Microsoft v. AT&T: Transnational patent Law

Damages, Patent, Patent Cases 2007, Transnational

Microsoft v. AT&T (Supreme Court 2007).

Section 271(f) of the Patent Act expands the territorial scope of US patent protection by creating liability for exporting one or more “components” of a patented invention so that the whole invention may be practiced abroad. The statute is divided into parts one and two dealing with inducement and contributory activity respectively.

The case at hand involves Microsoft’s infringement of AT&T’s speech coding technology patent. Microsoft has conceded that its software (once installed on a computer) infringes the patent in the US. However, Microsoft has fought against paying patent royalties for sale of the same software abroad.  Microsoft’s argument, spelled out in its brief, is two-fold: (1) Software cannot be a ‘component’ as required by the statute because software code is intangible; and (2) Software copies made abroad cannot be considered ‘supplied’ from the US as required by the statute because no physical particle that Microsoft exported actually became part of the finished product.  I have previously labeled these arguments as the tangibility requirement and the molecular conservation requirement. [Link]

Now, AT&T and its supporters has filed their briefs that explain why 271(f) should encompass foreign copies of software shipped from the US. [Petitioner and Gov’t briefs are discussed here]

AT&T’s Brief on the Merits:

Tangibility: AT&T attacks the tangibility requirement head-on, arguing that there is no such requirement.

[The software] is plainly a component of [the patented] device, just as a unique collection of intangible words is a component of any book bearing the title Moby-Dick, even though those words, too, must be combined with ink and paper before the book can be read.

Of course AT&T is correct — the statute does not spell-out any tangibility requirement, and Microsoft’s statutory argument is, at best implicit. AT&T’s arguments are supported by business practice as well. Software and hardware are developed and sold separately, and each side can easily be though of as providing components of the whole.

Molecular Conservation Requirement: AT&T takes a different view of the statutory requirement that the components be “supplied” from the US. In AT&T’s story, “supplied” means satisfying a need or furnishing.  Using a but-for analysis, AT&T makes clear that without Microsoft’s shipment of the code abroad, it would not have ended-up in the foreign computers.

Here, the Windows object code is present in the foreign made computers only because Microsoft “provided” or “furnished”—in a word, supplied—it from the United States, via golden master disk or electronic transmission.

As it stands, the AT&T brief is well written and convincing on its own — the major problem being that it leads with a petty argument for dismissal.

Philips Corporation also filed a brief in support of AT&T.  Philips makes several arguments, two of which I discuss here:

  1. In today’s market, software and hardware companies do compete head-to-head.  A finding that software export is noninfringing would be at the expense of electronics companies because hardware exports would continue to be considered infringing.  Thus, awarding the win to Microsoft here may free the software industry, but will even further damage the hardware export industry.
  2. In many ways, this case is about the size of damages. Microsoft hopes that copies made abroad will not be seen as infringing because those copies were not literally shipped from the US.  Philips points out under the rules of consequential damage calculations, Microsoft would owe damages for sales of all copies even if 271(f) only covered the initial master disk shipment.

WARF, California, and RCTech filed a joint brief in support of AT&T. These holders of strong bio-related patents see the potential that this case could narrow the scope of their protection. WARF points-out how Microsoft comes to the table with unclean hands:

When it suits its interests, even Microsoft acknowledges that the number of units it supplies is not limited by the number of golden masters it sends abroad. In Microsoft Corp. v. Comm’r of Internal Revenue, Microsoft argued that it was entitled to tax deductions . . . for all foreign sales of software replicated from Microsoft’s golden master abroad, claiming that such copies were “export property” under the statute. The Ninth Circuit . . . agreed with Microsoft that all copies created from the golden master were export property, thereby providing Microsoft with another $31 million in claimed deductions for 1990 and 1991.

BAYHDOLE25.inc is an educational NGO that supports, as you might guess, the Bayh Dole act (at its 25th anniversary).  In a brief supporting AT&T, BD25 argues for the protection of intangible assets — especially assets that are replicable and intended to be replicated.  These include software code, cell lines, patented seeds, DNA, etc. Replicable assets are important and should be protectable.

Documents:

  • On the Merits
  • In Support of Microsoft
  • In Support of AT&T
  • In Support of Neither Party
  • Reply Brief:
  • On Petition for Certiorari

    • 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);
    • Union Carbide v. Shell Oil (Fed. Cir. 2005) (271(f) “component” applies to method claims).
    • 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’).

    Earlier Discussion of this case

    Text of 35 USC 271(f)

    (1) Whoever without authority supplies or causes to be supplied in or from the United States all or a substantial portion of the components of a patented invention, where such components are uncombined in whole or in part, 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 or causes to be supplied in or from the United States any component of a patented invention that is especially made or especially adapted for use in the invention and not a staple article or commodity of commerce suitable for substantial noninfringing use, where such component is uncombined in whole or in part, knowing that such component is so made or adapted 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.

