OCTOBER 27, 2006

Today the Supreme Court granted certiorari in one case of interest to the business community.

Patent Act—Supply of Components for Foreign Combination—Software.  Section 271(f) of the Patent Act (35 U.S.C. § 271(f)(1) & (2)), prohibits “suppl[y] * * * from the United States * * * [of] all or a substantial portion of the components of a patented invention * * * in such manner as to actively induce the combination of such components outside of the United States,” as well as “suppl[y] * * * from the United States [of] any component of a patented invention that is especially made or especially adapted for use in the invention.” The Supreme Court granted certiorari in Microsoft Corp. v. AT&T Corp., No. 05-1056, to decide whether software object code—the binary ones and zeros read by a computer—can be a “component” of a patented invention, and if so whether copies of object code installed on a computer are “supplie[d] * * * from the United States” when they are created overseas by replicating a master version of the object code that is supplied from the United States.

AT&T holds a patent on an invention for digitally encoding and compressing speech using software installed on a computer. Microsoft has conceded that when its Windows operating system is installed on a computer the resulting product infringes AT&T’s patent. The dispute in this case is whether, under Section 271(f), Microsoft is liable for infringement not only with respect to computers assembled within the United States but also for computers that were assembled overseas and on which a copy of Windows object code was installed overseas (from a master disk shipped from the United States). The Federal Circuit held that Microsoft is liable as to these foreign computers. It concluded that the software object code is a “component” of AT&T’s invention and that copies made overseas from a master source sent from the United States are effectively “supplie[d] * * * from the United States” because there is no difference under the law between sending “one golden master disk” and sending “one CD for each computer.” AT&T Corp. v. Microsoft Corp., 414 F.3d 1366 (Fed. Cir. 2005). In an amicus brief supporting Microsoft’s petition for certiorari, the Solicitor General agreed with the Federal Circuit that object code is a component of AT&T’s invention but argued that copies of code installed overseas from a master disk shipped from the United States are not “supplie[d] * * * from the United States” and thus do not fall within Section 271(f).

This case is important to all businesses in the computer industry—those holding patents on inventions that involve software and those that develop software that may be installed overseas from a master source. If Microsoft prevails, holders of patents involving software will have to rely on foreign patent law to enforce their patents as to any product for which the software was installed outside of the United States. If AT&T prevails, Microsoft has predicted a mass exodus of domestic software development due to the multiplication of potential liability for any software that is developed and shipped, even just in master form, from the United States. The case may also prove important to businesses that hold patents on or develop products that involve other “information assets,” such as DNA sequencing.

Amicus briefs in support of the petitioner are currently due on December 11, 2006; amicus briefs in support of the respondent will be due 35 days after petitioner’s brief is filed. Any questions about this case should be directed to David Gossett (202-263-3384) in our Washington, D.C. office.

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