Must a “Component” be Physical?

Microsoft Corp. v. AT&T Corp.

Generally, there is no patent violation when a patented product is made and sold in another country except when one supplies from the United States, for combination abroad, a patented invention’s components. AT&T claims that Windows contains potentially infringing components (software to process voice). The issue is whether Microsoft’s liability extends to computers made in another country when they are loaded with Windows software copied from a master disk or electronic transmission dispatched by Microsoft from the United States, which is then copied onto the potentially offending computers (this was the compiled version, also known as “object code,” as opposed to the human-readable set of instructions known as “source code”).

In DeepSouth, a case about a patented shrimp deveiner, the Court held that patent law stopped a the water’s edge, and that it was not a violation to sell the component parts of a patented item for assembly abroad. Congress specifically overturned the second portion of that ruling by enactment of the statute at issue here. Essentially, whoever supplies all or a substantial portion of the components of a patented item, in such a manner as to actively induce their later combination outside the United States in a manner that would infringe the patent if it occurred in the United States; or sells abroad a component of a patented item that is specially made for that device, which is not suitable for substantial non-infringing use, and which would violate the patent if sold in the United States, is liable as an infringer.

Neither Windows itself, nor a computer, standing alone, violate AT&T’s patent. The infringement does not occur until they are combined. Microsoft stipulated that it was liable in the United States but argued that because its software was intangible it could not be considered a component of the item at issue, and that foreign-generated copies of Windows (from the master shipped or copied from Redmond) were not supplied from the United States. The case comes down to the moment at which Windows becomes something that can constitute as component of AT&T’s patent.

“until it is expressed as a computer-readable ‘copy’ e.g., on a CD-ROM, Windows software – indeed any software detached from an activating medium – remains uncombinable. It cannot be inserted into a CD-ROM drive or downloaded from the Internet; it cannot be installed or executed on a computer.” AT&T’s argument that once you compile the object code the source code is useless and irrelevant “[does] not persuade [the Court] to characterize software, uncoupled from a medium, as a combinable component.” “[B]efore software can be contained in and continuously performed by a computer, before it can be updated and deleted, an actual physical copy of the software must be delivered by CD-ROM or some other means capable of interfacing with the computer.” “Abstracted from a usable copy, Windows code is … more like notes of music in the head of a composer than ‘a roller that causes a player piano to produce sound.’” Just because the step required to make the object code machine readable (putting it on a CD, etc) is trivial does not mean it has no metaphysical significance.

Of importance, I think, is footnote 13 – “If an intangible method or process, for instance, qualifies as a ‘patented invention’ … the combinable components of that invention might be intangible as well. The invention [in this case], however, AT&T’s speech-processing computer, is a tangible thing.”

The lower court held that the act of copying is subsumed in the act of supplying. The law at issue prohibits the supply of components “from the United States … in such manner as to actively induce the combination of such components.” The components supplied, and not copies thereof, are what trigger liability. This opinion does not express an opinion on whether Microsoft would be liable for copies of Windows shipped on a disc from the U.S. and installed on machine where the disc was then removed from that machine. “The absence of anything addressing copying in the statute weighs against a judicial determination that replication abroad of a master dispatched from the United States ‘supplies’ the foreign-made copies fro the United States.”

To the extent that this is a close case it is controlled by the presumption against extraterritorial effect of American patent law, and the fact that the statute was designed to expand its reach does not make that presumption inapplicable. If this in fact leaves a “loophole,” that can be addressed by Congress; the Court is not persuaded that “dynamic judicial interpretation” of the statute is in order.

Justices Alito, Thomas and Bryer agree that a component of a machine must be a physical thing, and that a computer loaded with the right software would be an infringing item even after the component CD-ROM is taken out. “There is nothing in the record to suggest that any physical part of the [master] disk became a physical part of the foreign-made computer.”

Justice Stevens, dissenting, argues that the relevant component in this case is not a physical item and therefore the manner in which it is transmitted abroad from the United States is irrelevant. Moreover, Justice Stevens does not agree that because software is analogous to an abstract set of instructions like a blueprint that it cannot be considered a “component” within the meaning of the law because it is a constituent part, and not merely passively like blueprints. It is, Justice Stevens argues, more like a roller that causes a player piano to produce sound.