    AT&T’s Brief on the Merits:

    Tangibility: AT&T attacks the tangibility requirement head-on, arguing that there is no such requirement.

    [The software] is plainly a component of [the patented] device, just as a unique collection of intangible words is a component of any book bearing the title Moby-Dick, even though those words, too, must be combined with ink and paper before the book can be read.

    Of course AT&T is correct — the statute does not spell-out any tangibility requirement, and Microsoft’s statutory argument is, at best implicit. AT&T’s arguments are supported by business practice as well. Software and hardware are developed and sold separately, and each side can easily be though of as providing components of the whole.

    Molecular Conservation Requirement: AT&T takes a different view of the statutory requirement that the components be “supplied” from the US. In AT&T’s story, “supplied” means satisfying a need or furnishing.  Using a but-for analysis, AT&T makes clear that without Microsoft’s shipment of the code abroad, it would not have ended-up in the foreign computers.

    Here, the Windows object code is present in the foreign made computers only because Microsoft “provided” or “furnished”—in a word, supplied—it from the United States, via golden master disk or electronic transmission.

    As it stands, the AT&T brief is well written and convincing on its own — the major problem being that it leads with a petty argument for dismissal.

    Philips Corporation also filed a brief in support of AT&T.  Philips makes several arguments, two of which I discuss here:

    1. In today’s market, software and hardware companies do compete head-to-head.  A finding that software export is noninfringing would be at the expense of electronics companies because hardware exports would continue to be considered infringing.  Thus, awarding the win to Microsoft here may free the software industry, but will even further damage the hardware export industry.
    2. In many ways, this case is about the size of damages. Microsoft hopes that copies made abroad will not be seen as infringing because those copies were not literally shipped from the US.  Philips points out under the rules of consequential damage calculations, Microsoft would owe damages for sales of all copies even if 271(f) only covered the initial master disk shipment.

    WARF, California, and RCTech filed a joint brief in support of AT&T. These holders of strong bio-related patents see the potential that this case could narrow the scope of their protection. WARF points-out how Microsoft comes to the table with unclean hands:

    When it suits its interests, even Microsoft acknowledges that the number of units it supplies is not limited by the number of golden masters it sends abroad. In Microsoft Corp. v. Comm’r of Internal Revenue, Microsoft argued that it was entitled to tax deductions . . . for all foreign sales of software replicated from Microsoft’s golden master abroad, claiming that such copies were “export property” under the statute. The Ninth Circuit . . . agreed with Microsoft that all copies created from the golden master were export property, thereby providing Microsoft with another $31 million in claimed deductions for 1990 and 1991.

    BAYHDOLE25.inc is an educational NGO that supports, as you might guess, the Bayh Dole act (at its 25th anniversary).  In a brief supporting AT&T, BD25 argues for the protection of intangible assets — especially assets that are replicable and intended to be replicated.  These include software code, cell lines, patented seeds, DNA, etc. Replicable assets are important and should be protectable.

    Documents:

    • On the Merits
    • In Support of Microsoft
  • In Support of AT&T
  • In Support of Neither Party
  • On Petition for Certiorari

    • 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);
    • Union Carbide v. Shell Oil (Fed. Cir. 2005) (271(f) “component” applies to method claims).
    • 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’).

    Earlier Discussion of this case

    Text of 35 USC 271(f)

    (1) Whoever without authority supplies or causes to be supplied in or from the United States all or a substantial portion of the components of a patented invention, where such components are uncombined in whole or in part, 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 or causes to be supplied in or from the United States any component of a patented invention that is especially made or especially adapted for use in the invention and not a staple article or commodity of commerce suitable for substantial noninfringing use, where such component is uncombined in whole or in part, knowing that such component is so made or adapted 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.

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    9 thoughts on “Microsoft v. AT&T: Transnational patent Law”

    1. 9

      Look for the Court to conclude that only physical matter (electrons or whatever) can be a component under this statute. Since the same electrons are not (1) made in the US, (2) transferred outside of the US, and (3) installed into end devices, there is no infringement.

      Next time … write better claims that cover the replication systems and the master disk.

    2. 8

      Nathanael,

      Pity I have to complain about your irresponsible actions.

      If indeed it were true that “software” is nothing but “abstract mathematical algorithms”, then surely you wouldn’t have needed to turn the power on for your computer in the first place. You could have instead sat quietly at home, or perhaps in a Buhdist temple, and abstractly contemplated the abstractness of this abstract stuff you refer to as “software”.

      But no, you had to do it. You had to push the ON button to your computer. You had to send millions of electrons screaming maddeningly through the transistorized circuits of your computer in blind obedience to this “abstract” stuff known as software.

