. I agree 100% with Mr. Ronald Riley!

    It is the most unnatural alliance formed lately – big and fat corporate infringers (MS, Oracle etxc) joined by small clueless FOSS developers on one side of the fence.On the other side are all small innovative high-tech startups and independent inventors (do not confuse them with FOSS programmers)…

    What a circus !

    Reply
  6. Patents are best suited for sectors with few actors, where patents constitute a substantial and isolated part of the final products and where patenting costs are insignificant to other capital requirements.

    Software sector couldn’t be a worse match. Anyone who ever recorded a macro in a wordprocessor or spreadhseet are essentially software developers, by allowing software patents you are essentially requirering every actor in the software sector to ensure they are not infringing.

    The patent system doesn’t exist to satisfy anyones ideas about what is fair. The sole purpose of the patent system is to foster innovation by disclosing inventions. In return for enabling dissemation of knowledge, inventors are granted a temporary monopoly. However software patent applications are so obscure that developers can not extract any usefull information from them. This means the fundamental contract with society is breached.

    Finally there is a line somewhere between patentable subject matter and unpatentable subject matter. Ideas and discoveries are not patentable, only inventions are. With software proved to be math (Touring) software should obviously be excluded from patentability. You shouldn’t be able to patent software anymore than E=mc^2 or a^2+b^2=c^2.

    Small companies and independent software developers are forced to read through 100,000’s of patents to ensure they not infringing on anyones intelectural property instead of writing code, this hinders innovation rather than fostering it thereby invalidating the reason for software patents in the first place.

    Reply
  7. This is typical, says the Forbes author, of what goes down outside the purview of the mainstream media everyday. IBM extorts 20 million from a fledgling Sun on by first threatening infringment on laughable patents, then after Sun pushes back by deconstructing the claims in the specific patents, offering to find “some more infringment” in their huge (20,000 then) patent portfolio.

    Reply
  8. link to patentlyo.com

    “Microsoft have thousands of software patents”

    Yep, Microsoft management waves they magic and and hands down a directive to produce 3000 patents a year and they get 3000 patents a year. Narrow, incremental, almost laughable patents. This is typical of companies who stagnate in terms of innovation. Not one of their patents is as significant as what are being produced by independent inventors. Look at the Eolas case. The Eolas case is a great example of how a member of the Coalition for Patent Piracy conducts themselves. The Blackberry case is another good example. Both Microsoft and Research in Motion (maker of the Blackberry) have used an endless stream of tactics to try and bankrupt real inventors (In my opinion abuse of the process of law), both were caught red handed committing fraud on the courts, both have conducted massive public relations campaigns to smear their victims, both whine about how their inventor adversaries morphed into large-ugly-vicious and mythical trolls, and both lobby a multitude of government agencies to give them advantage which they cannot otherwise get based on the merits or lack thereof. Both are admitted members of the Coalition for Patent Fairness—a group whose idea of “fair” is to take other patent property. That is why they are known in our community as the Coalition for Patent Piracy.

    “That’s an extremely bigoted and baseless assertion.” Perhaps you could be a bit more specific. France was at one time a world leader. Today they are a shadow of their former selves. Today the US is the world leader but the US could in a matter of a decades find ourselves in a similar situation as France if we do not hold onto our intellectual property.

    We are all products of our environments. Inventors who produce significant inventions virtually always are brutalized by large corporate patent pirates.

    Imagine that you are paid your wages in cash near dusk in a tough part of town in view of all the thugs. How would you feel if under the best circumstances you only managed to hold onto five percent of your pay and you got the crap kicked out of you in the process? Only a small percentage of inventors manage to do that well. A large percentage doesn’t hold onto hardly any of their property and they generally expire with a whimper while the thugs profit from their work.

    And then there are the software patent pirates who rationalize that they should be able to socialize others intellectual property for their own profit. Yes, I said profit. This is an industry which writes code as a loss leader to bring in money as authors, speakers, and consultants. They are little better than members of the Coalition for Patent Piracy. Does it matter to if the poor slob who is paid in front of the thugs near dusk is knifed in the back by a soldier of one of the crime syndicates who takes his or her pay or falls victim to a mob of petty thief’s who takes their property?

    One last point, those petty thugs are in the end always abused by the crime syndicates. Members of the Coalition for Patent Piracy will use the power they are seeking through legislation to first kill inventors and their next move will be to use their stranglehold to indenture all the foolish and selfish programmers who lacked the foresight, the ability and/or the will to become actual inventors.

    Ronald J Riley, President
    Professional Inventors Alliance
    http://www.PIAUSA.org
    RJR”at”PIAUSA.org

    Ronald J Riley, Exec. Dir.
    InventorEd, Inc.
    http://www.InventorEd.org
    RJR”at”InvEd.org

    Change “at” to @
    RJR Direct # (202) 318-1595

    Reply
  9. Perhaps one of the dauntless patent advocates in this thread can provide an example of a software patent that has promoted innovation and the development of the arts and sciences.

