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February 21, 2007
Supreme Court hears ATT-Microsoft patent case
Today the Supreme Court hears oral arguments in Microsoft v. AT&T. At issue is generally framed as the extraterritorial application of U.S. patent law. As the FT explains:
AT&T won a claim that Microsoft infringed its patent by including its technology in the Windows operating systems installed in computers built in the US. This case tests whether Microsoft must also pay when it sends Windows versions including the AT&T technology overseas for installation in foreign-made computers.
The dispute centres on a law aimed at preventing companies from circumventing US patent law by shipping "components" overseas for assembly. The case tests whether software is such a "component" and whether creating copies of software overseas from a master disk shipped from the US is covered by that law.
I am less interested in the extraterritoriality of the case as with the definitions. One of Microsoft's claims (in their brief) is that they do not supply the infringing component:
The only things Microsoft furnishes from the United States are the golden master disks and encrypted transmissions containing master versions of the Windows object code. But those masters are never installed on a computer that is sold; rather, only the foreign-made copies of Windows are installed on foreign built computers.
Thus, the infringement takes place when the foreign copies are made from the master and installed on the computer. This is beyond the scope of US law (I won't get into all the details - for a good discussion of the case see the Patently-O: Patent Law Blog: Microsoft v. ATT: Unlicensed Export of Patented Software).
To argue this, Microsoft has to claim that the copying the software from a master disk (but not directly onto a computer) is foreign "manufacturing."
I worry about that assertion. Copying of the software from a master to individual disks does not involve a transformation, which what is required to define "manufacturing." The point of transformation is the process of installation on the computer (which transforms the computer and the software into a usable product). In the Microsoft case, the component is never transformed between the time it leaves the US and the time it is installed on the computer abroad. The software can in no way be considered foreign-manufactured by simple copying (no transformation).
I also find the case interesting in what it says about the US patent law. In their brief, Microsoft and the software industry essentially argue that US infringement penalties are so draconian that they would move software "manufacturing" (i.e. code writing and development) offshore rather than expose it to US infringement penalties on foreign sales. I don't know if that is just hyperbola rhetoric. But is it is a damning statement about the current state of patent law.
It may also come back to bite the software industry when they argue for tougher enforcement in other countries. On the one hand, Microsoft (and the software industry) admit infringement in the US but argue that US law should not be enforced abroad. They also seem to say that piracy is allowed. Microsoft and the software industry are defending the right of foreigners to pirate IP (and reverse engineer) in foreign countries (see p. 19 of the petition for writ of certiorari):
In foreign markets, a patentee’s competitor remains free to duplicate or reverse-engineer inventions patented in the United States, or to assemble such inventions from foreign-manufactured component parts.Then, on the other hand, the software industry routinely calls for sanctions on countries that don't enforce as tough as US laws.
It may be good legal argument to stress the limit the extraterritoriality of US law. But it runs counter to all public policy in this area, which is based on the assertion that foreign infringement on foreign sales (aka piracy) is bad. Thus Microsoft seems to be arguing that the sale of a computer with a pirated Windows operating system sold in China should be subject to US trade retaliation (trade law under special 301) but its infringement of AT&T’s patent in operating systems sold in Europe should not be subject to US law. Legal technicalities aside, it make no sense.
Interesting. We will see what the Court decides.
Posted by Ken Jarboe at February 21, 2007 9:28 AM
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