      And as a result, somewhere on this planet, a coal-fired electric plant puffed another toxic spewing of CO2 into the atmosphere to thereby edge on the Global Warming apocalypse. The coal plant didn’t do that “abstractly”. It did it for real. It did it because millions of people round the world like yourself are non-abstractly consuming millions of watts of power in the non-abstract practice of “software” and the non-abstract pursuit of the happiness it brings to their and your non-abstract computer monitors.

      Mind you though, I’m not saying you are a “terrible” person, or a thoughtless one. I’m merely and abstactly pointing out how your actions mathematically impact the health, future and well being of the entire human race. All this being in abstract way of speaking of course. 🙂

      P.S. After the US Supreme Court finishes arguing about where the signaling (“supplying”) process “ends” and where the assembling process for components “begins” for the ATT v. MS matter, they can move on to much more profound questions, like where a circle “begins”, or where rational thought process “begins”. I for one, am still waiting anxiously for answers to the latter question. Surely there must be a mathematical algorithm that provides all the answers.

    3. 7

      Pity this case has to exist. If patents on software weren’t being granted, as they should indeed not be what with software being abstract mathematical algorithms, then the case wouldn’t exist.

      The Supreme Court should have refused cert based on the inappropriateness of the case: a case based on a patent which should never have been granted, where both parties stipulate to the validity of the patent, is a *terrible* test case.

    4. 6

      Won’t a Microsoft mean death for any patent protection covering software or any thing else distributed over the Internet? There is currently no 271(g) protection. Anyone wanting to copy an Internet software patent simply places a server in one of the 136+ foreign entities, loads their knock-off onto it, and distributes.

    5. 5

      I think MCG has the correct analysis, i.e. an intangible cannot be a component of a claimed apparatus, as if it could then the export of blueprints for a purely mechanical device would infringe 271(f), which I’d say is not the case (does someone here have a cite for that?).

      The question of whether 271(f) violates the principle of comity is equally important, and maybe harder to predict. Certainly, extra-territorial laws are never a good idea, but that doesn’t mean they will get struck down. Ideally the court would always say it lacked territorial jurisdiction to decide whenever faced with an alleged violation of 271(f), but I doubt that would ever happen, and I don’t think that anyone is brave enough or foolhardy enough to put that argument to the court.

    6. 4

      Let’s stop all this repetitive analysis of 271(f). We all have discussed at length whether 271(f) covers a “component” or not. Yes, the Supreme Court will review that question, come up with an answer and then say “we are just interpreting the law, go to Congress if you want a different law.” What we really should be talking about, as citizens and “patent people,” is whether we want exported software on a golden disk, or any other medium, to be subject to infringement of US patents. The obvious next question is, do we want copies of exported software on a golden disk, or any other medium, to be subject to infringement of US patents.

      In my view, the clear answer to both questions is no. Two reasons come to mind: 1) we want to protect continued American innovation and jobs, 2) we do not want to overreach into foreign jurisdictions.

    7. 3

      I disagree with AT&T’s premise that the words of Moby Dick are clearly a component of a book. Or at least think it depends on what is meant by “book.”

      I think a distinction needs to be made between the intangible form of Moby Dick and the physical embodiment of Moby Dick in the form of a book. The words are a component of the intangible expression, but they are not a component of the physical book, which is comprised of paper and ink. A white whale may be a component of the Moby Dick story, but I would not consider it to be a component of the book sitting on my bookshelf (if I was actually literate enough to own a copy).

      In other words, a component must be of the same type as the whole of which it is a part.

      In the patent world I think this can be seen in the distinction between process claims and appartus claims. If the claim recites tightening a bolt as one of its steps, then taking a wrench and tightening down a bolt would be a component of that invention, but the bolt itself would not be a component. If the claim recites a fastening member, then the act of tightening the bolt would not be a component of the invention, but the bolt would be.

      In the AT&T case, the claims are directed to an apparatus for producing a speech message. Because the claims are directed to a physical embodiment (“apparatus”), the components of that invention must also be physical.

      So AT&T is correct in asserting that an intangible can be a component, but only in a trivial (in this instance) sense. Their claims are directed to the ink and paper, not to the story.

    8. 2

      The “Fall 2006” issue of the Berkeley Technology Law Journal (just mailed last week) carries my rather extensive article analyzing the background and operation of Section 271(f) and its effects. The citation is 21 Berkeley Tech. L.J. 1215 (2006).

    9. 1

      MSFT will prevail if the court agrees with concerns for international IP comity raised by extending 271(f)to components that are made outside the U.S. A ruling against MSFT effectively dictates that U.S. patent law would be made part of any foreign country’s own IP laws, even when the patentee did not seek patent protection in said foreign country!

      Golden software images, a.k.a., released to manufacturing (RTM) images, are templates, i.e. patterns, not the real McCoy. Only when the byte code signature of the manufactured product matches that of the golden image would there be a claim for infringement. Indeed, there is enablement going on here, but enablement is outside the scope of 271(f).

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