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Analysis: Less patent shield for code

Clearing the way for wider worldwide distribution of computer software code, and saving Microsoft Corp. millions of dollars in patent damages, the Supreme Court ruled on Monday that it is not illegal to send Windows code abroad for copying and installing in foreign-made computers, even if the code incorporates a part of someone else’s patented invention.

If the owner of that invention wants to protect it from being copied overseas, the Court indicated, there are only two options: get a foreign patent, or get Congress to change U.S. law on exporting patented items. If current law is to be revised to take in the new realities of the software business, that is for Congress to do, Justice Ruth Bader Ginsburg wrote for the Court.

The ruling narrowed the scope of a 1984 law — passed by Congress in reaction to an earlier Supreme Court ruling. The decision also curbed what has been described as an ongoing effort by the Federal Circuit Court to stretch U.S. patent laws to reach international commerce in computer software. The ruling came in the case of Microsoft Corp. v. AT&T Corp. (05-1056); the vote was 7-1 with Chief Justice John G. Roberts, Jr., not taking part. Justice John Paul Stevens was the lone dissenter.

At issue in the case is Microsoft’s steady line of international business in its Windows operating code — the basic “brains” of most of the world’s personal computers, laptops and data devices. The company writes the Windows code onto master disks to be sent abroad and copied, or else sends the code abroad by encrypted electronic transmission to be copied. The foreign computer-makers use copies of the code to install in their computers, all sold abroad. In both modes of overseas shipment, the Windows code incorporates a part of an AT&T patented invention for making synthetic speech sound more human (the digitally simulated speech is created by a code, which is a 1981 invention of Bell Laboratories scientists Bishnu Atal and Joel Remde).

AT&T sued Microsoft for infringing on its patent by sending Windows abroad for copying. Microsoft agrees that installation of Windows software in U.S. made or sold computers does infringe on the AT&T patent, but it argued that U.S. patent law does not reach its shipments of Windows abroad; it also argued that a 1984 amendment to U.S. patent law does not apply. The two companies have made a deal on what their dispute was worth in dollar terms, but have not disclosed anything other than that it runs into the hundreds of millions of dollars overall.

AT&T argued, and the Federal Circuit agreed, that the code for Windows software includes one component of AT&T’s digital speech invention. By sending a single copy of Windows abroad, the Circuit Court held, Microsoft intended it to be copied overseas, and thus the shipping and the copying were illegal under the 1984 law.

But the Supreme Court ruled that software code cannot be a component, since it really is only an abstraction until it is written onto something physical, like a CD-ROM. If it cannot be a component standing alone, Ginsburg wrote, it cannot be a combination that includes someone else’s invention; it is like a blueprint, giving instructions. And, if it is sent abroad only as code via a disk or electronic transmission, the copy made from it abroad is not a component supplied from the U.S., according to the ruling.

The step that occurs in a foreign computer maker’s factory — copying Windows code and then installing it into a computer to be sold abroad — does not trigger a violation of U.S. law, because the foreign-made copies are not shipped from the U.S., the Court explained. “The extra step is what renders the software a usable, combinable part of a computer; easy or not, the copy-producing step is essential,” it added. “In sum, a copy of Windows, not Windows in the abstract, qualifies as a ‘component’ ” under the 1984 law, the ruling concluded.

Thus, the foreign-made copies satisfy neither the “component” provision of the 1984 law, or the “supplied from the U.S.” requirement, the Court ruled.