United States: The Legend Of The Golden Master Lives On—Supreme Court Limits The Reach Of §271(f)

Continuing a string of reversals of U.S. Court of Appeals for the Federal Circuit decisions, on April 30, 2007, the U.S. Supreme Court once again reversed the Federal Circuit in Microsoft Corp. v. AT&T Corp. Justice Ginsberg delivered the opinion of the Court, with Justices Alito, Thomas and Breyer concurring except for a single footnote (footnote 14), and Justice Stevens as the lone dissenter. The Court originally granted cert to determine the issue of when software qualifies as a "component" under § 271(f) and whether software copies created outside the United States from a master disk exported from the United States are "supplied" from the United States.

In 1984, Congress enacted § 271(f) in direct response to the Supreme Court’s decision in Deepsouth Packing Co. v. Laitram Corp. (1972). In Deepsouth, the defendant, Deepsouth, conceded that the Patent Act barred it from making and selling its shrimp deveining machines in the United States. However, Deepsouth argued that no U.S. law prohibited it from making parts of the deveining machine in the United States and selling the parts to foreign customers for assembly abroad. The Supreme Court agreed with Deepsouth. The congressional response, § 271(f), makes anyone who "supplies...from the United States...components of a patented invention...in such a manner as to actively induce the combination of such components outside the United States...liable as an infringer."

AT&T sued Microsoft alleging that its Windows application infringed AT&T’s patent directed toward digitally encoding and compressing recorded speech. AT&T conceded that its apparatus claims were only infringed when the Windows software was loaded onto a computer (i.e., to create the claimed apparatus—a speech processing computer). Microsoft conceded that its Windows operating system incorporates software that when installed, enables a computer to process speech in the manner claimed in the AT&T patent. The master disk Microsoft sends abroad (from the United States) (aka "Golden Master") is never installed on any computer. Rather copies are made of the master (overseas), which are installed in foreign-made computers. Thus, the issue confronting the Court was whether Microsoft had liability under § 271(f) for computers made in foreign countries loaded with Windows obtained from the master disk.

The Federal Circuit had determined that for purposes of § 271(f), software code can be a "component" of a patented invention. The Federal Circuit also determined that software replicated abroad from master copy exported from the United States can be deemed "supplied" from the United States.

The Supreme Court viewed the case as turning on the answers to two related questions. First, when does software qualify as a "component"? Second, are the foreign-made computers’ included "components" "supplied" by Microsoft "from the United States"? As to the first question the Court held that software detached from a medium, such as a CD-ROM, cannot be a component. The Court found the plain and ordinary meaning of "component" as used in § 271(f) to be "a constituent part," "element" or "ingredient," i.e., something that was combinable. The court concluded that "[a]bstract software code is an idea without physical embodiment, and as such, it does not match § 271(f)’s categorizations: ‘components’ amenable to ‘combinations.’"

Refusing AT&T’s argument based on the often used "blueprint" analogy (to software), the Court noted that "before software can be contained in and continuously performed by a computer … an actual physical copy of the software must be delivered by CD-ROM or some other means capable of interfacing with the computer."

In the end, the Court invited Congress to remedy the situation if it thought § 271(f) was too narrow. "Congress, … might have included … not only combinable ‘components … but also information, instruction or tools from which those components readily may be generated.’ It did not." Continuing on the this-is-a-matter-for-Congress theme, the Court later noted that any "alteration [in § 271(f)] should be made after focused legislative consideration, not by the Judiciary forecasting Congress’ likely disposition."

The Court concluded the "foreign-made" copies of Windows were "supplied" from "places outside the United States" and that this conclusion logically followed from its holding that software is only a "component" once wedded to a physical medium. Even conceding the correctness of the Federal Circuit’s finding that a "master sent abroad … differs not at all from the exact copies, easily, inexpensively and swiftly generated from the master," the Court determined that such copies are not "supplied" from the United States. Citing with approval Judge Rader’s dissent (in the Federal Circuit), the majority reasoned that supplying and copying are separate activities with wholly different consequences and that there is nothing in § 271(f) that "renders ease of copying a relevant, no less decisive, factor in triggering liability for infringement."

Like the majority of the Federal Circuit, Justice Stevens (in dissent) viewed the subject software application no less a component simply because a CD-ROM or electronic transmission is used for distribution purposes.

The sine qua non of the Court’s decision appears to lie in its strict construction of § 271(f) on the basis that any extraterritorial application of U.S. patent law ought to be narrowly construed. As the Court stated: "The absence of anything addressing copying in the statutory text weights against a judicial determination that replication abroad of a master dispatched from the United States ‘supplies’ the foreign-made copies from the United States … ."

In inviting AT&T to pursue its rights in jurisdictions where the copying occurred, the Court noted the U.S. patent law "governs domestically but does not rule the world … ." Citing Deepsouth, the Court reiterated that "our legislation ‘does not, and was not intended to operate beyond the limits of the United States’… ." Rather, to the extent § 271(f) addressed an issue of extraterritorial application, it must be construed narrowly: "… foreign law alone, not United States law, currently governs the manufacture and sale of components of patented inventions in foreign countries. If AT&T desires to prevent copying in foreign countries, its remedy today lies in obtaining and enforcing foreign patents."

Justice Ginsberg’s opinion of the Court includes a footnote that prompted the concurring opinion of Justice Alito (joined by Justice Thomas and Breyer). In that footnote, the Court noted that its decision did not reach the issue of whether the master disc (shipped from the United States), if installed directly into a foreign computer, would create liability under § 271(f). As Justice Alito pointed out (in his concurring opinion), "no physical aspect of a Windows CD-ROM—original disk or copy—is ever incorporated into the computer itself." Justice Alito (citing to Websters), took the position that in order to be a "component of a machine" there "must be something physical," else there is nothing to be "combined" with other components. From that perspective, Justice Alito takes the position that code, disembodied from a media (e.g., CD-ROM) can never be a "component" under § 271(f). Left for another day is the issue raised by the Court in oral argument but side-stepped here, of whether software code, aside from some physical embodiment containing it, can even be patented.

The Supreme Court’s decision in this case has the potential to impact not only software-related inventions, but any non-tangible invention or invention containing non-tangible components. Just as Deepsouth opened a window of opportunity eventually closed by Congress, so may the AT&T case. Furthermore, the Court’s holding that software detached from a medium is not a component, and its implication for software patents, is likely to be hotly debated.

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