Petition for Writ of Certiorari — Microsoft Corp. v. AT & T CORP.

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Supremes Court, U.S.

i Pile O

( 051055 f° 17 2006

No. OFFICE Ur ince Ut

IN THE

Supreme Court of the United States

MICROSOFT CORPORATION,

Petitioner,

AT&T Corp.,

Respondent.

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Federal Circuit

PETITION FOR A WRIT OF CERTIORARI

T. ANDREW CULBERT THEODORE B. OLSON

MICROSOFT CORPORATION Counsel of Record

One Microsoft Way MATTHEW D. MCGILL

Redmond, WA 98052 AMIR C. TAYRANI

(425) 706-6921 GIBSON, DUNN & CRUTCHER LLP

1050 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 955-8500

DALE M. HEIS1

WOODCOCK WASHBURN LLP

One Liberty Place (46th F1.)

Philadelphia, PA 19103

(215) 564-8939

Counsel for Petitioner

QUESTIONS PRESENTED

Title 35 U.S.C. § 271(f)(1) provides that it is an act of

direct patent infringement to “suppl[y] ... from the United

States ... components of a patented invention ... in such

manner as to actively induce the combination of such com-

ponents outside of the United States.”

In this case, AT&T Corp. alleges that when Microsoft

Corporation’s Windows software is installed on a personal

computer, the programmed computer infringes AT&T’s pat-

ent for a “Digital Speech Coder” system. AT&T sought

damages not only for each Windows-based computer made

or sold in the United States, but also, under Section 271(f)(1),

for each computer made and sold abroad. Extending Section

271(f}—and consequently, the extraterritorial application of

U.S. patent law—the Federal Circuit held that Microsoft in-

fringed under Section 271(f)(1) when it exported master ver-

sions of its Windows software code to foreign computer

manufacturers, who then copied the software code and in-

stalled the duplicate versions on foreign-manufactured com-

puters that were sold only to foreign consumers. The ques-

tions presented are:

(1) Whether digital software code—an intangible se-

quence of “1’s” and “O’s”—may be considered a “compo-

nent[] of a patented invention” within the meaning of Section

271(f(1); and, if so,

(2) Whether copies of such a ‘component[]” made in a

foreign country are “supplie[d] . . . from the United States.”

PARTIES TO THE PROCEEDING

AND RULE 29.6 STATEMENT

The caption contains the names of all the parties to the

proceeding below.

Pursuant to this Court’s Rule 29.6, undersigned counsel

state that Microsoft Corporation (“Microsoft”) has no parent

company, and no publicly held company owns 10% or more

of its stock.

QUESTIONS PRESENTED

TABLE OF CONTENTS

PARTIES TO THE PROCEEDING AND RULE 29.6

STATEMENT

TABLE OF AUTHORITIES

OPINIONS BELOW

Il.

Ii.

THIS CASE PRESENTS A RECURRING

QUESTION OF VITAL IMPORTANCE TO

THE U.S. SOFTWARE INDUSTRY............-.-+.

THE DECISION BELOW CONFLICTS

WITH THIS COURT’S DECISIONS

RESTRICTING THE EXTRA-

TERRITORIAL APPLICATION OF USS.

THIS CASE PRESENTS THE IDEAL

VEHICLE FOR AUTHORITATIVELY

CONSTRUING SECTION 271(F).........:.::0000000

CONCLUSION

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SOOO OEEEEEE ESE SESE EEE HE EEE EE EEEEEEEEEEEEEEH OHHH HE

SCS EEE EEE EEE SEES SEES HEHEHE SHEE EEE EH EEO EE

POORER EEE EEE E EEE EEE SESE EE EEEE RHE HEEE EEE EEEEEEEEEHEEEESEES

TABLE OF AUTHORITIES

Page(s)

CASES

Apple Computer, Inc. v. Franklin Computer

Corp., 714 F.2d 1240 (3d Cir. 1983).........ccesscereeeeeeenenees 5

Asplundh Tree Expert Co. v. NLRB,

SES F.36 168 (3d Cae. BOS) cncccocccsesccsccccosscosssvecsscncseeseoee 27

Bayer AG v. Housey Pharms., Inc.,

340 F.3d 1367 (Fed. Cir. 2003).............ccressssssssseseseseres 17

BedRoc Ltd., LLC v. United States,

SOE ULB. FH GO cicccineseinseevtnnstsecccocenseeesessnopsencvonientines 27

Benz v. Compania Naviera Hidalgo, S. A.,

DOE GA, Be hctevicicttesttnnietaicanpinnicinnneniees 24, 29

Brown v. Duchesne,

60 U.S. (19 How.) 183 (1857)... 2, 3, 14, 25, 28

Chi. & S. Air Lines, Inc. v. Waterman S.S.

