The Supreme Court Clarifies Definition of “Component” Under 35 U.S.C. §271(f) As Applies to Software

Supreme Court Holds Exported Software Copied Abroad And Installed in Computer Does Not Infringe Apparatus Claims

On April 30, 2007, the United States Supreme Court issued its decision in Microsoft Corp. v. AT&T Corp., 127 S. Ct. 1746; 82 USPQ2d 1400 (2007), which reversed the Federal Circuit’s decision and found that liability under 35 U.S.C. §271(f) does not extend to copies of software made abroad and installed in foreign computers. 

Background

AT&T holds a U.S. Patent No. 32,580 (“the ‘580 patent) for an apparatus that digitally encodes and compresses recorded speech.  Microsoft’s operating system has the potential to infringe AT&T’s patent because its software, once installed, enables a computer to process speech in the same manner as the ‘580 patent.  Consequently, both parties concede that Microsoft’s installation of Windows in its computers during software development, as well as Microsoft’s licensing of Windows copies to manufacturers of computers that are sold in the United States constitute infringement of the AT&T patent. 

Microsoft however, denies liability for copies of Windows made from the master disk or electronic transmission it dispatches to foreign manufacturers.  Specifically, the master disk was sent to foreign manufacturers, who then made copies, and the copies are installed on the computers.  There was no evidence that the master disk itself was installed in a computer instead of merely being shipped.

AT&T argued that Microsoft is liable because Microsoft supplied components of the AT&T patent from theUnited Statesto foreign manufacturers for combination abroad.  Microsoft responded that an intangible software on a medium cannot be a “component” of an invention under 35 U.S.C. §271(f), and that the foreign copies of the software copied from the supplied medium were not, themselves, supplied from theUnited States.  The District Court rejected Microsoft’s responses and held it liable under 35 U.S.C. §271(f).

On appeal the Court of Appeals for the Federal Circuit affirmed and determined that for software components copying is included in supplying.  The Federal Circuit also emphasized that a master sent abroad is identical to its copies, which are easily and inexpensively generated.  Consequently, sending a master disk with the intent that it be replicated results in liability under 35 U.S.C. §271(f).

Question Presented to the Supreme Court

Subsequent to the Federal Circuit decision, the Supreme Court granted a writ of certiorari on the following issue:

Does a liability extend under 35 U.S.C §271(f) when computers made in another country are loaded with software copied abroad from a master disk or electronic transmission dispatched from theUnited States?

The Supreme Court granted certiorari to determine whether 35 U.S.C. §271(f) applies to computer software sent from the United States to a foreign manufacturer on a master disk or electronic transmission, which is then copied abroad and installed on computers made and sold abroad.

Holding of the Supreme Court

The general rule of patent law is that no infringement occurs of a U.S. Patent when a patented product is made and sold in another country.  However, the exception of this rule is provided for in 35 U.S.C. §271(f), which allows a claim of infringement of a U.S. Patent where the components of a patented invention are combined outside of the United States in a manner that would infringe the patent if combined in the United States, and the component is shipped from the United States. Infringement can be determined under one of the two provisions of 35 U.S.C. §271(f) as follows: 

(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.

The Supreme Court held that no liability attaches under 35 U.S.C. §271(f) to software exported from theUnited States, but is then copied abroad and the copies are installed in foreign made and sold computers.  The Supreme Court reasoned that, because software in its abstract form is not considered a component of the patented invention, and the copies of the software were not supplied from theUnited States. 

The Court referred to Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518 (1972), and pointed to legislative materials to indicate that 35 U.S.C. §271(f) was enacted as a result of the Court’s decision in Deepsouth.  In that case, the Court agreed that nothing inUnited States patent law precluded Deepsouth from making parts of a de-veining machine in theUnited States and selling such parts to foreign buyers to assemble and use abroad.  The Court refused to declare the manufacture and sale of parts for assembly abroad as infringement absent a “clear congressional indication of intent”.  As a result, Congress expanded its definition of infringement from “mak[ing], us[ing] or sell[ing] any patented invention, within the United States . . .”, 35 U.S.C. §271(a), to include the supply from the Unites States of any component of a patented invention that “induce[d] the combination of such components outside the of United States in a manner that would infringe the patent if such combination occurred in the United States . . .” 35 U.S.C. §271(f).

Regarding whether software qualifies as a “component” of a patented invention under 35 U.S.C. §271(f), two different views can be applied.  Software may be characterized as “in the abstract”, meaning that the set of instructions that directs the computer to perform different tasks is detached from a medium.  In the alternative, software may be characterized as a tangible copy because such instructions are encoded in a medium.  To be functional, software must be converted from “source code”, which is the form understood by humans, to “object code”, a machine usable version.  Consequently, the Supreme Court held that until Windows is expressed in a computer-readable copy, the software remains uncombinable because it cannot be executed by a computer.  The Supreme Court also pointed out that abstract source resembles a blue print in that it contains instructions for how to build a structure, but is not a combinable component of the invention.  As such, software in the abstract is not a component as defined under 35 U.S.C. §271(f) since mere supplying of plans to build a machine is not an infringing act for this section.

The next question the Court focused on referred to whether Microsoft supplied components of the computers involved from theUnited States.  The Supreme Court agreed with Judge Rader’s dissent from the Federal Circuit in that supplying does not equate to copying, and that nothing in 35 U.S.C. §271(f) renders the ease of copying a factor in deciding whether there is liability for infringement.   Also, the Court emphasized that the copies of Windows that were installed on the foreign computers were not themselves supplied from theUnited States.  Consequently, the Supreme Court determined that absent legislative intent to include copying as “supplying from the United States”, the foreign copies of Windows were not supplied from the Unites States and do not trigger liability under 35 U.S.C. §271(f).

The Supreme Court concluded by emphasizing the presumption against extraterritoriality in that United Stateslaw does not govern all foreign affairs, particularly regarding patent law.  Although AT&T pointed to the “loophole” for avoiding liability for infringement by copying software abroad, the Supreme Court determined that such “loophole” was best resolved by legislative judgment as was the gap revealed in the Deepsouth decision.  Congress did not address any other gaps in patent law when it enacted §271(f) although it could have easily determined that supplying information or instructions from theUnited States to make duplicates abroad would result in infringement.

Significance To Patent Owners

While seemingly of limited applicability, the Microsoft case highlights the importance of ensuring that, where software is involved, the claims should be independent of the apparatus in which the invention is installed.  This means that applicants need to ensure that claims to software are presented in addition to method and apparatus claims.  The very reason AT&T was forced to use 35 U.S.C. §271(f) was that the claims were to the apparatus with the software as opposed to the disk with the software installed.  In this way, there is direct infringement through mere possession or export of the disk with the software and is not reliant on whether the disk is directly installed in a computer or is instead merely copied prior to installation.

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