Supreme Court Likely to Hear Transnational Patent Law Dispute

Microsoft v. AT&T (on petition for certiorari).

The DOJ and PTO have given their solid support to Microsoft’s petition for certiorari in its battle over transnational patent infringement. This support makes grant of the petition highly likely.

This case, like Eolas and Pellegrini before, questions the scope of Section 271(f) of the Patent Act.  That statute allows a U.S. patentee to collect damages for foreign sales of a patented invention based on the export of one or more of its components from the U.S.  Recently, the CAFC has expanded the common interpretation of the statute to include the export of software code (AT&T, Eolas) as well as to the export of elements used in a patented method (Union Carbide).  In a case that is difficult to square with AT&T or Eolas, the court held that the “component” does not apply to plans or instructions.

In this case, Microsoft’s software code was generated in the U.S. and then shipped abroad where copies were then generated and distributed.  AT&T claims (and courts have thus far agreed) that sales of those foreign copies infringe the U.S. patent and create liability.  The chart below gives my loose graphical interpretation of the events.

If it stands, this case could have far-reaching effects in the fields of biotechnology (DNA/cell replication) as well as foreign piracy (shipping product from the U.S. to reverse engineer and copy in a foreign country).

From a business perspective, this interpretation of the statute gives business executives another reason to send software jobs overseas.  If the component was not exported from the U.S., there will be no damages under 271(f).

In their brief supporting the petition, Darryl Joseffer and the DOJ crew agree that software can be a component of a patented invention.  They argue, however, that the foreign replicas do not create liability under the act because the replicas themselves were not supplied from the United States (as is required by the statute). According to the brief, the lower court’s interpretation “improperly extends United States patent law to foreign markets and puts United States software companies at a competitive disadvantage vis-a-vis their foreign competitors in foreign markets.”

The Government argues that the extraterritorial nature of U.S. patents should be narrowly construed and that if someone wants rights to stop foreign infringement, then they should get foreign patents.

Respondent’s remedy lies in obtaining and enforcing foreign patents, not in attempting to extend United States patent law to overseas activities.

Important recent 271(f) cases:

• NTP v. Research in Motion, (271(f) “component” would rarely if ever apply to method claims).
• AT&T v. Microsoft, 414 F.3d 1366 (Fed. Cir. 2005) (271(f) “component” applies to method claims and software being sold abroad);
• Eolas v. Microsoft, 399 F.3d 1325 (Fed. Cir. 2005) (271(f) “component” applies to method claims and software);
• Pellegrini v. Analog Devices, 375 F.3d 1113 (Fed. Cir. 2004) (271(f) “component” does not cover export of plans/instructions of patented item to be manufactured abroad);
• Bayer v. Housey Pharms, 340 F.3d 1367 (Fed. Cir. 2003) (271(g) “component” does not apply to importation of ‘intangible information’).

Documents:

• File Attachment: Microsoft Petition for Certiorari (1540 KB) 
• File Attachment: Gov’t Brief in Support of Petitions (118 KB)
• File Attachment: AT&T Opp to MS Cert Petition.pdf (1523 KB)

Notes:

• SCOTUS blog has more here.

Comments

[Tom]

If it makes sense in other cases to prohibit the assembly of an infringing product on US soil and its shipping overseas, then software should certainly fall under the same general rubric.

Really, of what possible significance is it in the larger scheme of things that the "manufacturing" of the actual CD takes place overseas? That is most certainly the most trivial aspect of the "manufacture" of the product. All the real work takes place in the US. All the real cost of making the product takes place in the US. The CDs could be burnt literally by robot, and mostly remotely from the US, and at the most trivial expense. So how can one plausibly maintain that something important is taking place overseas that should place the activity outside the purview of US patent law?

I understand that the relevant statutes were explicitly introduced to prevent US companies from cheating by in effect creating infringing products on US soil and shipping them abroad. I can't see a single basic thing about the case of software that should alter how it should apply; instead, I see only the most weaselly of distinctions.

Of course, the real "argument" here is that software is a special case because, you know, Microsoft and Oracle etc. are all so special. Heaven forfend that the 800 pound gorillas might have to pay monies out to the people whose ideas they copy -- they are far too wonderful for that! How can Microsoft continue to offer innovations to consumers if it can't copy them for free from innovative companies? Watch out, or they'll go into a very conspicuous pout and hire programmers in China who'll copy them without any respect for anybody's intellectual property! Really, who in their right minds thinks that Microsoft is making enough money nowadays?

[Tom]

Just to follow up on my post, what happens when software is just downloaded, as a service? This is certainly the direction in which software is going.

Do we say that Microsoft isn't infringing if it stores the bits on a foreign server? In that case, what of significance in terms of "manufacturing" can possibly be taking place overseas? Is Microsoft's case importantly different if instead it decides to burn the software on CDs?

Again, the real point would seem to be, where is the real work and expense taking place in the creation of the product? And the answer certainly has to be, in the US.

