Microsoft v. AT&T: Extraterritorial Enforcement of US Patents

Microsoft Corp. v. AT&T Corp., 550 U. S. ____ (2007).

In a 7-1 decision, the Supreme Court held that Section 271(f) of the Patent Act does not extend to cover foreign duplication of software.

There is no such thing as a world-wide patent. Rather, patent law is territorial. A US patent covers infringing acts that occur in the US but generally disregards extraterritorial activity. The lone statutory exception is Section 271(f) of the Patent Act, which calls for infringement liability for the unauthorized supply of "components" of a patented invention for "combination" abroad.

Todays business reality has considerably dulled the teeth of 271(f) in the area of manufacturing -- few physical components are shipped abroad from the US.  Through Microsoft and others, the US continues to be a leader in software development and the export of software.  Of course, Microsoft does not export its software by loading millions of CDs on a cargo ship. Rather, it sends only a few copies to foreign OEM distributors who load copies of the software onto PCs for sale.

AT&T is the assignee of a patent covering a computer for encoding and compressing recorded speech. In the US, a computer with Microsoft WIndows installed infringes the patent. The question in this case, is whether the foreign installed software can be considered a "component" supplied from the US under 271(f). 

The question before us: Does Microsoft's liability extend to computers made in another country when loaded with Windows software copied abroad from a master disk or electronic transmission dispatched by Microsoft from the United States? Our answer is "No."

As can be seen from the various amici briefs, reasonable minds can differ regarding two statutory elements: (1) whether software -- without being tied to a physical medium -- can be classified as a "component;" and (2) whether the foreign-made copy was "supplie[d]" from the US. Abiding by its principle against extraterritorial application of laws -- especially patent laws -- the Supreme Court answered both of these questions in a restrictive fashion:

• Abstract Software: Until it is expressed as a computer-readable "copy," e.g., on a CD-ROM, Windows software indeed any software
  detached from an activating medium remains uncombinable. . . . Abstract software code is an idea without physical embodiment, and as such, it does not match §271(f)'s categorization: "components" amenable to "combination." [DDC: Software is never without a physical embodiment?]
• Supply of Copies: [T]he very components supplied from the United States, and not copies thereof, trigger §271(f) liability when combined abroad to form the patented invention at issue. Here, as we have repeatedly noted,  the copies of Windows actually
  installed on the foreign computers were not themselves supplied from the United States. [Therefore no liability for foreign-made copies]

Dissent by Justice Stevens: In my view, Justice Stevens - in a solo dissent - has the more sensible view of component.

[I]f a disk with software inscribed on it is a "component," I find it difficult to understand why the most important ingredient of that component is not also a component.