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Microsoft v. AT&T, 550 U.S. 437 (2007), was a United States (U.S.) Supreme Court case in which the Supreme Court held that software companies, such as Microsoft in this case, were not liable for patent infringement under when they exported software that were embodied in machine-readable, physical form, with the intent that such software be copied abroad for installation onto foreign-manufactured computers. In this case, the Supreme Court reversed previous Federal Circuit's opinion and ruled in favor of Microsoft. According to the Supreme Court, liability for such unauthorized replication, if any, would have to arise under the patent laws of those foreign countries, not the U.S. Patent Act. However, AT&T urged that the Supreme Court's decision actually created a "loophole" for software makers to avoid liability under §271(f).

=Background=

Factual background
The case Microsoft v. AT&T concerned the applicability of U.S. patent law to computer software that first sent from the United States to a foreign manufacturer, then copied by the foreign recipient for installation on computers made and sold abroad. In this case, AT&T held a patent that can digitally encode and compress recorded speech on a computer. Microsoft Windows operating system had the potential to infringe that patent because Windows incorporated software code that, when installed, enabled a computer to process speech in the same manner claimed by the patent held by AT&T. Microsoft shipped abroad a "master version" of Windows, either on a disk or via encrypted electronic transmission, to foreign manufacturers who first used the master version of Windows to generate copies, and then installed the copies onto the computers they sold to users abroad. AT&T filed an infringement suit charging Microsoft with liability for the foreign installations of Windows. In general, no patent infringement occurs when a patented product is made and sold in another country. However, section 271(f) of the Patent Act, in response to Deepsouth Packing Co. v. Laitram Corp and adopted in 1984, provides that infringement does occur when one "supplies" a patented invention's "components" from the United States for the purpose of "combination" abroad.

Procedural background
In 2001, AT&T filed an infringement suit to the U.S. District Court for the Southern District of New York, charging Microsoft with liability for the foreign installations of Windows. Microsoft responded that: (1) software was intangible information so that it could not be a “component” of a patented invention within the meaning of | § 271(f); (2) even if the Windows software were a “component,” no actual “components” had been “supplied” from the United States as required by § 271(f) because the copies of Windows installed on the foreign-assembled computers had all been made abroad. However, rejecting all these responses, the District Court held Microsoft liable under § 271(f). After Microsoft appealed, a divided panel of the Federal Circuit affirmed the district court’s decision. In October 2006, the Supreme Court finally agreed to address the conflicting case law surrounding § 271(f) by granting a writ of certiorari. Oral argument was held on February 26, 2007 in front of eight Justices, with Justice Roberts recusing himself due to a conflict of interest. On April 30, 2007, the Supreme Court, in a 7-1 majority, reversed the Federal Circuit ruling in favor of Microsoft.

=Opinion of the court=

The District Court's opinion
the U.S. District Court for the Southern District of New York explained that § 271(f) does not limit “components” to only physical machines or tangible structures, but also intangible information or data. Therefore, the district court rejected Microsoft’s argument that software can not be a “component” of a patented invention under § 271(f). As for the copies made abroad from the master disk sent from the United States, the district court held that such copies should still be considered as “supplied from the United States" and therefore within the scope of § 271(f), mainly considering the legislative intent of the statute to prohibit the circumvention of infringement through exportation.

The Federal Circuit's opinion
The appellate court relied on prior Federal Cicuit case law that had held that “without question, software code alone qualifies as an invention eligible for patenting, and statutory language does not limit § 271(f) to patented ‘machines’ or ‘physical structures,’ such that software can very well be a ‘component’ of patented invention for the purposes of § 271(f)”. The Federal Circuit also ruled that, because “the act of copying is subsumed in the act of ‘supplying’”, the exportation of the master disk, with the specific intent to be replicated abroad, is an act that comes within the meaning of § 271(f)’s “supplied or caused to be supplied in or from the United States.” However, Federal Circuit Judge Randall R. Rader objected to the majority opinion’s view that “supplies” within the meaning of §271(f) includes the act of foreign “copying.” Judge Rader expressed concerns that such an interpretation is an impermissible “extraterritorial expansion” of U.S. patent law because it reaches copying activity overseas. In his view, AT&T’s remedy lies not in U.S. law, but rather the law of the foreign country in which the infringement due to copying occurred.

The Supreme Court's opinion
The supreme Court accepted Microsoft’s petition for a writ of certiorari, mainly in order to answer two questions:

(1)	Whether digital software code can be considered a “component of a patented invention” within the meaning of § 271(f)(1); and, if so,

(2)	Whether copies of such a “component” made in a foreign country are considered as “supplied from the United States.”

In a 7-1 decision issued in April 2007, the Supreme Court reversed the Federal Circuit’s judgement, holding that Microsoft was not liable for patent infringement under § 271(f).