    Reply
  10. There are some unfortunate ad-hominems in these comments.

    > You might as well be Microsoft’s personal
    > advocate. The sum total effect of your
    > efforts is to enable and encourage Microsoft
    > to do what it wants to do: copy other people’s
    > ideas with complete impunity.

    Microsoft have thousands of software patents, unless you have millions of dollars and don’t infringe any of there patents they can still copy your ideas with complete impunity. The reverse is not true, there’s no impunity from the Microsoft patent portfolio.

    In the fight between Microsoft and the rest of the world, I back the rest of the world but only on a level playing field.

    > The Coalition for Patent Piracy have duped
    > the anti software patent crowd into helping
    > then cement their market positions

    What?

    > If patent pirates succeed in their legislative
    > agenda America will go the way of France, and
    > become a fourth rate player politically and
    > economically in global playpen.

    That’s an extremely bigotted and baseless assertion.

    Reply
  11. The shell game: one INTERNET application can contain many software “components”. Each software component can be created in different parts of the world. Where was the application created? Is it better to obtain an application patent or better to obtain component patents? How does this affect smaller software companies?

    Reply
  12. Unfortunately there are not many David versus Goliath patent cases anymore. Most of the patent cases are about extortion. It is riduclous how even in a legitimate case, the patent may represent .01 cents in the development cost for a product but the owner of the patent is granted way more than that in compensation.

    Also the level of obvious inventions is ridiculous, along with the patenting of ideas that have been in long use. And the most ridiculous thing of all is that a company can have garbage patents but prior to the patent office reviewing the patents, they can sue and sue and get all the money they went. The patent office will take forever in reviewing the patents and by the time it invalidates them, the case may be over.

    You inventor alliance better open your eyes. Patents are no longer benefitting inventors, they are benefitting con artists, extortionists, and lawyers.

    Reply
  13. link to patentlyo.com

    It never ceases to amaze me how intellectual thieves try to paint those they steal from as intellectual terrorists. Even more amazing is how the big business thieves, companies associated with the Coalition for Patent Fairness, or is that the Coalition for Patent Piracy have duped the anti software patent crowd into helping then cement their market positions. If patent pirates succeed in their legislative agenda America will go the way of France, and become a fourth rate player politically and economically in global playpen.

    ====

    The Professional Inventors Alliance USA was created more than a decade ago to protect American invention and encourage innovation. American inventors saw a need to track congressional legislation and federal policy that impacts independent inventors, small and medium-sized businesses and colleges and universities. The Alliance is the premiere organization in the nation, providing independent inventors a united voice in order to improve public policy.

    The Alliance provides legislative counsel, congressional updates and strategy development to its members through a number of vehicles. Additionally, through its speaker’s bureau, Alliance members have an opportunity to provide expert opinion to many of the nation’s top-tier business, technology and mainstream media organizations. Over the years its members have testified before Congress, offered counsel to key Senate and House committee members, and successfully pushed legislation to protect America’s independent inventors.

    Since its inception, the Alliance has grown into one of the most vocal advocates for America’s patent system.

    Examples of areas of our expertise include David Vs. Goliath patent litigation, patent reform, and we have a unique view of the companies comprising the “Coalition for Patent Piracy”.

    Please call for a different perspective.

    Ronald J Riley, President
    Professional Inventors Alliance
    http://www.PIAUSA.org
    RJR”at”PIAUSA.org
    Change “at” to @
    RJR Direct # (202) 318-1595

    Reply
  14. “Which brings me to the real reason for Microsoft’s dogged pursuit of this (losing) case: they want ot lose to establish the precedent of transnational patent enforcement.”

    This is just crackpot. You might contemplate what it implies if this is the sort of argument you are reduced to.

    Why don’t you face facts here, “software visualization”? You and Microsoft are on the same side of this case, as you are on the same side of virtually ALL cases regarding US patent laws: you want to gut them, so that you can copy any idea anybody might ever have with impunity. You assert that copyright protection is enough to protect software ideas, when the rise to power of Microsoft, which simply ripped off other people’s ideas by having their programmers copy every functionality of interest in the innovative application, stands as clear witness to the opposite.

    You might as well be Microsoft’s personal advocate. The sum total effect of your efforts is to enable and encourage Microsoft to do what it wants to do: copy other people’s ideas with complete impunity.

    I wonder, do you and your friends break out the champaigne every time Microsoft rips off another competitor’s ideas? Isn’t doing so exactly a software best practice, by your lights?

    Reply
  15. Imagine the following case. A US software developer is employed by a company in the EU. She does her work there, but vacations in the US. While here, she takes time to conduct research for her job, or just study material useful to her career- a good use of time. She returns to the EU and her employer is soon slapped with a infringement suit. Why? Because something she wrote, took notes on, read or merely thought (choose your level of ridiculousness) represented patented technology. In the case of software development, this is not the least bit far fetched.

