Noreen Krall serves as Chief Patent Counsel, and Melissa Haapala as Senior Patent Counsel, at Sun Microsystems Inc. Disclaimer: The views expressed in this paper are those of the authors and are not necessarily shared by Sun Microsystems.

Introduction

Prior to 1984, liability for patent infringement under the “make” provision of 35 U.S.C. Ã?§ 271(a) could only be found if a patented invention was made entirely within the United States. The United States Supreme Court made this abundantly clear in Deepsouth Packing Co. v. Laitram Corp., in which it held that Deepsouth could not be held liable under United States patent law for exporting components that were then assembled overseas.1  Thus, Congress enacted 35 U.S.C. Ã?§ 271(f) as part of the “Patent Law Amendments Act of 1984” to close this “loophole” in U.S. patent law. In recent cases, liability under 271(f) has been extended to manufacturers of software. The expansion to software has caused some concern to Information Technology (“I.T.”) companies and may result in some unintended consequences to the technology industry.

Deepsouth

In 1972, the U.S. Supreme Court considered whether the patent laws prevented Deepsouth Packing from exporting its unassembled shrimp deveiners outside the United States.2  Laitram Corporation held valid U.S. patents that prevented Deepsouth from making or selling its shrimp deveiners throughout the United States.3  Deepsouth also shipped its shrimp deveiners to foreign customers in three boxes, which each contained parts of the 1 3/4 ton machines.4  The parts could then be assembled into a complete shrimp deveiner in less than one hour.5  Deepsouth contended that Laitram’s U.S. patents were not infringed as the “making” and the “use” of the machine took place outside the United States.6  The Supreme Court ruled in favor of Deepsouth. It held that the then existing version of 35 U.S.C. Ã?§ 271 “makes it clear that it is not an infringement to make or use a patented product outside of the United States.”7  The Court refused to endorse the idea that substantial manufacture of machine parts constituted direct infringement because a combination patent protects only against the “operable assembly of the whole and not the manufacture of its parts.”8  In his dissenting opinion, Justice Blackmun took exception to the “iniquitous and evasive nature of Deepsouth’s operations.”9  The dissent echoed the same concerns that were raised in the Fifth Circuit’s opinion that to hold in favor of Deepsouth would subvert the Constitutional patent scheme because it would allow an infringer “to set up shop next door to a patent-protected inventor” and deprive the inventor of valuable foreign business.10  As it turned out, Congress also had the same concerns.

Patent Law Amendments Act of 1984

On November 9, 1984, President Ronald Reagan signed H.R. 6286, also known as the “Patent Law Amendments Act of 1984” into law. The Patent Law Amendments Act of 1984 added 35 U.S.C. Ã?§ 271(f) to U.S. patent law. Section 271(f) states:

(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 matter 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 patent 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.11

In referring to 271(f), President Reagan stated that it “closes a loophole in existing law which permitted copiers to export jobs and avoid liability by arranging for final assembly of patented machines to occur offshore.”12  Thus, 271(f) was enacted specifically in response to the Supreme Court’s decision in Deepsouth.

Expansion to Software

When 271(f) was enacted, a CD referred to a certificate of deposit and the widespread adoption of software applications was merely a vision in the minds of a few people. However, in recent years, the courts have had to grapple with the application of 271(f) to technologies that were barely in existence in 1984. In 2005, the Federal Circuit issued two landmark decisions specifically addressing the application of 271(f) to exportation of a “golden master” disk containing software code. The Federal Circuit addressed in Eolas Technologies v. Microsoft whether software code made in the United States and exported abroad is a component under 271(f).13  The district court found Microsoft’s Windows operating system with Internet Explorer infringed Eolas’ patent and awarded Eolas royalty damages for both foreign and domestic sales of Windows with IE.14  The liability for the foreign sales was found under 271(f) based on Microsoft’s exportation of a limited number of golden master disks, which contained the software code for the Windows operating system.15  The disks were used by Original Equipment Manufacturers (OEMs) located abroad to replicate the Windows operating system onto computer hard drives for sale outside of the United States.16  None of the golden master disks themselves ended up as a physical part of the products sold outside the U.S..17  The Federal Circuit found that the statutory language “patented invention” in 271(f) is a “broad and inclusive term.”18  Thus, the Court determined that “every form of invention eligible for patenting falls within the protection of section 271(f)” and 271(f) was not limited to machines or physical structures.19  In particular, the Court unambiguously stated that “the language of section 271(f) does not impose a requirement of ‘tangibility’ on any component of a patented invention.”20  Since the software code on the golden master disk was exactly duplicated as an operating element on the ultimate devices sold abroad, the Court found that the exported software code was not only a component, but “a key part of the patented invention.”21  Accordingly, the Federal Circuit affirmed the district court and held that software code on golden master disks indeed is within the scope of “components” under 271(f).22  Section 271(f) also imposes a requirement that the components of a patented invention be “supplied” from the United States. A few months after deciding Eolas, the Federal Circuit addressed this issue in yet another case involving Microsoft’s exportation of golden master disks in ATT Corporation v. Microsoft Corporation.23  The facts of ATT are similar to Eolas in that Microsoft was appealing a district court finding of liability under 271(f) for foreign sales of replicated copies of its Windows operating system made abroad from golden master disks exported from the United States.24  Microsoft contended that liability under 271(f) did not attach for the foreign-replicated copies because they were not supplied from the United States.25  A panel of two Federal Circuit judges rejected Microsoft’s argument by reasoning that supplying software commonly involves generating a copy.26  Thus, the court found that for software components, “the act of copying is subsumed in the act of ‘supplying’, such that sending a single copy abroad with the intent that it be replicated involves Ã?§ 271(f) liability for those foreign-made copies.”27  The court also rejected Microsoft’s argument that software sent by electronic transmission must be treated differently from software shipped on disks.28  Instead, the Court specifically stated “whether software is sent abroad via electronic transmission or shipped abroad on a ‘golden master’ disk is a distinction without a difference for the purposes of Ã?§ 271(f) liability.”29  Therefore, the Federal Circuit affirmed the district court’s holding of liability under 271(f).30

