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

The following argument recap was written by David George, an appellate lawyer at Connelly Baker Maston Wotring Jackson LLP in Houston, Texas. His preview of this case can be found here.

The Supreme Court heard argument in Microsoft Corp. v. AT&T Corp. (No. 05-1056) on Wednesday, February 21. The case involves whether Microsoft violated U.S. patent law when it shipped master disks containing Windows overseas for copying and installation on computers sold abroad. Windows, when it is installed on a computer, violates an AT&T patent. The master disks are not installed on computers that are sold. Instead, copies are made overseas from the master disks, and those copies are installed on the computers.

Ted Olson argued for Microsoft. He only got a few words out before Justice Scalia jumped in with a question. Justice Scalia asked why the case was not moot. At the trial court, Microsoft and AT&T stipulated that Windows infringes on AT&T’s patent when it supplies the master disk to U.S. manufacturers, but they disagreed on whether U.S. patent law applied to the master disks shipped overseas. They agreed that Microsoft would pay a certain amount if it wins the appeal and a different amount if AT&T wins. Justice Scalia asked whether there was really any case or controversy because the parties were just betting on the outcome of the appeal. Olson said that, while he could not identify any precedent saying the case was not moot, there was still a case or controversy because a large amount of money depended on the outcome. He also said that in criminal cases defendants plead guilty but preserve their right to appeal certain issues. Justice Kennedy said that he thought there would be a mootness problem if the money involved were trivial, and the parties just wanted a legal question answered.

Olson then turned to his main argument, saying that Microsoft did not supply components from the United States because the software actually installed on the computers was copied overseas. Justice Kennedy asked whether the master disk was a component, and Olson replied that it was not, but that the copies installed on the computers were components. Olson said that the intangible series of ones and zeros was not the component. Instead, the component was the disk containing the code that the computer can read. Justice Kennedy said that it was odd that the disk—and not the information contained on the disk—was the component. He said that “Microsoft doesn’t say please buy our disk because it’s the prettiest disk in the business. It says buy our program because the program means something.”

Justice Stevens then asked what was actually patented, a physical object or the software. Olson said that the software installed in a computer was patented. Justice Scalia noted that the “on-off, on-off code in the abstract” cannot be patented. Justice Ginsburg noted that it was hard to tell if the Federal Circuit held that the code itself, or the master disk containing the code, was the component.

Justice Alito asked whether Olson was making an artificial distinction. He noted that the Federal Circuit said that, given the ease and low cost of copying software, sending the master disk abroad is tantamount to manufacturing the component. Olson said that patent law cannot turn on whether it is fast and efficient to copy something.

Assistant to the Solicitor General Daryl Joseffer argued for the U.S. as amicus supporting Microsoft. Joseffer began by trying to put the case into its context within U.S. and international patent law. He said that someone copying parts abroad for assembly and sale abroad should be governed by foreign law. He said there needs to be a distinction between copying in the U.S. and copying in foreign countries for two reasons. First, it protects foreign governments’ sovereign right to establish rules for competition in their country. Second, it allows U.S. companies to compete on an equal playing field in foreign countries. Justice Ginsburg noted that if a ruling in favor of AT&T would offend foreign government’s sovereignty, it is odd that none of them have filed amicus briefs. Joseffer said that many people view the case narrowly as a software case, but that there is no real basis for limiting the Federal Circuit’s ruling to software.

Joseffer said that he has found no other country that would apply its law if the circumstances were reversed. He also noted that there were significant differences between nations’ patent laws, with many limiting patenting software-related inventions.

Justice Stevens asked what the component was in this case. Joseffer said that it was the machine-readable copy of the software that was actually inserted into the computer.

Justice Breyer said that everyone was operating under the assumption that software is patentable, but that the Court had never ruled on that issue. He asked whether the Court should, in its opinion, state that it was only assuming that software was patentable since the issue was not raised in the case. Joseffer said that the patentability of software is not an issue in this case. The invention is the computer loaded with the software, not the software itself. The software—on a disk—is only a component of the invention. And, components do not themselves have to be patentable. Justice Stevens asked whether software was patentable. Joseffer said that, standing alone, software was not patentable.

Seth Waxman argued for AT&T. He began by saying that, under the ordinary meanings of the statutory words, Microsoft supplied a component from the U.S. Justice Breyer asked whether a person supplies a component from the U.S. if he phones someone in Germany and tells him exactly how to build an infringing machine. Waxman said that was different than this case, because transmitting even the code that a person would understand would not allow someone to create the infringing computer. Instead, the code that people understand—as opposed to the binary code that computers understand—would have to be tested, debugged, and compiled overseas before it worked. Microsoft did that work in the U.S. and then sent the machine-readable code overseas where it could be copied and put directly onto computers.

Justice Stevens asked whether Microsoft would violate the law if it sent the master disk abroad for copying, but no one ever actually copied it. Waxman said that, if Microsoft sent it abroad intending that it be copied and installed, they infringed. It does not matter if the disk were ever copied.

Justice Souter asked why the master disk was different from a blueprint. Waxman said that a blueprint is a precursor to the actual device, but it is not the device itself. But, the code on the master disk is the exact thing that is installed on the computer. Justice Kennedy asked whether sending a machine that makes an infringing machine abroad would be a violation. Waxman said that was different because the master disk is not a machine tool. Instead, it is the exact thing that is installed on the computer.

Waxman agreed that the software code, itself, was not patentable (although it may be copyrightable). But, he said, AT&T was not trying to patent the code. Instead, it patented a system that involves the code.

Justice Stevens asks whether Microsoft commits one or five hundred violations if it sends one master disk abroad which is then copied onto five hundred computers. Waxman says that it is only one violation, but the damages include the copies.

Justice Breyer said that he was concerned about unintended consequences of a ruling in favor of AT&T. He asked whether—outside of computers—the transmission of information has been viewed as the transmission of a component. Waxman said that he was not aware of any. Justice Alito asked whether any machines other than computers have components that are not physical things. Waxman said that he could not think of any.

In rebuttal, Olson referenced a case—Nixon v. Fitzgerald—that supported his argument that the case was not moot.