Microsoft v. AT&T
Supreme Court of the United States
Argued February 21, 2007 Decided April 30, 2007
Full case name	Microsoft Corp. v. AT&T Corp.
Docket no.	05-1056
Case history
Prior	Judgment for Plaintiff, 71 U.S.P.Q. 2d 1118 (S.D.N.Y. 2004); aff'd, 414 F. 3d 1366 (Fed. Cir. (2005), cert. granted, 549 U.S. ___ (2006)
Holding
Because Microsoft does not export from the United States the copies of Windows installed on the foreign-made computers in question, Microsoft does not "suppl[y] ... from the United States" "components" of those computers, and therefore is not liable under §271(f) as currently written. Federal Circuit reversed.
Court membership
Chief Justice John Roberts Associate Justices John P. Stevens · Antonin Scalia Anthony Kennedy · David Souter Clarence Thomas · Ruth Bader Ginsburg Stephen Breyer · Samuel Alito
Case opinions
Majority	Ginsburg, joined by Scalia, Kennedy, and Souter
Concurrence	Alito, joined by Thomas, Breyer
Dissent	Stevens
Roberts took no part in the consideration or decision of the case.
Laws applied
35 U.S.C. § 271(f)

CASE: MICROSOFT CORP. v. AT&T CORP. OUTLINE

Microsoft v. AT&T, 550 U.S. 437 (2007), was a United States (U.S.) Supreme Court case that concerns the applicability of U.S. patent law 35 U.S.C. § 271(f) to computer software that first sent from the United States to a foreign manufacturer on a master disk, or by electronic transmission, then copied by the foreign recipient for installation on computers made and sold abroad. In general, no infringement occurs when a patented product is made and sold in another country. However, section 271(f) of the Patent Act, adopted in 1984, provides that infringement does occur when one "supplies" a patented invention's "components" from the United States for "combination" abroad. Based on section 271(f), the supreme court ruled in favor of Microsoft because it did not export from the United States the copies actually installed, which led to the conclusion that Microsoft did not supply components of the relevant computers from the United States, and therefore is not liable under §271(f) as currently written. However, AT&T urged that reading §271(f) to cover only those copies of software actually dispatched from the United States creates a "loophole" for software makers.

Section 271(f)(1) of Patent Act, adopted in 1985, provided that infringement occurred when one “supplies all or a substantial portion of the component of a patented invention from the United States”, for “combination” abroad. This case concerns the applicability of [***]271(f) to computer software first sent from United States to a foreign manufacturer on a master disk, or by electronic transmission, then copied by the foreign recipient for installation on computers made and sold abroad.

AT&T held a patent on a computer that can digitally encode and compress recorded speech. Microsoft’s Windows operating system has the potential to infringe that patent because Windows incorporated software code that, when installed, enabled a computer to process speech in the manner claimed by the patent held by AT &T. Microsoft sent 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 software onto the computers they sold to users abroad by using the Windows copies they made. AT&T filed an infringement suit charging Microsoft with liability for the foreign installations of Windows.

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 is intangible information such 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. Rejecting thiese 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[CRS], the Supreme Court finally agreed to address the conflicting case law surrounding [***]271(f) by granting a writ of certiorariin AT&T Corp. v. Microsoft Corp[***format]. And oral argument was held on Februray 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[***]

In considering Microsoft’s motion, the U.S. District Court for the Southern District of New York first cited previous Federal Circuit decisions supporting the proposition that software is patentable.[***reference,CRS]. The court also explained that [***]271(f) does not limit “components” to only physical machines or tangible structures, but rather intangible information or data. Thus, the district court rejected Microsoft’s argument that software could not be a “component” of a patented invention under [***]271(f). As for the copies made abroad from the golden 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), large part in light of the legislative intent of the statue to prohibit the circumvention of infringement through exportation.