Cami, BES ULE. BOB CII ccccsterernivescsecvesenccccssnesngnnvenes 23

Deepsouth Packing Co. v. Laitram Corp.,

GOB UAE, FES CIT cecervcintciscntntectnnnssensstnsceovesvscsntins passim

Dewsnup v. Timm, 502 U.S. 410 (1992) ..........ccceceeseeeeeerees 19

Diamond v. Chakrabarty, 447 U.S. 303 (1980) ..........s00000++ 28

Dowagiac Mfg. Co. v. Minn. Moline Plow Co.,

Be Ck Ue CEI icactentiintdntinncetnninenesinins i2, 14, 25

EEOC vy. Arabian Am. Oil Co.,

I Ses ee ED icteticisccecipianntccreectevesincnvenes 23, 24, 26

Eolas Techs. Inc. v. Microsoft Corp.,

399 F.3d 1325 (Fed. Cir.), cert. denied,

SI Bs CR, Fay GD ccciccsesncnesostocsoverscesenenccconesesosng passim

Estelle v. Gamble, 429 U.S. 97 (1976) ....cccssessssssuessssssseseesen 29

F. Hoffmann-LaRoche Ltd. v. Empagran S.A.,

POR Uae BIS GOED veecetnitsosiesciinibercsnianavont 3, 23, 24, 26, 28

Fantasy Sports Props., Inc. v. Sportslines.com,

Inc., 287 F.3d 1108 (Fed. Cir. 2002).........:cccccseeeeeeees 3,18

Festo Corp. v. Shoketsu Kinzoku Kogyo

Kabushiki Co., 535 U.S. 722 (2002) .........cscccsesssessenseeees 22

Foley Bros. v. Filardo, 336 U.S. 281 (1949).........ccccesessseeees 23

Gates Rubber Co. v. Bando Chem. Indus., Ltd.,

DP FDS BES CAGE Cae. 1DD GB) vsvictstscerevenssicivesssscresievcessrerecies 4

Goldstein v. California, 412 U.S. 546 (1973) ....ccccccesseeeeees 16

Hartford Fire Ins. Co. v. California,

Be CFB es, FD CED vccnctavhinnisnsstvecianinnthenciipenvnoileneaneted 28

In re Alappat,

33 F.3d 1526 (Fed. Cir. 1994) (en banc)............ccccceeeeees 5

Moore U.S.A. Inc. v. Standard Register Co.,

144 F. Supp. 2d 188 (W.D.N.Y. 2001) ......:ccccccsesreeeeeeeees 8

Murray v. Schooner Charming Betsy,

6 U.S. (2 Cranch) 64 (1804)... ce esssessetessesseseennees 28

Parker v. Flook, 437 U.S. 584 (1978) .......ccscscsssssssseceeesesenees 28

Pellegrini v. Analog Devices, Inc.,

375 F.3d 1113 (Fed. Cir. 2004).............. 13, 18, 19, 20, 21

Rotec Indus., Inc. v. Mitsubishi Corp.,

215 F.3d 1246 (Fed. Cir. 2000) .00........ccccceeeeeeeees 14, 16, 19

Sale v. Haitian Ctrs. Council, Inc.,

FED UB: CEB CAG vcticssntssiinicnccivescsesntiovisncresemnsversseesvatiits 12

Sony Corp. of Am. v. Universal City Studios,

Trac. 464 U.S. 417 (19BA) .ccrccvcssocercereescescecescoeseressosossosses 17

Standard Havens Prods., Inc. v. Gencor Indus.,

Inc., 953 F.2d 1360 (Fed. Cir. 1991) ...........cccceseeseeeeceeees 17

Stenograph L.L.C. v. Bossard Assocs., Inc.,

144 F.3d 96 (D.C. Cir. 1998) .......ccccccsccsrcorsereccsecsssecesssees 6

Union Carbide Chems. & Plastics Tech. Corp.

v. Shell Oil Co., 425 F.3d 1366

SE TE TI ccitedistnsestnnininincesiapencentnccstqictuennenesapeennestcs 2,7

Union Carbide Chems. & Plastic Tech. Corp.

v. Shell Oil Co., _ F.3d _, 2006 WL 47462

See EE Sn SUD SE bs cncncsescnnnctusecienciosiucesccssncseet 11,15

United States v. Javino, -

1 blog A , ree 27

White-Smith Music Publ'g Co. v. Apollo Co.,

ESI REI oo 4, 16

Williams v. Taylor, 529 U.S. 420 (2000).............ccccccsceseeeneees 15

WMS Gaming Inc. v. Int'l Game Tech.,

ae GU Ge BOR siccccsccsccescceosscncecscencescsnnies 4

STATUTES

97 UBC. © VOU caciccccccscensacccsooos EAS Top DA Soler Hea 3

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SEER EE a ee a ET TT Te l

ES eee l

SREP ERT SPER OIE NO ov oe ET ee OmE 5, 16

rnin ceecesiinsihilintnamsbidepesenemennaes 5, 15, 19

SRA 7

SE TE Soe ae ae 17

EL Ce aD passim

LLL LD 15,17

vii

On SRR SESE ata ReneS OPE Ws

Patent Law Amendments Act of 1984,

Pub. L. No. 98-622, 98 Stat. 3383.............sceceesees

LEGISLATIVE HISTORY

130 Cong. Rec. H12,231

RB eee

Patent Law Amendments Act of 1984,

BSS UGCA, SiS cvccceccesccesscnstecnsncsesccseneees

OTHER AUTHORITIES

Curtis A. Bradley, Territorial Intellectual

Property Rights in an Age of Globalism, 37

VA. 3. BET LL. SOS CUD) an ccscccnvenccnnnvsesosccccnsces

Alan M. Fisch & Brent H. Allen, The

Application of Domestic Patent Law to

Exported Software: 35 U.S.C. § 271()), 25

U. PA. J. INT’L ECON. L. 557 (2004) ..........ccccseeee

Bruce A. Lehman et al., Overseas Stretch,

LEGAL TIMES, July 11, 2005, at 525............:c00000

UNITED STATES PATENT & TRADEMARK OFFICE,

MANUAL OF PATENT EXAMINING

PROCEDURE (8th ed. 2001) ..............cecccccecceeerseees

WEBSTER’S THIRD NEW INTERNATIONAL

DICTIONARY OF THE ENGLISH LANGUAGE

CIO veccesurceecseccesecncenensnseneesatensensesnentssosngesnestseness

Rosemarie Ham Ziedonis, Patent Litigation in

the U.S. Semiconductor Industry, in

PATENTS IN THE KNOWLEDGE-BASED

ECONOMY 191 (Wesley M. Cohen &

Stephen A. Merrill eds., 2003) ...........seecceseeeeeees

PETITION FOR A WRIT OF CERTIORARI

Petitioner Microsoft Corporation respectfully submits

this petition for a writ of certiorari to review the judgment of

the United States Court of Appeals for the Federal Circuit.

OPINIONS BELOW

The court of appeals’ opinion is reported at 414 F.3d

1366. App., infra, at la. The order denying Microsoft’s pe-

tition for rehearing en banc is unreported. /d. at 39a. The

opinion of the United States District Court for the Southern

District of New York is unpublished but is electronically re-

ported at 2004 WL 406640. Jd. at 20a.

JURISDICTION

The district court had jurisdiction over respondent’s

claims pursuant to 28 U.S.C. §§ 1331 and 1338(a). The court

of appeals had jurisdiction to review the district court’s final

judgment pursuant to 28 U.S.C. § 1295(a)(1). The court of

appeals filed its opinion on July 13, 2005. It denied Micro-

soft’s timely petition for rehearing en banc on October 20,

2005. On January 12, 2006, Justice Stevens extended the

time within which to file a petition for certiorari to and in-

cluding February 17, 2006. No. 05A606. The jurisdiction of

this Court is invoked under 28 U.S.C. § 1254(1).

STATUTORY PROVISION INVOLVED

Title 35 U.S.C. § 271(f)(1) provides:

§ 271. Infringement of patent

(f)(1) Whoever without authority supplies or causes to

be supplied in or from the United States all or a substantial

portion of the components of a patented invention, where

such components are uncombined in whole or in part, in such

manner as to actively induce the combination of such com-

ponents outside of the United States in a manner that would

infringe the patent if such combination occurred within the

United States, shall be liable as an infringer.