[Milind Sathe]

It is high time to open eyes of U.S. industry and Govt. Let them not forget that patent is a territorial concept and has deep roots in manufacturing /processing of invention in country granting the patent.

Only intellectual terrorists can imagine about extraterritorial implementation of patents.

One should not corss the boundries else it will retort with calamity.

[software visualization]

As a software developer, I view the ability to patent software as a travesty. All software ideas are necessarily both derivative and novel, the way that all spoken speech is simultaneously derivative and novel. Copyright offers the correct level of IP protection to serve both business and society.

An existence proof is the strongest form of refutation and the thriving software ecosystem prior to the widespread use of software patents (pre-2000)is just such a proof; it is not possible to argue in good conscience that an absence of patents impedes innovation.

At $20,000 a pop for even the smallest most trivial abilities, like adding and removing whitespace or adding titles to a cartoon (see http://www.oligopolywatch.com/2005/07/31.html), the small innovative software developer is precluded from economic participation.

The advocacy of the continuation of a system which retards innovation, facilitates the dominance of large, established players through non-productive economic means (who ever has money to start with wins) is not in line with original democratic intent of the Constitution's framers- it's just corporatism.

Which brings me to the real reason for Microsoft's dogged pursuit of this (losing) case: they want ot lose to establish the precedent of transnational patent enforcement. This can be seen when you understand that Microsoft, along with Adobe and IBM are aggressively pursuing the enforcement of software patents in the EU, where they have not once, not twice but three times been rejected, most recently in 2005.

These companies are not looking to change the minds of the people of the EU, they are looking for weasel holes in the structure of the EU which will permit them to bypass the (repeatedly expressed) will of the Parliment. In this case, MS's weasel hole is the EU Council of Ministers, the (unelected) European Commission and a handful of (unelected) judges at European Patent Office.

By losing this case, and baring legislative intervention (which is sorely needed) Microsoft will have in its hand a final, solid precendent from which is can launch its invasion of the European software companies.

[Alan]

The claim that this interpretation of the statute gives business executives another reason to send software jobs overseas is bogus. On the contrary, a failure of this interpretation would give businesses an incentive to set up infringement mills overseas. A company could simply put a server in an offshore data center, install a compiler, compile otherwise infringing software offshore, and place the otherwise infringing on the offshore web site for downloading by U.S. customers - very cheaply. The data center could be located in any country in which the patent holder has not obtained a patent, which means that the patent holder would need to get coverage in all countries.

[Andy Jay]

Q: So if I have a US patent on a seed, plant, or a mouse and one seed, one plant, or mouse is produced in the US and then exported to Europe, where they breed like, well, seeds, plants, and mice, I can then sue eurotrash for infringing my US patent for every "copy" made in Europe? Far out! Sign me up!
A: No. You have to be Microsoft rich to make it happpen, you poor, dumb bastard.

[software visualization]

Imagine the following case. A US software developer is employed by a company in the EU. She does her work there, but vacations in the US. While here, she takes time to conduct research for her job, or just study material useful to her career- a good use of time. She returns to the EU and her employer is soon slapped with a infringement suit. Why? Because something she wrote, took notes on, read or merely thought (choose your level of ridiculousness) represented patented technology. In the case of software development, this is not the least bit far fetched.

The end result would be a massive potential liability attached to each American programmer such that they would come to be effectively excluded from world-wide employment.

This is a perfectly natural and logical consequence of the US courts deciding that mere algorithms with no corporeal part, effectively thought,is patentable.

[Tom]

"Which brings me to the real reason for Microsoft's dogged pursuit of this (losing) case: they want ot lose to establish the precedent of transnational patent enforcement."

This is just crackpot. You might contemplate what it implies if this is the sort of argument you are reduced to.

Why don't you face facts here, "software visualization"? You and Microsoft are on the same side of this case, as you are on the same side of virtually ALL cases regarding US patent laws: you want to gut them, so that you can copy any idea anybody might ever have with impunity. You assert that copyright protection is enough to protect software ideas, when the rise to power of Microsoft, which simply ripped off other people's ideas by having their programmers copy every functionality of interest in the innovative application, stands as clear witness to the opposite.

You might as well be Microsoft's personal advocate. The sum total effect of your efforts is to enable and encourage Microsoft to do what it wants to do: copy other people's ideas with complete impunity.

I wonder, do you and your friends break out the champaigne every time Microsoft rips off another competitor's ideas? Isn't doing so exactly a software best practice, by your lights?

[Ronald J Riley]

http://www.patentlyo.com/patent/2006/09/supreme_court_l.html

It never ceases to amaze me how intellectual thieves try to paint those they steal from as intellectual terrorists. Even more amazing is how the big business thieves, companies associated with the Coalition for Patent Fairness, or is that the Coalition for Patent Piracy have duped the anti software patent crowd into helping then cement their market positions. If patent pirates succeed in their legislative agenda America will go the way of France, and become a fourth rate player politically and economically in global playpen.

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