Microsoft v. AT&T: Transnational patent Law

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.

Earlier Discussion of this case

• https://patentlyo.com/patent/2006/12/microsoft_v_att.html
• I will be discussing this and other extraterritorial issues at Duke University Law School on February 23, 2007. Link.

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.