STATEMENT

In the twenty-two years since it was enacted, this Court

has never interpreted 35 U.S.C. § 271(f). For much of that

time, the statute was viewed almost as a dead letter—a loop-

hole-closing provision that worked. See Alan M. Fisch &

Brent H. Allen, The Application of Domestic Patent Law to

Exported Software: 35 U.S.C. § 271(), 25 U. PA. J. INT'L

Econ. L. 557, 567 & n.46 (2004) (noting that, on account of

the “sparse caselaw,” commentators have suggested that Sec-

tion 271(f) “serves little purpose at all”). In recent years,

however, the Federal Ci:cuit has articulated new and far-

reaching applications for Section 271(f), holding that the

statute encompasses much more than simply the export of the

unassembled, physical parts of a patented machine, as was

the case in Deepsouth Packing Co. v. Laitram Corp., 406

U.S. 518 (1972), the decision that prompted the legislative

loophole-closing effort. In this case, the Federal Circuit held

that Section 271(f) applies to the distribution of intangible

software code to foreign computer manufacturers, concluding

that digital software code constitutes a “component” of a

programmed-computer invention and that copies of that digi-

tal code created abroad by foreign computer manufacturers

“may be deemed ‘supplied’ from the United States.” App.,

infra, at 4a. And in its most recent application of Section

271(f), the Federal Circuit reached the conclusion that the

statute could prohibit “suppl[ying]” a “component” of a pat-

ented process. See Union Carbide Chems. & Plastics Tech.

Corp. v. Shell Oil Co., 425 F.3d 1366 (Fed. Cir. 2005).

This case brings into focus a recurring judicial debate

concerning whether patent laws—and in particular Section

271(f}—should be interpreted according to their plain mean-

ing and legislative history, or whether—as the decision be-

low holds—they “must . . . be interpreted in a manner that is

appropriate to the technology at issue,” so that the statutes

might “remain effective.” App., infra, at 10a. Although this

Court has consistently resolved that debate in favor of the

former position, see Brown v. Duchesne, 60 U.S. (19 How.)

183, 197 (1857), the Federal Circuit has determined to pursue

a course that would take into account “advances in a field of

technology . . . that developed after the enactment of” the |

statute. App., infra, at 10a. In so doing, the court of appeals

disregarded fundamental canons of statutory construction, as

well as this Court’s repeated expressions of disfavor toward

the extraterritorial application of U.S. law in the absence of a

clear expression of contrary congressional intent. See, e.g.,

F. Hoffmann-LaRoche Ltd. v. Empagran S.A., 542 U.S. 155,

165 (2004). Because the “profound ramifications” (App.,

infra, at 22a) for innovating businesses multiply with each

new lower-court effort to ensure that Section 271(f) remains

“*responsive to the challenges of a changing world,”” (id. at

9a) this Court’s interpretive guidance is now urgently

needed.

1. The Nature of Software

The decision below is premised on a commonly held

misunderstanding of the nature, and thus the patentability, of

software. In everyday usage, “software” is perceived as em-

bodied in some kind of storage medium, such as a CD-ROM

or a hard drive—as when one purchases a copy of Microsoft

Word software on a CD-ROM. Similarly, “software” is often

understood as operating on a computer and giving that com-

puter certain functionality—as when a computer is loaded

with Microsoft Excel software and used to create and ma-

nipulate a spreadsheet. Although prevalent, these uses of the

word “software” are imprecise. By itself—that is, uncoupled

from any storage medium or computer—software is nothing

more than “a set of instructions, known as code, that directs a

computer to perform specified functions or operations.”

Fantasy Sports Props., Inc. v. Sportslines.com, Inc., 287 F.3d

1108, 1118 (Fed. Cir. 2002); see also 17 U.S.C. § 101 (defin-

ing a “computer program” as a “set of statements or instruc-

tions to be used directly or indirectly in a computer in order

to bring about a certain result”); UNITED STATES PATENT &

TRADEMARK OFFICE, MANUAL OF PATENT EXAMINATION

PROCEDURE (“MPEP”) § 2106.IV.B.1(a) (8th ed. 2001) (“a

computer program is merely a set of instructions capable of

being executed by a computer”).

Computer programmers develop software by first au-

thoring “source code”—human-readable commands to the

computer—in a computer language such as BASIC,

FORTRAN, or C++. See Gates Rubber Co. v. Bando Chem.

Indus., Ltd., 9 F.3d 823, 835 (10th Cir. 1993). That source

code is then run through a compiler that translates the hu-

man-readable source code into computer-readable “object

code,” which is expressed in the binary digital language of

“0’s” and “1’s.” Each digit instructs the computer to open or

close one of the millions of switches in its central processing

unit. It is the “opening and closing of the interconnected

switches” that “creates electrical paths ... that cause [the

computer] to perform the desired function.” WMS Gaming

Inc. v. Int'l Game Tech., 184 F.3d 1339, 1348 n.3 (Fed. Cir.

1999). The object code is thus nothing more than a complex

set of digital commands that instruct a computer to align its

circuits in a particular manner to achieve a particular func-

tionality. In this sense, software code is not unlike the pat-

tern of perforations in a player piano music roll, with each

unique pattern of perforations generating, when run on a

player piano (i.e., hardware), a unique composition of music.

Just as each perforation causes the piano to strike a particular

string, each “1” or “O” of software code instructs a computer

to close or open, respectively, a particular switch. See gen-

___ erally White-Smith Music Publ'g Co. v. Apollo Co., 209 U.S.

1, 9-10 (1908) (describing the mechanics of a player piano).

Like the perforations in a music roll, software code is design

information that reflects specific knowledge about how to .

make hardware perform certain operations.

The distinction between software as integrated on a

computer or other storage medium (such as a CD-ROM), and

software as design information, is critical, When digital

software code (like the pattern of perforations in a piano roll)

is embodied on a physical medium (the actual piano roll) or

alters the circuitry of a computer in a particularly useful way,

that medium or computer, as physically and functionally al-

tered by the software, may be a patentable invention. See /n

re Alappat, 33 F.3d 1526, 1545 (Fed. Cir. 1994) (en banc)

(holding that a “general purpose computer programmed to

carry out the claimed invention” was patentable as “a new

machine, because a general purpose computer in effect be-

comes a special purpose computer once it is programmed to

perform particular functions pursuant to instructions from

program software”); see also MPEP § 2106.IV.B.1(a); cf.