    The end result would be a massive potential liability attached to each American programmer such that they would come to be effectively excluded from world-wide employment.

    This is a perfectly natural and logical consequence of the US courts deciding that mere algorithms with no corporeal part, effectively thought,is patentable.

    Reply
  16. Q: So if I have a US patent on a seed, plant, or a mouse and one seed, one plant, or mouse is produced in the US and then exported to Europe, where they breed like, well, seeds, plants, and mice, I can then sue eurotrash for infringing my US patent for every “copy” made in Europe? Far out! Sign me up!
    A: No. You have to be Microsoft rich to make it happpen, you poor, dumb bastard.

    Reply
  17. The claim that this interpretation of the statute gives business executives another reason to send software jobs overseas is bogus. On the contrary, a failure of this interpretation would give businesses an incentive to set up infringement mills overseas. A company could simply put a server in an offshore data center, install a compiler, compile otherwise infringing software offshore, and place the otherwise infringing on the offshore web site for downloading by U.S. customers – very cheaply. The data center could be located in any country in which the patent holder has not obtained a patent, which means that the patent holder would need to get coverage in all countries.

    Reply
  18. As a software developer, I view the ability to patent software as a travesty. All software ideas are necessarily both derivative and novel, the way that all spoken speech is simultaneously derivative and novel. Copyright offers the correct level of IP protection to serve both business and society.

    An existence proof is the strongest form of refutation and the thriving software ecosystem prior to the widespread use of software patents (pre-2000)is just such a proof; it is not possible to argue in good conscience that an absence of patents impedes innovation.

    At $20,000 a pop for even the smallest most trivial abilities, like adding and removing whitespace or adding titles to a cartoon (see link to oligopolywatch.com), the small innovative software developer is precluded from economic participation.

    The advocacy of the continuation of a system which retards innovation, facilitates the dominance of large, established players through non-productive economic means (who ever has money to start with wins) is not in line with original democratic intent of the Constitution’s framers- it’s just corporatism.

    Which brings me to the real reason for Microsoft’s dogged pursuit of this (losing) case: they want ot lose to establish the precedent of transnational patent enforcement. This can be seen when you understand that Microsoft, along with Adobe and IBM are aggressively pursuing the enforcement of software patents in the EU, where they have not once, not twice but three times been rejected, most recently in 2005.

    These companies are not looking to change the minds of the people of the EU, they are looking for weasel holes in the structure of the EU which will permit them to bypass the (repeatedly expressed) will of the Parliment. In this case, MS’s weasel hole is the EU Council of Ministers, the (unelected) European Commission and a handful of (unelected) judges at European Patent Office.

    By losing this case, and baring legislative intervention (which is sorely needed) Microsoft will have in its hand a final, solid precendent from which is can launch its invasion of the European software companies.

    Reply
  19. It is high time to open eyes of U.S. industry and Govt. Let them not forget that patent is a territorial concept and has deep roots in manufacturing /processing of invention in country granting the patent.

    Only intellectual terrorists can imagine about extraterritorial implementation of patents.

    One should not corss the boundries else it will retort with calamity.

    Reply
  20. Just to follow up on my post, what happens when software is just downloaded, as a service? This is certainly the direction in which software is going.

    Do we say that Microsoft isn’t infringing if it stores the bits on a foreign server? In that case, what of significance in terms of “manufacturing” can possibly be taking place overseas? Is Microsoft’s case importantly different if instead it decides to burn the software on CDs?

    Again, the real point would seem to be, where is the real work and expense taking place in the creation of the product? And the answer certainly has to be, in the US.

    Reply
  21. If it makes sense in other cases to prohibit the assembly of an infringing product on US soil and its shipping overseas, then software should certainly fall under the same general rubric.

    Really, of what possible significance is it in the larger scheme of things that the “manufacturing” of the actual CD takes place overseas? That is most certainly the most trivial aspect of the “manufacture” of the product. All the real work takes place in the US. All the real cost of making the product takes place in the US. The CDs could be burnt literally by robot, and mostly remotely from the US, and at the most trivial expense. So how can one plausibly maintain that something important is taking place overseas that should place the activity outside the purview of US patent law?

    I understand that the relevant statutes were explicitly introduced to prevent US companies from cheating by in effect creating infringing products on US soil and shipping them abroad. I can’t see a single basic thing about the case of software that should alter how it should apply; instead, I see only the most weaselly of distinctions.

    Of course, the real “argument” here is that software is a special case because, you know, Microsoft and Oracle etc. are all so special. Heaven forfend that the 800 pound gorillas might have to pay monies out to the people whose ideas they copy — they are far too wonderful for that! How can Microsoft continue to offer innovations to consumers if it can’t copy them for free from innovative companies? Watch out, or they’ll go into a very conspicuous pout and hire programmers in China who’ll copy them without any respect for anybody’s intellectual property! Really, who in their right minds thinks that Microsoft is making enough money nowadays?

    Reply

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