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Supreme Court Decision Update - Microsoft Corp. v. AT&T Corp.

msWin.jpgToday’s second patent decision from the Supremes comes in Microsoft Corp. v. AT&T Corp. (PDF of the opinion) and is about the shipment of software overseas. AT&T sued Microsoft over copies of Windows it ships oversees for installation on foreign computers, because the Windows code includes bits that are patented by AT&T. In a 7-1 decision, the Supremes fall back on “the general rule under United States patent law that no infringement occurs when a patented product is made and sold in another country.”

The focus here was on an exception to this rule when someone sells a component necessary to make the patented invention. AT&T tried to argue that the Windows software, along with AT&T’s patented bits, was a “component” of the foreign computers being sold with Windows pre-installed, thereby pulling Microsoft within this exception. So there are two questions in this case - when does software qualify as a “component,” and whether the “components” in this case were supplied by Microsoft from the US.

As to the first question, Justice Ginsburg’s majority opinion held that software is considered a component when it’s made into something more than intangible information - when it’s made physical in a way that computers can read it, such as when it’s put onto a CD. But Microsoft sends out master copies of Windows, either on a master disk or electronically, which are in machine-readable object code and akin to information in a blueprint - it’s a roadmap, rather than an actual component. Only when there’s the “extra strep” of making copies of the software which machines can interact with is there a component, says Ginsburg.

And that, she adds, answers the second question - Microsoft isn’t making the “components” in this case. It’s the foreign companies that make the components when they make copies from Microsoft’s master. So Microsoft supplies from the United States, but it’s not actually supplying a component. Which means AT&T is S.O.L. in this situation (not to mention, says Ginsburg, there’s a “presumption against extraterritoriality” which weighs against AT&T if there was any doubt here).

Now the majority opinion was only joined in full by the Scalia and Justices Kennedy and Souter. Justice Alito wrote a concurring opinion, joined by Justices Thomas and Breyer - while Alito agrees that there were no “components” supplied by Microsoft from the US, he gets there in a different way. In his mind, “no physical object originating in the United States was combined with these [foreign] computers,” since no physical part of the software disk sent out by Microsoft becomes a physical part of the final foreign computer. So that is why he says Microsoft is okay here.

As an aside, Alito concurs with all but one footnote of Ginsburg’s opinion. In footnote 14, she said: “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…if the disk were removed after installation…. We need not and do not reach that issue here.” But Alito doesn’t concur with this one point because “the physical incarnation of code on the Windows CD-ROM supplied from the United States is not a “component,” [which means] it logically follows that a copy of such a CD-ROM also is not a component.”

Finally, there is a lone dissent filed by Justice Stevens (yes, Chief Justice Johnny is missing - he wasn’t involved in this case). He thinks that finding Microsoft liable is more in check with what Congress intended when it created the “component” exception: “if a disk with software inscribed on it is a ‘component,’ I find it difficult to understand why the most important ingredient of that component is not also a component.”