Alappat, 33 F.3d at 1554 (Archer, C.J., concurring in part

and dissenting in part) (recognizing that, under Alappat, a

music roll with perforations embodying a new song could be

patentable). In contrast, software code alone (the particular

sequence of “1’s” and “0’s”)}—like the arrangement of holes

to be punched into the music roll of a player piano—is nei-

ther a “process” nor a “machine, manufacture, or composi-

tion of matter.” 35 U.S.C. § 101. Thus, although software

code may be copyrightable, see, e.g., Apple Computer, Inc. v.

Franklin Computer Corp., 714 F.2d 1240, 1248 (3d Cir.

1983), it is not itself patentable.

Contrary to the Federal Circuit’s conviction that,

“(without question, software code alone qualifies as an in-

vention eligible for patenting,” App., infra, at 4a (quoting

Eolas Techs. Inc. v. Microsoft Corp., 399 F.3d 1325, 1339

(Fed. Cir.), cert. denied, 126 S. Ct. 568 (2005)), the Patent

and Trademark Office has explained that “a claim for a com-

puter program, without the computer-readable medium

needed to realize the computer program’s functionality,” is

unpatentable because computer programs are neither “physi-

cal things” nor “acts being performed.” MPEP

§ 2106.IV.B.1(a). Accordingly, the duplication of software

code can itself never constitute an act of patent infringement.

See 35 U.S.C. § 271(a) (limiting infringement actions to the

manufacture, use, sale, or importation of a “patented inven-

tion”). At stake in this case is Microsoft’s right to export

digital software code—a sequence of “1’s” and “0’s”—to

foreign companies that duplicate the code and install it on

foreign-manufactured computers for sale in foreign markets.

2. Microsoft’s Distribution of Windows

Software in Foreign Markets

At its headquarters in Redmond, Washington, Microsoft

designs, authors, and tests software, including the object code

comprising the Windows operating system. App., infra, at

45a. Today, most computer systems sold to consumers come

with the Windows object code “pre-installed” by the com-

puter manufacturer onto the computer’s hard drive. In addi-

tion to household American names such as Dell and Compaq,

Microsoft does business with numerous computer manufac-

turers in foreign nations. These foreign manufacturers as-

semble their computer systems from physical parts—central

processors, hard drives, keyboards, monitors, etc.—

manufactured around the world, and the parties have stipu-

lated that none of those physical parts is obtained from Mi-

crosoft. App., infra, at 47a. Once the computer system is

fully assembled, the computer manufacturer “installs” Win-

dows onto the computer’s hard drive.

In foreign markets, as elsewhere, Microsoft distributes

its Windows software to computer manufacturers by trans-

mitting master copies of the Windows program, i.e., a copy

of the computer-readable, digital object code that instructs

computers to perform the functions associated with the Win-

dows operating system. Microsoft transmits the Windows

object code to manufacturers either on a “golden master

disk” or in an encrypted electronic transmission. App., infra,

at 45a-46a. From that single master version, a manufacturer

produces numerous duplicate copies. /d. Those copies—but

“never” the master version of the object code transmitted by

Microsoft—are then installed on foreign-manufactured com-

puters. /d. at 45a. “Installation” is simply an act of duplica-

tion; a computer reads software code from the medium on

which it is stored (usually, a disk or a host computer’s hard

drive) and scrivens the code onto the new computer’s storage

medium (typically, a hard drive). See Stenograph L.L.C. v.

Bossard Assocs., Inc., 144 F.3d 96, 100 (D.C. Cir. 1998)

(“installation of software onto a computer results in ‘copy-

ing’”). The digital software code actually “installed” on the

foreign-manufactured computers is thus a second-generation

copy of the digital software code transmitted from the United

States—a foreign-made copy of a foreign-made copy of the

original. See Union Carbide Chems. & Plastics Tech. Corp.,

425 F.3d at 1379 (citing the decision below as concerning

“exportation of a ‘master’ computer readable disc that was

further copied abroad, with the copies installed as software

on assembled computers”).

3. AT&T’s Patent Infringement Action

AT&T sued Microsoft in district court alleging that

computers running the Windows operating system infringe

AT&T’s United States Reissue Patent 32,580 (“the ‘580 pat-

ent”), which claims a Digital Speech Coder system. App.,

infra, at 44a-45a. AT&T’s patented system is comprised of a

computer programmed with a “speech codec”—a program

that is capable of compressing and decompressing digitally

recorded speech—a microphone, and a speaker. /d. at 3a.

The microphone is used to input speech that the speech-

codec-equipped computer can digitize, compress, decom-

press, and reproduce through the speaker. AT&T does not

hold a patent on the speech codec itself because, as described

above, standing alone, software code is not patentable.

AT&T thus alleged that computers programmed with Win-

dows infringe its patent by enabling the user, through Win-

dows’ own speech codecs, to record, store, and play back

speech in a manner substantially similar to that described in

the ‘580 patent.

Microsoft stipulated that, by selling copies of its Win-

dows software to manufacturers of computers that are ulti-

mately manufactured, used, or sold in the United States, it

induced those computer manufacturers to infringe the ‘580

patent. 35 U.S.C. § 271(b); see also App., infra, at 42a.

AT&T further contended that, under 35 U.S.C. § 271(f)(1), it

was also entitled to damages for every Windows-based com-

puter manufactured outside the United States. AT&T argued

that the Windows object code constitutes a “component” of

AT&T’s patented Digital Speech Coder system and that the

foreign-made copies of that object code installed on the for-

eign-manufactured computers were, in fact, “supplie[d]” by

Microsoft “from the United States.” App., infra, at 46a.

Microsoft moved for partial summary judgment on the

Section 271(f) question, arguing that Microsoft’s object code

was intangible information and thus could not be considered

a “component[] of a patented invention” because, among

other reasons, information cannot be “combin[ed]” with other

objects in the manner required by the statute. App., infra, at

24a. And even if object code could be a “component[] of a

patented invention,” Microsoft argued, under no circum-

stances had Microsoft “supplie[d]” the foreign-manufactured

copies. Microsoft “supplie{d] ... from the United States”

only the golden master disks and encrypted transmissions

embodying the master versions of the Windows object code

(id. at 47a)—neither of which was ever “combin[ed]” in a

foreign-manufactured computer.