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 section 271(f) to patented ‘machines’ or patented ‘physical structures,’ such that software can very well be a ‘component’ of patented invention for the purposes of [***]271(f) [*** CRS ref]”. The Federal Circuit also ruled that, because “the act of copying is subsumed in the act of ‘supplying’” the exportation of the master disks, with the specific intent that they 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.” In dissent, 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, in effect, an impermissible “extraterritorial expansion” of U.S. patent law because it reaches “copying” activity overseas[***ref CRS]. 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[***Ref CRS].

The supreme Court accepted Microsoft’s petition for a writ of certiorari, in order to answer two questions: (1) Whether digital software code — an intangible sequence of “1’s” and “0’s” — maybe considered a “component of a patented invention” within the meaning of Section 271(f)(1); and, if so, (2) Whether copies of such a “component” made in a foreign country are “supplied from the United States.”

In a 7-1 decision[***CRS ref] issued in April 2001, the Supreme Court reversed the Federal Circuit’s judgement, holding that Microsoft was not liable for patent infringement under [***]271(f).

Associate Justice Ruth Bader Ginsburg, writing for the majority, explained that abstract software code does not qualify as a component, for purposes of triggering liability under 271(f), because it is an “idea” lacking physical embodiment and thus it cannot be a “useable, combinable part of a computer.”[***ref CRS]. By analogizing software in the abstract to a detailed set of instructions, such as that of a blueprint[***ref CRS] and observing that Congress, in enacting the statutory provision, did not include the export of design tools such as blueprints, Justice Ginsburg argued that the Windows software must be encoded or otherwise expressed in some sort of tangible medium, in order to consider the Windows software as a “component” under 271(f). The court Thus declined to adopt AT&T’s characterization of software in the abstract as a combinable component that qualifies for 271(f) liability.[*** CRS, ref] Furthermore, the Court largely agreed that the copies of Windows used for installation on the foreign computers had been made abroad were not “supplied” from the United States, even though the master disk from which they were generated had been exported. According to Justice Ginsburg, this distinction between “supply” and “copy” is legally relevant for liability purposes under 271(f) and such liability is not affected by the ease of copying software.[***REF crs]. At the end of the opinion, Justice Ginsburg conceded that the Supreme Court’s decision effectively created a “loophole” for software companies to avoid liability under 271(f)[***ref crs]. However, She explained 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.[***refcrs].

Interestingly, the majority opinion of the Court excluded footnote number 14, which was supported by only four justices (Justices Kennedy, Scalia, Souter, and Ginsburg). 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, haved decided this particular issue raised in footnote 14 in favor of Microsoft. Justice Alito asserted that a “component” of an infringing physical device under 271(f) “must be something physical”[***REF crs]. There was no violation of 271(f) because no physical object originating in the United States was combined with these computers. He further observed that “no physical aspect of a Windows CD-ROM----original disk or copy—is ever incorporated in the computer itself if the disk were removed after installation”. Therefore Justice Alito believed it is irrelevant that the windows software was not copied onto the foreign-made computers directly from the master disk or from an electronic transmission that originated in the United States.

In lone dissent, Associate Justice John Paul Stevens explained that he would affirm the Federal Circuit’s majority opinion in this case, because he deemed that judgment to be “more faithful to the intent of the Congress that enacted 271(f)”[***crs]. In his view, 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. He also objected to the Court’s comparison of abstract software to blueprints, because “unlike a blueprint that merely instructs a user how to do something, software actually causes infringing conduct to occur.

Because of the major impact the decision would have on the U.S. software industry, this case drew a lot of attention from academics and leaders in the software industry[***comment]. 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. Professors Mark Lemley and John Duffy wrote that ruling in favor of AT&T might have the potential to increase dramatically the patent liability of U.S.-based firms and thereby encourage firms to relocate their research and development facilities outside of the United States[***comment]. However, Philips Corporation 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.[***comment].” At the end of the Supreme Court opinion, Justice Ginsburg conceded that the Court’s decision effectively creates a “loophole” for software makers to avoid liability under 271(f). And 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.

• Microsoft litigation
• Software patent
• Patent
• List of United States Supreme Court cases, volume 550
• List of United States Supreme Court cases