ATT v. Microsoft On Friday, October 27, 2006 the Supreme Court granted certiorari on the �§271 issue. This case will be huge for the software industry. The SCOTUS blog announces the decision and makes available some of the briefs.

Facts of the Case

Microsoft sent a master disk of a certain software overseas where it can be replicated and installed on foreign computers, which are sold to foreign customers. The master disk contained a speech codec, which was alleged to infringe ATTâ��s patent. Microsoft was held liable under 35 U.S.C. �§ 271(f) by the district court. The Federal Circuit affirmed, rejecting all of Microsoftâ��s arguments that 1) software is not a component, 2) even if it was, no component was supplied by the US because everything was done abroad, and 3) only one act of infringement is appropriate because only one disk was shipped from the US. Basically, the Circuit Court stated that a U.S. company can be held liable for infringement in foreign jurisdictions.

Origin of 271(f)

Section 271(f) was originally enacted in order to close a loophole that was exposed in Deepsouth Packing Co. v. Laitram Corp, 406 U.S. 518 (1972). Potential infringers were manufacturing the components of patented products and then shipping the components overseas for assembly. This allowed them to escape liability until Congress enacted Ã?§ 271(f). The statute now holds liable anyone who ââ?¬Å?supplies or causes to be supplied in or from the United States all or a substantial portion of the components of a patented invention.ââ?¬Â?

Why software industry cares

The Federal Circuit says the court needs to recognize ââ?¬Å?the realities of software distribution,ââ?¬Â? and adjust for the fact that only one disk ever needs to be sent overseas and there is a clear intention that it be copied and distributed overseas. This may be an instance which supports some academics call for industry specific patent reform. In the software context, the Federal Circuit has reasoned supplies is the same thing as copies. Many see Ã?§ 271(f) as a bad statute because it encourages outsourcing. This is suggested in Tech LawForumââ?¬â?¢s video panel discussion found here. The Federal Circuit heard this argument and responded:

[P]ossible loss of jobs in this country is not justification for misinterpreting a statute to permit patent infringement.

ATT Corp. v. Microsoft Corp., 414 F.3d 1366, 1372 (Fed. Cir. 2005). This is a tough case because on the one hand you may have worldwide liability and an incentive to outsource if the Court holds that acts of infringement on foreign lands will produce liability in the US. On the other hand, if the Court holds Microsoft shall only be liable for one act of infringement (the one master disk that was exported), the realities of software are being ignored so that companies like Microsoft will gladly infringe other patents one time in order to make profits off of all the copying overseas; this is of course assuming the foreign land is not equipped to appropriately punish Microsoft themselves. I wouldn�t be surprised if the Supreme Court lets Congress handle this issue, like they did in Deepsouth. The Chief Patent Counsel and Senior Patent Counsel at Sun Microsystems have written about this in a TLF article: The Rise of Extraterritoriality in US Patent Law Under 35 USC 271(f).