The district court denied Microsoft’s motion for partial

_ summary judgment. App., infra, at 22a. Finding “no limita-

’ tion of the term ‘components,”” that would exclude “intangi-

ble information,” the court held that object code could consti-

tute a “component{j] of a patented invention” within the

meaning of Section 271(f). /d. at 31a (citing Moore U.S.A.

"Inc. v. Standard Register Co., 144 F.Supp. 2d 188, 195

(W.D.N.Y. 2001) (holding blueprints of a patented envelope

to be a “component” of that invention)). The district court

reasoned that this broad interpretation was necessary to ac-

count for recent technological developments, explaining that

“excluding protection for inventions using software would

not be responsive to the challenges of a changing world.” Jd.

at 32a (internal quotation marks omitted).

The district court further held that Microsoft had “sup-

plie(d] . .. from the United States” each of the foreign-made

copies of Windows “‘even though they never touched U.S.

soil.’” App., infra, at 35a (internal quotation marks omitted).

The court reached the conclusion that each foreign-made

copy is actually “originally manufactured in the United

States” because “replication of the object code abroad” is dif-

ferent in kind from the “manufacturfe] .. . of it... abroad.”

Id. at 35a. The district court therefore concluded that Micro-

soft was liable under Section 271(f) for each foreign-

manufactured copy of the Windows object code installed on

a foreign-assembled computer. /d. at 38a.

The parties thereafter stipulated to the entry of final

judgment in favor of AT&T. App., infra, at 41a. The parties

agreed that the ‘580 patent “is enforceable and not invalid”

and that, under the district court’s interpretation of Sec-

tion 271(f), Microsoft was liable for Windows-programmed

computers manufactured outside the United States. /d. at

42a. The stipulated judgment, however, expressly preserved

Microsoft’s right to challenge on appeal the district court’s

interpretation of Section 271(f) based on a set of stipulated

facts. Id. at 43a.

4. The Decision Below

a. A divided panel of the Federal Circuit affirmed.

App., infra, at 1la. In determining whether intangible object

code can constitute a “component[] of a patented invention”

capable of being “combin[ed]” with other components within

the meaning of Section 271(f), the panel majority relied upon

the Federal Circuit’s holding in Eolas Technologies, 399

F.3d 1325, which was decided while Microsoft’s appeal was

pending. Eolas held that object code can be a “component{[]

of a patented invention” because, in the Eolas panel’s view,

Section 271(f) is not expressly limited “to ‘machine’ compo-

nents or ‘structural or physical’ components. Rather every

component of every form of invention deserves the protec-

tion of section 271(f).” Jd. at 1339. The AT&T panel

adopted the Eolas court’s conclusion without expanding

upon its analysis. App., infra, at 4a. Neither the panel be-

low, nor the decision on which it relied, ever explained how

intangible information—a sequence of “0’s” and “1’s”—can

be “combin[ed]” with tangible objects to create a patented

product.

The panel majority further concluded that Microsoft was

liable under Section 271(f) for each foreign copy of the Win-

dows object code traceable to the golden master disks and

electronic transmissions shipped from the United States.

App., infra, at 7a. The court held that each of these foreign-

made copies had “essentially been supplied from the United

States” because “[clopying . . . is part and parcel of software

distribution” and therefore, “for software ‘components,’ the

act of copying is subsumed in the act of ‘supplying.’” /d. at

6a, 7a; see also id. at 7a (“It is inherent in the nature of soft-

ware that [it] ... may be replicated.”). In reaching this con-

clusion, the court candidly acknowledged that it was inter-

preting Section 271(f) to account for “the realities of soft-

ware distribution” and to ensure that the statute “remain[s}

effective” in a rapidly changing world. /d. at 7a, 10a. A

conclusion that foreign-made copies were not supplied from

the United States, the panel majority asserted, “would per-

mit[] a technical avoidance of the statute by ignoring ad-

vances in a field of technology . . . that developed after the

enactment of § 271(f)” and “would emasculate § 271(f) for

software inventions.” Jd. at 6a n.2, 10a. The panel majority

accorded no significance to the ready availability of foreign

patents to protect AT&T from acts of foreign infringement,

finding it more appropriate to “construe our statutes irrespec-

tive of the existence or nonexistence of foreign patents.” Id.

at 6a n.2.

b. Judge Rader dissented. Although Judge Rader agreed

that the Federal Circuit’s recent decision in Eolas was con-

trolling as to the issue of whether software code could be a

“component[] of a patented invention,” he disagreed with the

majority’s conclusion that the foreign-manufactured copies

of the Windows object code had been “supplie[d] ... from

the United S*~’es.” App., infra, at lla. Judge Rader rejected

the panel nuajority’s contention that the “act of copying is

subsumed in the act of ‘supplying,’ id. at 6a, finding such

reasoning to be contrary to the “ordinary meaning of ‘sup-

plies.’"” Jd. at 12a. The necessary consequence of the panel

majority’s holding, Judge Rader recognized, was to “pro-

vide[] extraterritorial expansion to U.S. law by punishing un-

der U.S. law ‘copying that occurs abroad.’” /d. at 12a. The

majority opinion was flawed, Judge Rader continued, te-

cause it “holds Microsoft liable for the activities of foreign

manufacturers making copies of the patented component

abroad” in the absence of a clear indication of Congress’s

intention to do so. /d. at 16a-17a. Judge Rader concluded

that—rather than seeking to give extraterritorial effect to U.S.

patent law—the proper course of action for AT&T would

have been to “protect its foreign markets from foreign com-

petitors by obtaining and enforcing foreign patents.” Jd. at

18a-19a (emphases added).

REASONS FOR GRANTING THE PETITION

This case presents a recurring question of vital impor-

tance to the U.S. software industry. The Federal Circuit’s

“recent[] exten[sion] of the meaning” of Section 271(f)(1) to

include foreign-made copies of software code, Union Car-

bide Chems. & Plastic Tech. Corp. v. Shell Oil Co., _ F.3d _,

2006 WL 47462, at *1 (Fed. Cir. Jan. 10, 2006) (Lourie, J.,

dissenting from denial of reh’g en banc), vastly expands the

extraterritorial reach of U.S. patents involving software. As

the Federal Circuit has enlarged the law, U.S. patents on pro-

grammed-computer inventions grant monopolies enforceable

against American competitors not only as to computers

manufactured or sold in the United States, but also as to

computers made and sold abroad. This self-described exten-

sion of Section 271(f) eviscerated the well-established

“right” of American software companies “to compete with an

American patent holder in foreign markets,” Deepsouth

Packing Co., 406 U.S. at 531, thereby exposing those busi-

nesses to potentially crippling liability—here, tripling Micro-

soft’s infringement liability.! See App., infra, at 37a. If al-

lowed to stand, the Federal Circuit’s reformulation of Section

1 Judge Lourie’s description of the Federal Circuit’s interpretation of

Section 271(f) in Eolas and AT&T as a “recent[] exten{sion]” is particu-

larly telling inasmuch as he authored the majority opinion in AT&T.

