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.

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    In re Nuijten: Patentable Subject Matter, Textualism and the Supreme Court

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    DuffyBy Professor John F. Duffy, George Washington University

    [PDF Version of this Post] In re Nuijten, which is being argued to the Federal Circuit today, presents the important issue of whether a new type of artificially constructed signal may be patented.  The Patent and Trademark Office opposes patentability on the grounds that, as a matter of textual interpretation, signals do not fall within any one of the four categories of patentable subject matter - "process, machine, manufacture, or composition of matter" - identified in section 101 of the Patent Act.  PTO Br. at 12 (quoting 35 U.S.C. § 101).  Though Nuijten raises important issues concerning the scope of patentable subject matter under U.S. law (and that's reason enough for most patent practitioners and scholars to care about its outcome), the case is also about much more.  It is about the fundamental approach to interpreting the Patent Act and the effect of the Supreme Court's recent interest in patent cases.  To appreciate those larger issues, we must begin with a basic understanding of the facts at issue.

    PatentlyO2006044Modern signals (e.g., for carrying audio, video or data) may be constructed to contain embedded "supplemental data" or "watermarks," which typically contain information such as the source or copyright status of the underlying information being transmitted.  The addition of such watermarks, which is old in the art, can distort the underlying signal.  Nuijten invented a new way to add watermarks that results in less distortion.  Nuijten filed a patent application with claims directed to (1) the new process for adding watermarks, (2) storage media containing signals encoded by the new process, and (3) the signals themselves.  The PTO has allowed claims for the process and for the storage media containing the signals, but not for the signals themselves.  The PTO does not disputed that the signals sought to be patented are demonstrably new and nonobvious.  The agency's sole objection rest on section 101 of the Patent Act. 

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    Voda v. Cordis: Plaintiff May Not Assert Foreign Patents in US Courts

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    VodaCatheter_smallVoda v. Cordis (Fed. Cir. 2007).

    Jan Voda, an Oklahoma medical doctor sued Cordis for infringement of his patent on an interventional cardiology catheter. Voda had obtained patents both in the US and abroad. Not wanting to waste time and money on multiple suits, Voda asked the US court to also determine his claims of foreign infringement based on his patents in the UK, Canada, France, and Germany.  The US court agreed, but Cordis appealed — arguing that the district court improperly extended its jurisdiction.

    In a 2–1 decision, the Federal Circuit (Gajarsa) has held that the district court cannot exercise supplemental jurisdiction over Voda’s foreign patent claims.  Judge Newman dissents.

    Supplemental Jurisdiction: Federal courts are designed to hear federal law. But, every day they exercise their power to decide issues that arise under the law of other jurisdictions. Usually the other jurisdictions are US states and municipalities. But, the courts are also regular interpreters of non-US law as well.  Non-Federal questions arise based on either “diversity jurisdiction” or “supplemental jurisdiction.”  Supplemental jurisdiction is spelled-out in 28 USC 1367:

    [after establishing] original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution.

    In many cases, supplemental jurisdiction has been found to extend to include foreign law claims. However, the “so related” portion of the statute has been interpreted to require that the supplemental claims arise from a “common nucleus of operative fact” and that the claims would “ordinarily be expected to [all be tried] in one judicial proceeding.”  Here, the CAFC did not determine whether supplemental jurisdiction exists because it found that the district court had abused its discretion (see below).

    Discretion and Comity: Even if jurisdiction exists, its exercise is “within the discretion of the district court.”  The CAFC found that the district court abused its discretion by ignoring the Paris Convention, TRIPS and concepts of comity.

     Like the Paris Convention, nothing in the PCT or the Agreement on TRIPS contemplates or allows one jurisdiction to adjudicate patents of another. . . . Based on the international treaties that the United States has joined and ratified as the "supreme law of the land," a district court’s exercise of supplemental jurisdiction could undermine the obligations of the United States under such treaties, which therefore constitute an exceptional circumstance to decline jurisdiction under § 1367(c)(4). Accordingly, we must scrutinize such an exercise with caution. . . .

