Justices Unsure if Software Is ‘Component,’ But Seem Friendly to Microsoft
If one party in Microsoft v. AT&T had the edge in Supreme Court oral argument Wed., it was probably the software giant, to judge from reactions of cautious observers. Justices gently quizzed Microsoft’s attorney on why foreign-made copies of Windows software -- originating from a U.S.-sourced “golden disk” shipped or transferred via network to foreign manufacturers -- shouldn’t count toward liability for Microsoft’s admitted infringement of an AT&T voice-compression patent. But AT&T’s attorney drew much sharper questions -- and predictions of legal Armageddon -- from 2 justices, who warned that simply reciting a published patent over the phone to a foreign counterpart could be an infringement in AT&T’s view.
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Tech and Internet firms -- backed by the Bush Administration -- have warned that a decision against Microsoft could create an exodus of operations from the U.S. (WID Dec 18 p2), as firms seek to avoid compliance with Sec. 271(f) of the Patent Act. That section was amended by Congress to count as infringement the assembly abroad of components made in the U.S., responding to a Supreme Court ruling that found the practice untouched by U.S. law. The key questions are whether software is a “component” under Sec. 271(f) or simply “instructions,” which are unpatentable and whether the disks are “supplied” from the U.S.
Oral argument began with a few oddities. Chief Justice John Roberts recused himself, giving no reason. (A 4-4 decision would mean victory for AT&T.) Justice Antonin Scalia noted a “stipulation” that Microsoft and AT&T reached recently on differing damages that Microsoft would pay according to different rulings: “Does that raise any mootness problems?” Microsoft attorney Ted Olson, former solicitor gen. for the current Bush Administration, disputed Scalia’s characterization of the deal as a “wager” and called the arrangement “entirely legitimate.” He said it had precedent in criminal cases, but couldn’t cite any immediately. Olson said the damage figures involved weren’t “trivial,” responding to Justice Anthony Kennedy.
Some justices cited the source code underlying Windows as the bread and butter of the case, not the “physical manifestations” in the golden disks. Justice Ruth Ginsburg called the code the “critical component,” and Kennedy prompted Olson to admit that installation of the golden disk itself on a foreign computer would count as infringement. Justice John Stevens said the golden disk isn’t the only way to distribute the software, so wouldn’t the code itself be the component? Microsoft doesn’t market Windows based on “pretty” disks, Kennedy joked. But the code is useless without a physical medium to read and act it out, and those devices are manufactured abroad, Olson said. He said AT&T had flip-flopped between briefs, first arguing the golden disk was the component then saying the code was the component.
Justice Samuel Alito said the ease in copying software could render as an “artificial distinction” Microsoft’s differing treatment of hardware and software under Sec. 271(f). Isn’t that “tantamount” to manufacturing an infringing device, he asked. Olson said the law can’t be based on what’s perceived as fast or easy, and that copying software can be a laborious process.
Ginsburg said the “strange silence” from foreign govts. -- which she expected to file as amici -- could argue against Microsoft. That’s not surprising, said Daryl Joseffer, asst. to the solicitor gen., arguing for Microsoft’s position. The U.S. is more “bullish” on software patents than other govts., and the appeals court ruling for AT&T, if taken to its “logical conclusion,” would alarm foreign govts., he said.
Justices and attorneys hauled out several analogies to make sense of software in the context of Sec. 271(f). Ginsburg asked if a “blueprint” -- the most common analogy -- could be patented. Pausing, Joseffer answered “not ordinarily,” but quickly added that “process patents” -- those typically granted for software and other nonphysical inventions -- weren’t implicated in the case. Justice Stephen Breyer noted the court had never addressed software patentability. On Stevens’ prompting, Joseffer clarified that software, “standing alone” -- presumably a string of ones and zeroes -- couldn’t be patented. He also compared source code to the ridges on a key, but admitted that Congress probably wasn’t thinking of software when it amended Sec. 271(f).
Reading a Patent Over the Phone: Infringement?
AT&T attorney Seth Waxman walked onto a minefield of harsh questioning from Breyer and Justice David Souter. The former solicitor gen. in the Clinton administration, who also took on a heavy-hitting tech giant in eBay at the high court over patent infringement (WID March 30/06 p1), said the notion of software as a component is “entirely consistent with the ordinary language” of Sec. 271(f). Breyer quickly interrupted, asking Waxman if it would be infringement to visit the Patent & Trademark Office, memorize a published patent and recite it via phone to a colleague in Germany.
Software in the abstract is a “very different case” than what’s at stake here, Waxman said. The code “continually interacts” with the hard drive on which it’s installed, “millions of times per second,” unlike a blueprint, he said, prompting disagreement from Souter. The duo briefly dropped the subject but returned minutes later in a fierce exchange, after Waxman called the code “dynamic.” But the code is “exhausted” once it’s transferred to a hard drive, Souter countered. “The blueprint has no more work to do” once the creation it guided is finished, Waxman said. But you can use the blueprint as often as you want, Souter retorted.
Waxman sought to deflect questions about foreign manufacturers’ copying of the software, arguing that Microsoft’s “intent” to distribute its code abroad was in itself a violation of Sec. 271(f). A golden disk manufactured abroad would give rise to liability for Microsoft, as would simply shipping a disk that was never copied, as long as the code was written in the U.S., he answered Ginsburg. Stevens questioned the logic of describing 500 copies of a single golden disk as “components,” and Breyer asked for court precedent, saying that many inventions become “components” under Waxman’s theory. Waxman couldn’t provide any precedent, but said even the govt. admitted in its brief that sending a copy of Windows to each foreign computer would require damages under the law. “It’s no different in this case… Instantaneous replication is how software works.” In closing argument, Olson cited the U.S. Appeals Court, Federal Circuit’s, implication that it was modernizing the foreign-infringement statute for the modern software era. “That is not for courts to decide,” but Congress, he said.
What about the ‘Supplied’ Definition?
Legal observers gave Microsoft the edge in justices’ sympathy but cautioned that, with Roberts sitting out, the case may be too close to call. Microsoft needs 5 justices to win. The lineup appears to be Breyer, Scalia and Justice Clarence Thomas -- silent in arguments but usually aligned with Scalia -- for Microsoft, and Ginsburg and Alito for AT&T, Stifel Nicolaus said. Kennedy, Stevens and Souter appear to be swing justices given their lines of questioning, the firm said. Waxman had a tougher time than Olson with the justices, Foley & Lardner IP attorney George Best told us, but perhaps the justices were simply trying to “reassure themselves” by exploring all implications of siding with AT&T.
Best was surprised by the dearth of attention to the meaning of “supplied” in Sec. 271(f), the centerpiece of Microsoft’s brief -- the golden disks alone, as the only stateside creations, carried liability. The questions to Joseffer on software patentability were also unexpected, but his response was commendably measured, Best said. Software patentability “certainly won’t be a substantive part of the ruling” but may be subjected to “skepticism” in dicta -- comments not central to the decision, he added. Joseffer neglected a couple of obvious lines of argument -- software firms’ warnings that industry will flee the U.S., and the interest of foreign govts. in attracting software business, with an AT&T victory, Best said. Scalia’s question about mootness came out of nowhere but was probably a “throwaway” of little significance, he added. -- Greg Piper
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Microsoft claimed Alcatel-Lucent infringed 4 patents in a suit in the U.S. Dist. Court, Wilmington, Del. The patents involve computer and phone system monitoring and maintenance, Microsoft said. It seeks damages and wants the court to stop Alcatel-Lucent sales of the technologies.