271(f) will undoubtedly compel American software compa-

nies to reevaluate decisions to locate their research-and-

development facilities in the United States. And because the

Federal Circuit’s extension of the meaning of “component”

cannot possibly be limited only to software, other American

technology-based businesses that manufacture products over-

seas based on knowledge and designs conceived in the

United States will find themselves at risk as well.

Nothing in the statutory text or legislative history of Sec-

tion 271(f) even remotely suggests that it was intended to

encompass foreign-made copies of software code or other

design information. Responding to this Court’s decision in

Deepsouth, Congress enacted Section 271(f) in order to pre-

vent American companies from circumventing the patent

laws’ proscription against “manufacture . . . of a patented in-

vention” by shipping all the component parts of a patented

product overseas for final assembly. Patent Law Amend-

ments Act of 1984, Pub. L. No. 98-622, § 101, 98 Stat. 3383,

3383. But sending software code alone to foreign manufac-

turers is manifestly different in kind from the conduct that

Congress addressed in the wake of Deepsouth. Software

code is design information, and if design information could

constitute a “component[] of a patented invention,” then the

export of blueprints, formulas, and methodologies—in other

words, knowledge—would itself constitute an act of in-

fringement, thereby giving U.S. patents global force and ef-

fect. The Federal Circuit’s interpretation of the phrase

“component[] of a patented invention” thus runs headlong

into this Court’s long-standing rule that the patent laws do

not apply extraterritorially, see Dowagiac Mfg. Co. v. Minn.

Moline Plow Co., 235 U.S. 641, 650 (1915), and the more

general canon of construction that U.S. laws must not be

given extraterritorial effect in the absence of a clear expres-

sion of congressional intent to reach foreign conduct, see,

e.g., Sale v. Haitian Ctrs. Council, Inc., 509 U.S. 155, 176

(1993).

Even if software code could constitute a “component{]}

of a patented invention” within the meaning of Section

271(f), the Federal Circuit’s additional quantum leap to the

conclusion that copies of U.S.-designed software made en-

tirely outside the United States are, despite their foreign

provenance, “supplie{d] ... from the United States,” ampli-

fies the need for this Court’s review. Like its interpretation

of “component,” the Federal Circuit’s textually indefensible

interpretation of “supplie[d]” broadly expands the extraterri-

torial reach of the U.S. patent laws. Indeed, if the Federal

Circuit is correct that—at least where software is con-

cerned——“the [foreign] act of copying is subsumed in the

[domestic] act of ‘supplying’” (App., infra, at 6a), then the

Federal Circuit has indeed categorically excluded software

companies from the “right of American companies to com-

pete with an American patent holder in foreign markets.”

Deepsouth Packing Co., 406 U.S. at 531. The Federal Cir-

cuit’s excursion into foreign markets at once trenches upon

Congress’s authority to regulate foreign commerce and

greatly reduces (if not entirely eliminates) the incentive for

inventors to obtain patents in jurisdictions other than the

United States. It thus threatens to disrupt foreign nations’

patent law schemes and creates the possibility of retaliatory

action and substantial international discord.

This Court has not previously found occasion to interpret

Section 271(f), and its review is now urgently needed to re-

store the territorial limits that Congress placed on the U.S.

patent laws. This case, which comes to this Court on stipu-

lated facts and is final in all respects, presents an ideal vehi-

cle for that review.

i. THIS CASE PRESENTS A RECURRING

QUESTION OF VITAL IMPORTANCE TO

THE U.S. SOFTWARE INDUSTRY.

The Federal Circuit’s decision has “profound ramifica-

tions for ... software manufacturers.” App., infra, at 22a.

Indeed, by casting aside its earlier holding that Section 271(f)

does not proscribe the exportation of design information, see

Pellegrini v. Analog Devices, Inc., 375 F.3d 1113, 1117-18

(Fed. Cir. 2004), and extending Section 271(f) to encompass

foreign-made copies of such information, the Federal Circuit

retroactively exposed American software companies—and

other technology-based businesses—to potentially crippling

infringement liability for foreign activities, and threatened

their substantial investments in overseas manufacturing fa-

cilities built in reliance on the freedom to compete with pat-

ent holders in foreign markets that the patent laws and the

decisions of this Court ordained. The gravity of the conse-

quences attributable to the Federal Circuit’s recent 2” tension

of Section 271(f) thus marks this case as one of exceptional

importance, warranting this Court’s review.

1. It is axiomatic that American patent laws generally

are “not intended to[] operate beyond the limits of the United

States.” Brown, 60 U.S. (19 How.) at 195; see also 35

U.S.C. § 154(a)(1) (“Every patent shall . . . grant to the pat-

entee . . . the right to exclude others from making .. . or sell-

ing the invention throughout the United States”) (emphasis

added). Accordingly, this Court has long recognized that

U.S. patent laws afford no protection against efforts to prac-

tice a patented invention outside the territorial jurisdiction of

the United States. See Dowagiac Mfg. Co., 235 U.S. at 650

(“The right conferred by a patent under our law is confined to

the United States and its Territories and infringement of this

right cannot be predicated [on] acts wholly done in a foreign

country.”) (citation omitted); see also Deepsouth Packing

Co., 406 U.S. at 531 (acknowledging “the right of American

companies to compete with an American patent holder in

foreign markets”); Rotec Indus., Inc. v. Mitsubishi Corp., 215

F.3d 1246, 1251 (Fed. Cir. 2000) (“extraterritorial activities

... are irrelevant”). Section 271(f), enacted specifically in

response to this Court’s decision in Deepsouth, places an

eminently sensible, but intentionally quite narrow, limitation

on that right.