Implications to IT Companies

The Supreme Court recently granted Microsoft’s request for a writ of certiorari appealing the Federal Circuit’s decision in ATT v. Microsoft. The issues presented to the Supreme Court are:

1)Whether software object code can be a component of a patented invention; and, if so, 2) Whether copies of software object code are “supplied” from the United States when those copies are created overseas by replicating a separate master version supplied from the United States.

Microsoft’s petition for a writ of certiorari was supported by the the U.S. Solicitor General.31  In its amicus curiae brief, the Solicitor General stated that “the questions presented have substantial ongoing practical importance.”32  An amicus brief in support of certiorari was also filed by the Software & Information Industry Association.33  The Association stated in its brief that “The Federal Circuit’s decision is especially harmful to America’s high-technology sector.”34  One major concern of the technology industry is that the expansion of liability under 271(f) to golden master disks in effect creates potential worldwide liability for software manufacturers under United States patent law. Companies cannot export any software created by their U.S. based research and development operations without exposing themselves to patent liability for all worldwide sales under 271(f). Thus, the expansion of liability under 271(f) for all foreign sales of software could force some I.T. companies to relocate their research and development activities outside of the United States, which directly conflicts with the stated intent of this provision when enacted in 1984. Additionally, as recognized by the Solicitor General, U.S. companies may find themselves at a substantial competitive disadvantage in foreign markets because their foreign competitors do not run afoul of the risk of global liability under U.S. patent law for their activities.35  Indeed, as many countries do not recognize software patents, the foreign competitors may not be subject to any patent liability. This may prevent some U.S. companies, especially smaller companies, from being able to compete at all in foreign markets.

Conclusion

35 U.S.C. Ã?§ 271(f) was enacted specifically to close a loophole in patent law brought about by the Supreme Court’s decision in Deepsouth finding no liability under U.S. patent law for exporting components of a physical device which were then assembled overseas. The concern was that an infringer could simply copy the patented invention and then subvert U.S. patent law by exporting components of the invention for simple assembly in foreign countries. Recently, the Federal Circuit has expanded the application of 271(f) to copies of software made abroad from software exported from the United States as a golden master disk or electronically. However, unlike the simple patented machine at issue in Deepsouth, a software manufacturer cannot merely read a software patent and then be able to copy the software product and thus steal the patent holder’s foreign business. Hundreds of patents could apply to a single software product, which may have taken years to develop. Instead of promoting “the Progress of Science and useful Arts”36 , the unlimited global liability now faced by U.S. software manufacturers may only cause economic damage to the U.S. technology industry and inhibit the ability of U.S. companies to compete internationally.

Sources

1   Deep South Packing Co. v. Laitram Corp., 406 U.S. 518 (1972). 2   Id. at 520. 3   Id. at 523. 4   Id. at 524. 5   Id. 6   Id. 7   Id. at 527. 8   Id. at 528. 9   Id. at 533. 10   Id. at 534 (quoting Laitram Corp. v. Deepsouth Packing Co., 443 F.2d 928 (5th Cir. 1971)). 11   35 U.S.C. Ã?§ 271(f). 12   Statement on Signing the Patent Law Amendments Act of 1984, 20 Weekly Comp. Pres. Doc. 1818 (November 9, 1984). 13   Eolas Tech. Inc. v. Microsoft Corp., 399 F.3d 1325 (Fed. Cir. 2005), cert. denied, 2005 U.S. LEXIS 8184 (Oct. 31, 2005). 14   Id. at 1332. 15   Id. at 1331. 16   Id. 17   Id. 18   Id. at 1338. 19   Id. at 1339. 20   Id. at 1340. 21   Id. at 1339. 22   Id. at 1341. 23   AT&T Corp. v. Microsoft Corp., 414 F.3d 1366 (Fed. Cir. 2005), cert. granted, Microsoft Corp. v. AT&T Corp. (U.S. Oct. 27, 2006) (No. 05-1056). 24   Id. at 1368. 25   Id. at 1369. 26   Id. at 1370. 27   Id. 28   Id. 29   Id. at 1371. 30   Id. at 1372. 31   Brief for the U.S., Microsoft Corp. v. AT&T Corp. (No. 05-1056). 32   Id. at 17. 33   Brief of the Software & Info. Indus. Ass’n, Microsoft Corp. v. AT&T Corp. (No. 05-1056). 34   Id. at 13. 35   See Brief for the U.S. at 18. 36   U.S. Const. Art. I. Ã?§ 8.

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