US Supreme Court Reins In Reach Of US Patents

By Sarah Lai Stirland for Intellectual Property Watch
The United States Supreme Court in late April reined in another patent appeals court ruling it deemed overly-expansive. The high court ruled that software companies liable for infringing a patent in the United States cannot at the same time be held liable by American courts for the same activities outside of US borders.

“Foreign law alone, not United States law, currently governs the manufacture and sale of components of patented inventions in foreign countries,” wrote Justice Ruth Bader Ginsberg on behalf of three of her colleagues, Justices Anthony Kennedy, Antonin Scalia and David Souter.

Justice Samuel Alito filed a concurring opinion with which Justices Stephen Breyer and Clarence Thomas joined. Justice John Paul Stevens dissented, and Chief Justice John Roberts did not participate in the case.

The reversal of the controversial opinion regarding AT&T v. Microsoft by the United States’ special patent appeals court, the Federal Circuit Court of Appeals, is the latest in a line of decisions over the past few years suggesting that the lower court should take a more nuanced approach when interpreting US patent law.

The US Supreme Court also in late April said that the lower court’s ruling on “obviousness” misinterpreted its precedents, as well as rules enacted by the US Congress (IPW, 9 May 2007, Subscribers). And in 2006, the high court ruled in eBay v. MercExchange that US courts should not by default issue injunctions when they find that a company has infringed upon a patent. Instead, US judges should use a four-factor test to determine whether an injunction is appropriate, it said.

This case, Microsoft v. AT&T, concerned the question of whether software in the abstract could be considered a “component” under a special section of a US patent law. Congress enacted this portion of the law in 1984 after a US manufacturing company tried to skirt liability for patent infringement by making components of a rival company’s tangible patented product in the United States and then selling those components overseas.

In this latest opinion concerning patent rights, the high court interpreted this portion of US patent law narrowly. Ginsberg said that the Federal Circuit had read a meaning into the rules that does not exist. If telecommunications company AT&T and others want enforcement of patent rights abroad, Ginsberg, suggested, they should apply for patents in the specific countries in which they want the enforcement. In addition, they should lobby the US Congress.

“If patent law is to be adjusted better to account for the realities of software distribution, the alteration should be made after focused legislative consideration, not by the Judiciary forecasting Congress’ likely disposition,” Ginsberg wrote.

The Supreme Court’s opinion sided with Microsoft and heeded the viewpoint of the US government, which at the court’s request had filed a friend-of-the-court brief last December.

Software maker Microsoft admitted in a 2001 patent infringement lawsuit brought in the United States by AT&T that its Windows software when loaded on a computer during software development, and when licensed to computer manufacturers, infringed upon AT&T’s voice-recognition patent issued by the US Patent and Trademark Office. But Microsoft said that it should not be made liable for any of its overseas licensing activities to computer manufacturers. Its lawyers argued that US law cannot be enforced outside of US borders.

AT&T argued that the US legal system should consider software a “component” as defined by the 1984 law, and thus hold Microsoft monetarily liable for all of the copies of Windows sold overseas that includes the code that Microsoft admitted to infringing in the United States.

But the Supreme Court instead decided that Microsoft had not violated the 1984 law. The software that it shipped to computer manufacturers outside of US borders could not be defined as a “component” of an infringing product under US law as it is currently written, the justices ruled. The court said software that is not loaded and operational on a computer or on a physical disk is not a physical component as described by the 1984 law. Since the copying and loading of Microsoft Windows by foreign manufacturers onto tangible products happens outside of US borders, US law cannot cover those activities.

“Windows abstracted from a tangible copy no doubt is information – a detailed set of instructions – and thus might be compared to a blueprint,” Ginsberg wrote. “A machine for making sprockets might be used by a manufacturer to produce tens of thousands of sprockets an hour,” Ginsberg wrote. “That does not make the machine a “component” of the tens of thousands of devices in which the sprockets are incorporated, at least not under any ordinary understanding of the term “component.”

The high court also agreed with Microsoft and parties who gave their views in friend-of-the-court briefs that US judges under the current legal regime have no place applying their nation’s patent laws to activities outside of its borders because it would encroach on foreign governments’ sovereignty.

The US government, along with many prominent patent law experts, argued in separate December court filings that the Federal Circuit’s expansive interpretation of US law in this case goes against longstanding patent law, as well as the rules established between the US and its foreign counterparts in international treaties.

“Such an expansion also is inconsistent with the World Intellectual Property Organization’s efforts to harmonise patent laws, the United States’ obligations in international treaties and the settled practice of deferring to a foreign country’s assessment of the scope and reach of its patent laws,” wrote John Sutton, an attorney for the Switzerland-based Federation Internationale des Conseils en Propriete Industrielle. The organisation represents an international group of patent lawyers and inventors.Sarah Lai Stirland may be reached at Stirland@gmail.com.