Deepsouth held that a company was not liable for in-

fringement for “manufactur[ing] . . . a patented invention . . .

in the United States” where it manufactured all the compo-

nent parts of a patented shrimp deveining machine in the

United States and shipped those parts for final assembly to

foreign customers. 406 U.S. at 524. Because the final as-

sembly occurred in a foreign country, the Court concluded

that the defendant did not “manufacture” the patented ma-

chine within the United States and therefore did not infringe

the patent. /d. at 527. The Court emphasized the territorially

limited nature of the United States patent laws, finding that

Section 271(a) “makes it clear that it is not an infringement

to make or use a patented product outside of the United

States.” Jd. Recognizing that its decision might be viewed

as opening a loophole in the patent laws, the Deepsouth

Court invited Congress to provide a “clear .. . indication of

intent to extend the patent privilege” to the export of compo-

nents of a patented invention for assembly abroad. /d. at 532.

Congress responded by enacting Section 271(f) as part

of the Patent Law Amendments Act of 1984, Pub. L. No.

98-622, § 101, 98 Stat. 3383, 3383. The text of the statute

makes clear that it was directed toward the specific factual

scenario at issue in Deepsouth—evasion of the proscription

against “manufacture . . . of a patented invention” through

the export of the patented product’s physical parts for final

assembly abroad. Section 271(f) prohibits the “suppl[y] . . .

from the United States . . . [of] components of a patented in-

vention ... in such manner as to actively induce the combi-

nation of such components.” 35 U.S.C. § 271(f)(1) (empha-

ses added); see also id. § 271(f)(2) (referring to a “compo-

nent” that is “uncombined in whole or in part”).

Section 271(f) plainly was not intended to prohibit the

export of intangible items. See Union Carbide Chems. &

Plastics Tech. Corp., _ F.3d at _, 2006 WL 47462, at *1

(Lourie, J., dissenting from denial of reh’g en banc) (“The

whole tenor of [Section 271(f)] relates to physical inventions

....”) (emphasis added). Absent congressional intent to the

contrary, words in a statute must be given their ordinary

meaning, see Williams v. Taylor, 529 U.S. 420, 431 (2000),

and one does not ordinarily speak of a car’s design specifica-

tions as being a “component” of the car. See WEBSTER’S

THIRD NEW INTERNATIONAL DICTIONARY OF THE ENGLISH

LANGUAGE 466 (1976) (defining “component” as “a con-

stituent part” or “ingredient”). But even if the term “compo-

nent”—taken alone—could conceivably be construed to in-

clude the essential intangible predicates to the invention,

such as design specifications, the statutory context makes

clear that the term is limited only to those “components of a

patented invention” capable of being “combin{ed},” 35

U.S.C. § 271(f)(1), and intangible information cannot be

“combined” with other physical parts to form a “patented in-

vention,” i.e., a “process, machine, manufacture, or composi-

tion of matter,” id. § 101. Rather, “combination” most com-

monly refers to the assembly of tangible parts into a whole.

See WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY OF

THE ENGLISH LANGUAGE 452 (defining “combine” as “to join

in physical or chemical union”); see also Rotec Indus., 215

F.3d at 1252 n.2 (Section 271(f) “precludes competitors from

avoiding liability simply by supplying components of a pat-

ented product from the United States and assembling them

abroad”).?

That is certainly the sense in which Congress used the

term. Congress explained that Section 271(f)

prevent[s] copiers from avoiding U.S. patents

by supplying components of a patented product

in this country so that the assembly of the com-

ponents may be completed abroad. This pro-

posal responds to the United States Supreme

Court decision in Deepsouth Packing Co. v.

Laitram Corp., 406 U.S. 518 (1972), concern-

ing the need for a legislative solution to close a

loophole in patent law.

Patent Law Amendments Act of 1984, 1984 U.S.C.C.A.N.

5827, 5828 (emphasis added); see also 130 Cong. Rec.

2 Returning to the player piano analogy, it is telling that this Court has

recognized only the “perforated rolls” —never the arrangement of perfora-

tions—to be “component parts of the machine which executed the com-

position.” Goldstein v. California, 412 U.S. 546, 565 (1973) (citing

White-Smith Music Publ’g Co., 209 U.S. at 18).

H12,231 (daily ed. Oct. 11, 1984) (statement of Rep. Kas-

tenmeier) (“a product’s patent cannot be avoided through the

manufacture of component parts within the United States for

assembly outside the United States”) (emphases added). The

legislative history’s emphasis on the “assembly” of compo-

nents and on the Deepsouth decision confirms that Congress

was concerned with the specific facts of Deepsouth when en-

acting Section 271(f), not with the export of templates and

design instructions used in foreign manufacturing.

This is further confirmed by the use of the term “compo-

nent” in other parts of Section 271. The statute provides an

exception from liability for the supply of a “component of a

patented invention” that constitutes a “staple article or com-

modity of commerce.” 35 U.S.C. § 271(f)(2); see also id.

§ 271(c). This Court, however, has never found anything

other than a tangible product—an object of manufacture—to

constitute a staple article of commerce. See Sony Corp. of

Am. v. Universal City Studios, Inc., 464 U.S. 417, 490 n.41

(1984) (“The ‘staple article of commerce’ doctrine protects

those who manufacture products incorporated into or used

with patented inventions—for example, the paper and ink

used with patented printing machines, or the dry ice used

with patented refrigeration systems.” (emphasis added; cita-

tions omitted)). Similarly, the Federal Circuit limited the

term “component” as used in Section 271(g)}—the companion

provision to Section 271(f}—to refer only to “a physical

product.” Bayer AG v. Housey Pharms., Inc., 340 F.3d 1367,

1372-73 (Fed. Cir. 2003).

2. For the twenty years that followed its enactment, the

Federal Circuit interpreted Section 271(f) in a manner consis-

tent with the statute’s evident purpose and permitted applica-

tion of the statute only to the exportation of physical parts of

patented inventions. See, e.g., Standard Havens Prods., Inc.

v. Gencor Indus., Inc., 953 F.2d 1360, 1374 (Fed. Cir. 1991)

(holding that Section 271(f) applies only in cases involving

infringement of product patents and is not “implicated” in

method patent cases). Indeed, as recently as 2004, the Fed-

eral Circuit specifically held that the statute did not prohibit

the export of design information to foreign manufacturers.

See Pellegrini, 375 F.3d at 1117 (holding that Section 271(f)

did not apply to circuit chips manufacture( in a foreign coun-

try based upon instructions sent from the United States). At

that time, the Federal Circuit explained that design instruc-

tions could not themselves be “components of a patented in-

vention” because the phrase is limited to components that

“are physically present in the United States and then either

sold or exported” and “not simply to the supply of instruc-

tions or corporate oversight.” Jd. at 1117, 1118 (emphasis

added).

