Supreme Court Moves Toward Hearing AT&T v. Microsoft Software Export Case

When can a U.S. patent be used to recover damages for infringement occurring abroad? The answer is actually quite often.  Over the past couple of years, plaintiffs have recovered huge damages (or settlements) in U.S. courts for activities that at least partially occurred abroad.  In NTP v. RIM, RIM’s BlackBerry system was considered to be used “in the United States” because the e-mail exchange was being controlled by and for the beneficial use of U.S. customers.  In Eolas v. Microsoft and AT&T v. Microsoft, the Court of Appeals for the Federal Circuit (CAFC) agreed that the transmittal of computer code could create liability under 271(f) a “component” of a patented invention “supplied” from the U.S. In Shell v. Union Carbide the court further clarified that method claims could have components as well — in this case, the component was a compound used in the patented chemical process.  To now, each of these cases have stalled after the CAFC decision when the Supreme Court failed to accept them on petition for certiorari.  The lone remaining case is AT&T v. Microsoft.  In that case, the Supreme Court has asked the U.S. Solicitor General for the views of the U.S. Government before the Court makes its decision on certiorari.  As a historical note, the Supreme Court has not addressed the issue of extraterritorial infringement since the DeepSouth Packing case of 1972, which prompted Congress to pass Section 271(f).

PatentlyO041

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

This issue is huge for Microsoft and for U.S. software developers. Microsoft develops much of its software in the U.S., and ships the code around the world.  In the Eolas case, of the half-billion dollar verdict, $330 million was premised on exported code.

In the AT&T case, the CAFC essentially held that Microsoft’s act of shipping its code to a foreign office constitutes patent infringement and any consequential sales or licensing of the shipped code will create patent infringement damages.

The software here involves enhancing the sound quality of synthesized speech while maintaining a high data compression.

In its petition, Microsoft asks two questions:

1) 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

2) Whether copies of such a “component[]” made in a foreign country are “supplie[d] . . . from the United States.”

The petition attempts to show that the CAFC has gone astray by interpreting the statute in a manner “appropriate to the technology at issue” rather than according to its “plain meaning and legislative history” as required by Supreme Court precedent.

The petition also impliedly argues that software itself should not be patentable.  

The decision below is premised on a commonly held misunderstanding of the nature, and thus the patentability, of software.

Noted attorney Ted Olson and his able team (including Matthew McGill) are handling the appeal.

AT&T’s Opposition

AT&T quickly notes that Microsoft has already appealed this identical issue in the Eolas case, and lost there as well. In addition, AT&T discusses Microsoft’s highly public (but yet unsuccessful) lobbying for patent reform in Congress as evidence that this is an issue that has been considered and rejected by the lawmaking body. Of course, AT&T also argues that the lower court decision does nothing to “expand the extraterritorial reach of U.S. patent laws.

Petitioner’s extraterritoriality argument is a red-herring.  Years before . . . the court defined the limits of section 271(f) in order to avoid “the appearance of ‘giving extraterritorial effect to United States patent protection.’”

Waymark (looking only to activity within the U.S. when adjudging infringement).

Amicus in Support of Petitioner by the Software & Information Industry Association (SIIA).

The SIIA is a trade group with over 750 corporate members argued that the CAFC’s new rule upsets settled expectations.

SIIA makes what I see as an important distinction that in Microsoft’s case, the code supplied from the U.S. is not actually incorporated into the infringing products.  Rather, the code shipped abroad, copied, and then the copies are installed in the foreign country.  They argue that the act was never intended to capture millions of infringing acts based on the supply of only a single component.

Next Steps:

The SG is expected to take several months to provide its input, and this case will not be heard until 4th Quarter 2006. It is currently too-late for parties to file amici briefs.  However, the SG will accept input from the public on this important issue.

Documents:

Links:

  • NTP v. Research in Motion, (271(f) “component” does not apply to method claims).
  • AT&T v. Microsoft, 414 F.3d 1366 (Fed. Cir. Jul. 13,2005) (271(f) “component” applies to method claims and software being sold abroad);
  • Eolas v. Microsoft, 399 F.3d 1325 (Fed. Cir. Mar. 2,2005) (271(f) “component” applies to method claims);
  • 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’).

Notes:

** 35 U.S.C. 271(f)

(1) Whoever without authority supplies . . . from the United States . . . a substantial portion of the components of a patented invention . . . in such manner as to actively induce the combination of such components outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.

(2) Whoever without authority supplies . . . from the United States any component of a patented invention that is especially made . . . for use in the invention and not a staple article . . . suitable for substantial noninfringing use. . . , knowing that such component is so made . . . and intending that such component will be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.

2 thoughts on “Supreme Court Moves Toward Hearing AT&T v. Microsoft Software Export Case

  1. Shipping Patented Software Abroad

    Earlier this week, the Supreme Court once again asked for the views of the Solicitor General on a pending petition for review. That brings the total number of requested CVSGs in patent cases to about 4. This particular patent infringement case, whic…

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