    The territorial limits of the rights granted by patents are similar to those conferred by land grants. A patent right is limited by the metes and bounds of the jurisdictional territory that granted the right to exclude. Therefore, a patent right to exclude only arises from the legal right granted and recognized by the sovereign within whose territory the right is located. It would be incongruent to allow the sovereign power of one to be infringed or limited by another sovereign’s extension of its jurisdiction. Therefore, while our Patent Act declares that "patents shall have the attributes of personal property," 35 U.S.C. § 261, and not real property, the local action doctrine constitutes an informative doctrine counseling us that exercising supplemental jurisdiction over Voda’s foreign patent claims could prejudice the rights of the foreign governments.

    . . . Because the purpose underlying comity is not furthered and potentially hindered in this case, adjudication of Voda’s foreign patent infringement claims should be left to the sovereigns that create the property rights in the first instance.

    Judicial Economy: While the CAFC agreed with voda that “consolidated multinational patent adjudication could be more efficient,” the court worried that it would also cause additional problems of confusion and difficulty understanding and enforcing foreign actions.

    Changing Circumstances: Finally, the court left the door open if “circumstances change.”

    In addition, we emphasize that because the exercise of supplemental jurisdiction under § 1367(c) is an area of discretion, the district courts should examine these reasons along with others that are relevant in every case, especially if circumstances change, such as if the United States were to enter into a new international patent treaty or if events during litigation alter a district court’s conclusions regarding comity, judicial economy, convenience, or fairness.

    Vacated and Remanded

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    Wegner: Escaping the Depths of the Patent Shadows

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    WegnerA response to Merges,
    By Hal Wegner

    Professor Robert P. Merges makes much sense in his op-ed piece, Back to the Shadows, or Onward and Upward? Current Trends in Patent Law. We and thoughtful supporters of the patent system share much common ground.  Professor Merges touches on numerous points where there is hardly any significant difference with this writer, including the domestic results of the eBay decision from last year.  In his analysis of the Supreme Court, Professor Merges is correct that the Court is generally “pro business”, but it is another matter whether in some industries being “pro business” means being “pro-patent”.

    PatentlyO2006026“Pro Business” as Anti-Patent, a new Direction at the Court:  Professor Merges is absolutely correct that the Supreme Court today is “pro-business”.  Whether the majority is pro-patent is possible but not yet conclusively determined: It is too soon to tell. It is undeniable that there is a solid, anti-patent Supreme Court core consisting of Justices Breyer and Stevens.  Justice Stevens’ anti-patent record reaches back to the mid-1970’s and is too well documented to question.  Yet, Justice Breyer is apparently now the more enthusiastic anti-patent of the two; they are the only members of the Court in this century to have taken the view that the open door to § 101 patent-eligibility for “living” inventions in the Chakrabarty case should be narrowed, arguing in a dissent in J.E.M. that the utility patent law “does not apply to plants”.(1) Just last year, an anti-patent drumbeat manifested in the Breyer dissent from the Metabolite “DIG” (joined by Stevens) plus their joint participation in the Justice Kennedy concurrence in eBay further validates their anti-patent bias.  Justice Souter joined both the Metabolite DIG dissent and the Kennedy eBay concurrence, but whether he is truly a solid part of an anti-patent core requires more data points; they may be forthcoming in shortly in KSR and in early Spring in Microsoft.  Whether other members of the Court join this core remains to be seen.

    Feeding this nascent anti-patent core are two dominant themes:  First, while the Supreme Court is pro-business, a major segment of the business community is largely anti-patent, turning the patent system upside down:  Under this twisted view of patents, being “anti-patent” may be “pro business”.  Second, the patent jurisprudence of the Federal Circuit has created and continues to create problems that necessarily fuel further growth of an anti-patent sentiment. 

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