Copying Software Abroad Constitutes "Supplying From The United States" Under Patent Statute

Case Name: AT&T Corp. v. Microsoft Corporation, (Fed. Cir. No. 04-1285, 7/13/05).

The Two Sentence Summary: The Federal Circuit ruled that Microsoft violated 35 U.S.C. Section 271(f)'s prohibition on "supplying in or from the United States all or a substantial portion of the components of a patented invention," whenever a computer manufacturer located in a foreign country replicated onto a computer a copy of the Windows operating system from a master disk supplied from the United States. AT&T claimed that the master copies of Windows contained a computer sub-program that infringed one of AT&T's patents.

What They Were Arguing About: AT&T held a patent on a "speech codec" (a software program that codes a speech signal into a more compact form, and decodes it back into a signal that sounds like the original). Microsoft's Windows operating system incorporates speech codecs which AT&T claimed infringed a patent owned by AT&T.

To facilitate international distribution of Windows, Microsoft supplied a limited number of master versions of the Windows software to foreign computer manufacturers who, pursuant to their licensing agreements with Microsoft, replicated the master versions when generating individual copies of Windows that were installed on foreign-assembled computers which are then sold to foreign customers. AT&T claimed that Microsoft violated 35 U.S.C. Section 271(f) whenever a foreign computer manufacturer copied the Windows operating system from one of its master disks onto a computer it was manufacturing.

35 U.S.C. Section 271(f)(1) provides that: "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 a manner as to actively induce the combination of such components 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."

Microsoft argued that it could not be liable under Section 271(f) as an infringer since the copies replicated abroad by the foreign manufacturers were not "components" within the meaning of section 271(f) and that, in any event, liability under section 271(f) should not attach to the copies of Windows made abroad because those copies were not "supplied" from the United States.

The district court denied Microsoft's motion for partial summary judgment, and the Federal Circuit affirmed.

Federal Circuit Holdings:

• Software may be a "component" of a patented invention under Section 271(f). "Without question, software code alone qualifies as an invention eligible for patenting" and "the statutory language did not limit section 271(f) to patented `machines' or patented `physical structures . . ."
• Given the realities of software technology, the "supplying' of software commonly involves generating a copy. Accordingly, 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 invokes Section 271(f) liability for those foreign-made copies.
• Given that it is inherent in the nature of software that one can supply only a single disk that may be replicated - saving material, shipping, and storage costs-instead of supplying a separate disk for each copy of the software to be sold abroad, all of such resulting copies have essentially been supplied from the United States. "Where there are competing interpretations of a statute that imposes liability for certain acts, an interpretation that allows liability to attach only when a party acts in an unrealistic manner is unlikely to be correct."

Judge Rader dissented, arguing that:

• The replication abroad of the master disks' copies of Windows constituted manufacturing abroad, and the act of supplying is separate and distinct from copying, reproducing, or manufacturing. As a matter of logic, one cannot supply one hundred components of a patented invention without first making one hundred copies of the component, regardless of whether the components supplied are physical parts or intangible software. Thus, copying and supplying are different acts, and one act of "supplying" cannot give rise to liability for multiple acts of copying.
• The majority's interpretation provides extraterritorial expansion to U.S. law by punishing under U.S. law "copying" that occurs abroad, and while copying in Düsseldorf or Tokyo may indeed constitute infringement, that infingement must find its remedy under German or Japanese law.
• The extraterritorial expansion of U.S. patent law contravenes the precedent of the Federal Circuit and the Supreme Court that expressly confines the rights conferred by Title 35 to the United States and its Territories.