Argument Preview: Microsoft v. AT&T on 2/21

The following argument preview was written by David George, an appellate lawyer at Connelly Baker Maston Wotring Jackson LLP in Houston, Texas.

On Wednesday, February 21, 2007, the Supreme Court will hear argument in No. 05-1056, Microsoft Corp. v. AT&T Corp. This case is about whether a company can violate U.S. patent law by sending software contained on a master disk overseas for copying and installation. Ted Olson of Gibson, Dunn & Crutcher will argue for Microsoft, while Seth Waxman of Wilmer Cutler Pickering Hale & Dorr will argue for AT&T. Assistant to the Solicitor General Daryl Joseffer will argue on behalf of the United States as amicus in support of Microsoft. Chief Justice Roberts is recused in this case.

Under U.S. patent law, it is not patent infringement to make or use a patented product in another country. In 1972, in Deepsouth Packing Co. v. Laitram Corp. , the Supreme Court held that if a company manufactures a patented product’s components in the United States, but ships them to another country for final assembly, that is still not patent infringement. In response to Deepsouth, Congress passed 35 U.S.C. § 271(f), which makes it patent infringement to ship a patented product’s components to another country for assembly there.

There are two issues in this case. First, can software be a component of a patented invention? And second, is a software copy that is made in a foreign country supplied from the United States?

AT&T has a patent for a digital speech coder. This invention, which compresses a digital speech signal so that it can be transmitted and stored more easily, is widely used in mobile phones and personal computers. AT&T sued Microsoft, claiming that Microsoft’s Windows operating system infringes its patent. At trial, Microsoft stipulated that, when Windows is installed on a computer, the computer infringes AT&T’s patent. However, the Windows software—by itself—does not infringe AT&T’s patent. Microsoft supplies Windows to U.S. and foreign computer manufacturers on disks, called “golden master disks.” The manufacturer then uses these golden master disks to make copies of the Windows software, which are in turn installed on the computers that are sold.

Microsoft stipulated at trial that it induced infringement of AT&T’s patent when it supplied Windows-containing golden master disks to U.S. computer manufacturers. But, Microsoft contended that it did not induce infringement of AT&T’s patent when it supplied the golden master disks to foreign computer manufacturers. The district court held Microsoft liable under § 271(f) for all foreign sales of computers using Windows, and the Federal Circuit affirmed.

Can software be a component?

Microsoft contends that software code is not a component under § 271(f). It agrees that software contained in a disk that is actually installed in a computer is a component. But, it argues that the software code itself—the binary zeros and ones—is not a component when it is not contained on computer-readable physical media, like a disk or hard drive.

Under patent law, instructions do not infringe patents. For example, if someone patented a cake, then the recipe would not infringe the patent, but the cake that a baker bakes using the recipe would infringe. Microsoft contends that its Windows code—before it is installed on a computer—is just a set of instructions. Thus, Microsoft contends, it is the Windows object code contained on a computer-readable disk actually installed in the foreign computer—not the Windows code in the abstract—that is a component of AT&T’s patented invention.

AT&T argues that Microsoft’s interpretation of “component” is strained. Using ordinary language, the software code is a component—indeed, the most important component—of the computer. While the Windows software code itself, standing alone, cannot make the infringing invention, the code is a component of the invention.

AT&T also argues that software code is not just design information. Although it agrees that a recipe is not the same thing as a cake, in software there is no distinction between the instructions and the product. The product—the computer loaded with Windows that infringes AT&T’s patent—is a machine that contains, and continuously performs, the software codes’ instructions.

Are software copies made in a foreign country from a U.S.-supplied master disk components supplied from the United States?

Microsoft argues that, because only a computer-readable physical copy of the software that is actually loaded on a computer is a component under § 271(f), it never supplied a component from the United States. Instead, the disks containing the software that were installed on the computers were copied in foreign countries from golden master disks shipped from the United States. If the golden master disk had been installed on a computer, then that would have been § 271(f) infringement, but the golden master disk was never installed on any computers.

AT&T argues that once the term component is properly understood to include the software code itself—regardless what physical form it is contained on—it is clear that Microsoft supplied a component from the United States. AT&T notes that Windows is written, debugged, tested, and manufactured entirely within the United States. And, Microsoft exports the golden master disk intending that the foreign manufacturers install the exact copy of Windows on the foreign-assembled computers. AT&T contends that, because the “very same zeros and ones” created in the United States by Microsoft programmers are installed on the foreign computers, Microsoft supplies from the United States software installed on foreign computers.

Significance

Many of the largest computer-related companies—including Amazon, Yahoo, and Intel—and computer-industry trade groups have filed amicus briefs supporting Microsoft. Microsoft and many of its amici contend that a Supreme Court ruling in favor of AT&T will put U.S. companies at a competitive disadvantage to foreign companies and could drive the U.S. software industry overseas. If companies design and ship software entirely overseas, then they cannot be held liable for supplying components from the United States. So, software companies will send their design and manufacturing overseas.

AT&T and its amici counter that U.S. software companies are unlikely to move their operations overseas. And Congress—not the Court—is better able to decide whether the risk of companies moving abroad justifies changing patent law.