Majority opinion
In a 7-1 majority, the Supreme Court ruled that software code did not qualify as a component for purposes of triggering liability under § 271(f) and the copies installed onto the computers sold abroad were not considered as "supplied" by Microsoft from the United States. Associate Justice Ruth Bader Ginsburg, writing for the majority, explained that abstract software code is an “idea” lacking physical embodiment and it cannot be a “usable, combinable part of a computer.” By analogizing abstract software code to a detailed set of instructions such as that of a blueprint, and observing that Congress did not include the export of design tools such as blueprints in enacting the statutory provision, Justice Ginsburg argued that the Windows software must be encoded or expressed in some sort of tangible medium, in order to be considered as a "component" under § 271(f). The court thus declined to adopt AT&T’s characterization of abstract software as a combinable component that qualifies for § 271(f) liability. Furthermore, the Court largely agreed that the copies of Windows used to install on the foreign computers made abroad were not considered as “supplied” from the United States. According to Justice Ginsburg, this distinction between “supply” and “copy” is legally relevant for liability purposes under § 271(f). Although software copying is much more easier compared with the action of "copy" in traditional industries, the liability should not be affected by the ease of copying.

Concurring opinion
The majority opinion of the Supreme Court excluded footnote number 14[***]. This footnote reads as follows:

Microsoft suggests that even a disk shipped from the United States, and used to install Windows directly on a foreign computer, would not give rise to liability under §271(f) if the disk were removed after installation.

Justice Samuel Alito, in a concurrence joined by Justices Thomas and Breyer, have also decided this particular issue raised in footnote number 14 in favor of Microsoft, but through a different reasoning.

Justice Alito agreed with the Court that a “component” of an infringing physical device under § 271(f) “must be something physical”. Furthermore, he emphasized that § 271(f) requires the component to be "combined" with other components to form the infringing device, meaning that the component must remain a part of the device[***]. As for this case, once the copying and installation process were completed, the Windows program was recorded in a physical form in magnetic fields on the computers' hard drives. No physical aspect of the Windows CD-ROM--original disk or copy--was ever changed or incorporated in the computer itself if the disk were removed after installation. Because no physical object originating in the United States was combined with these computers sold abroad, Justice Alito believed there was no patent infringement within the meaning of § 271(f) and it is irrelevant whether the Windows software was installed directly from the master disk or not.

Dissent
In lone dissent, Associate Justice John Paul Stevens disagreed with the Supreme Court's major opinion that the abstract software is analogous to an abstract set of instruction, i.e., blueprint, and cannot be regarded as a "component". In his view, unlike a blueprint that merely instructs a user how to do something, software actually causes infringing conduct to occur. In addition, he argued that the abstract software code, whether embodied in a physical medium or detached from it, should be considered a “component” within the meaning of § 271(f) because it has no other intended use except for installation onto a computer’s hard drive. Based on these reasons, Justice Stevens explained that he would affirm previous Federal Circuit’s majority opinion in this case.

=Impact=

Because of the major impact the decision would have on the U.S. software industry, this case drew a lot of attention from both academics and leaders in the software industry. These interested parties, including law professors, the Department of Justice, Yahoo and other software companies, submitted amicus briefs on behalf of AT&T and Microsoft, with the lion’s-share supporting Microsoft[***]. Some professors argued that ruling in favor of AT&T might have the potential to increase dramatically the patent liability of U.S.based firms and therefore encourage firms to relocate their facilities outside of the United States. However, there is one company argued that it is difficult to believe that U.S. software companies will migrate to Europe “where they might not be able to patent their software at all, just to sell a product abroad that they cannot sell in the U.S.”.

At the end of the opinion, the Supreme Court conceded that the decision effectively created a “loophole” for software companies to avoid liability under § 271(f). However, Justice Ginsburg also pointed out that it was not appropriate to use “dynamic judicial interpretation” that would be needed to adjust the patent law to account for the realities of software distribution. Due to all these issues, the Supreme Court has expressly invited Congress to consider whether it is desirable to revise patent infringement liability under §271(f) to include exporting software within the intent that such product be copied abroad for use on foreign computers.

=See also=
 * Software patent
 * Patent infringement
 * Extraterritoriality

=References=

=External links=
 * Microsoft and free software movement tag-team the Supreme Court
 * Supreme Court sides with Microsoft in AT&T case: A loss could have cost the software company hefty damages
 * MICROSOFT v. AT&T: The Supreme Court Refuses to Further Expand the Reach of United States Patent Law Abroad
 * A WELCOME RETURN TO PATENT LAW’S TRADITION OF TERRITORIALITY, BERKELEY TECHNOLOGY LAW JOURNAL, Vol. 23:75
 * Trying to Understand Software: Why Microsoft v. AT&T Was Mistakenly Decided
 * Microsoft v. AT&T: Limiting the Extraterritorial Reach of U.S. Patent Law

Category:United States Supreme Court cases Category:United States patent case law Category:Software patent case law Category:2007 in United States case law