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

Continuing a string of reversals of Federal Circuit decisions, the U.S. Supreme Court once again reversed the Federal Circuit in holding that under 35 U.S.C. § 271 (f) software per se does not qualify as a "component" and that software copies created outside the United States from a master disk exported from the United States are "supplied" from the United States. Microsoft Corp. v. AT&T Corp., Case No. 04-1350 (Supreme Ct., Apr. 30, 2007) (Ginsburg, J.; Alito, J., joined by Thomas, J. and Breyer, J., concurring in part; Stevens, J., dissenting).

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) (a.k.a. Golden Master) is never installed on any computer. Rather copies are made of the master (overseas), which are installed in foreign-made computers.

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

The Supreme Court held that software detached from a medium, such as a CD-ROM, cannot be a "component" under § 271 (f). It found the plain and ordinary meaning of "component" as used in the statute means "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.’"

Declining AT&T’s argument based on the often used "blueprint" analogy (to software), the Supreme 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."

The Supreme Court invited Congress to remedy the situation if it thought § 271 (f) as enacted 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 Supreme 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 Supreme 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 it 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 Justice 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 content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.