Less than a year after Pellegrini, however, the Federal

Circuit did an about-face, holding in Eolas Technologies that

software object code could constitute a “component{] of a

patented invention” within the meaning of Section 271(f).

399 F.3d at 1338-41. The Eolas panel reached this conclu-

sion even though the Federal Circuit had previously recog-

nized the fact that software object code is nothing more than

a “set of instructions” expressed in the binary language of

“1’s” and “0’s” that “directs a computer to perform specified

functions.” Fantasy Sports Props., Inc., 287 F.3d at 1118.

The Eolas panel reasoned that, inasmuch as software is a vi-

tal part of virtually all computer program inventions, soft-

ware object code must be viewed as a component of such in-

ventions. See 399 F.3d at 1339. The court distinguished its

decision in Pellegrini, reasoning (unpersuasively) that the

earlier decision’s requirement that “components [be] physi-

cally supplied” did not mean that the components themselves

had to be physical.

The AT&T panel majority compounded the Zolas court’s

error when it held that copies of Microsoft’s object code

manufactured in foreign countries had been “supplie{d] .. .

from the United States.” The Federal Circuit reached the im-

probable conclusion that, whenever a company exports digi-

tal software code, “[a]ll . . . resulting copies have essentially

been supplied from the United States” because “the act of

copying is subsumed in the act of supplying.” App., infra, at

6a, 7a. The court’s conclusion in this respect flew in the face

of the parties’ stipulation that the “resulting copies” are never

“physically present in the United States.” Jd. at 45a-46a.>

3. The Federal Circuit’s textua!!y insupportable exten-

sion of Section 271(f) effectively eliminates the right of

American software companies to compete with patent hold-

ers in foreign markets. See Deepsouth, 406 U.S. at 530.

When Congress enacted Section 271(f), it sought to end eva-

sion of the patent law’s proscription on manufacture of a pat-

ented invention in the United States, see 35 U.S.C. § 271(a),

through the export of the patented product’s physical compo-

nent parts for assembly abroad. See 1984 U.S.C.C.A.N. at

5828. Congress, however, left completely intact the right to

practice patented inventions outside of the United States. In

foreign markets, a patentee’s competitor remains free to du-

plicate or reverse-enginecr inventions patented in the United

States, or to assemble such inventions from foreign-

manufactured component parts. If Microsoft wishes to make

a Digital Speech Coder System in Japan, U.S. patent law

supposedly poses no obstacle so long as the system’s compo-

nent parts are made abroad.

By holding that, for the software industry, “copying is

subsumed in the act of supplying,” the Federal Circuit has

rendered it all but impossible for an American software firm

to supply a software “component” from anywhere but the

United States. But see Dewsnup v. Timm, 502 U.S. 410, 419

(1992) (judicial interpretation of a statute should not “effect a

major change” in the applicable law “that is not the subject of

at least some discussion in the legislative history”). Unlike

businesses that may compete with a patent holder in a foreign

market by manufacturing its American-designed components

abroad, Microsoft and other American software companies

3 The panel majority's conclusion thus disregarded not only Pellegrini

but also the Federal Circuit’s decision in Rotec, 215 F.3d 1246, which

held that a defendant had not “supplie{d]” “components” of a patented

river dam construction device for purposes of Section 271(f) because the

components were not manufactured in the United States. /d. at 1258.

may do so only if they actually author the software source

and object codes outside the United States. Of course, at that

point, they are no longer American businesses.

American software firms thus now face the daunting—

and unforeseen—prospect of being saddled with massive in-

fringement awards based upon the transmission of their U.S.-

designed software code to foreign manufacturers who install

replicated versions of the code on foreign-assembled com-

puters for sale in foreign markets—conduct that until the

Federal Circuit’s sudden repudiation of Pellegrini was per-

fectly lawful. Indeed, in Eolas, the newly discovered theory

of liability under Section 271(f) accounted for 64% of the

jury’s subsequently vacated $520 million infringement

award. See Petition for a Writ of Certiorari at 4, Eolas Techs.

(No. 05-288); see also Bruce A. Lehman et al., Overseas

Stretch, LEGAL TIMES, July 11, 2005, at 525 (explaining why

Eolas “goes too far”).

This looming threat of crippling global liability places

American software firms at a substantial disadvantage to

their foreign competitors. American firms—should they trip

over one of the thousands of unexploited patents comprising

the modern “patent thicket”—are potentially liable for

worldwide sales of the infringing product, while their foreign

competitors are at risk only for the infringing products sold

within the United States. The decision below thus effectively

imposes a penalty (in the form of a massively enhanced liti-

gation risk) on the location of software research-and-

development facilities in the United States. Particularly for

new software ventures, this operates as a powerful disincen-

tive against locating in the United States. Indeed, the sudden

onset of global infringement liability may drive some Ameri-

can software firms out of business altogether, thereby retard-

ing technological progress and imperiling the United States’

position as the global leader in high-technology innovation.

Moreover, because the Federal Circuit’s expansive rein-

terpretation of the phrase “component(] of a patented inven-

tion” cannot in any principled fashion be cabined to software

object code, other businesses whose products derive their

value principally from their design will be similarly threat-

ened. As discussed above, software code is nothing more

than design information that instructs a computer to arrange

its circuits in a particular way. There are multitudes of other

products whose designs are alone what makes the products

new and useful, and, as the Eolas panel recognized, patent

law must “accord{] the same treatment to all forms of inven-

tion.” Eolas Techs., 399 F.3d at 1339. Semiconductors, for

example, are simply silicon wafers with a circuit design im-

printed upon them—not unlike the design information at is-

sue in Pellegrini. It is only the characteristics of that circuit

design that make a semiconductor patentable. Semiconduc-

tor circuit designs are embodied in “masks,” which are tem-

plates used to transfer the patterns onto blank silicon wafers.

Under the Federal Circuit’s reasoning, a semiconductor com-

pany that designs a “mask” in the United States and ships it

to a foreign manufacturer for use as a template to produce

finished semiconductors would be liable for patent infringe-

ment, even though no physical part of the circuit had been

“supplie[d] ... from the United States.” 35 U.S.C.

§ 271(f)(1).

Similarly, biotechnology companies patent cell lines. It

is the particular arrangement of DNA that makes a cell line

new or useful. According to the Federal Circuit, if an Ameri-

can company transmitted the genetic code of the cell line (or

perhaps a single cell) overseas in order to facilitate the repli-

cation of the cell line, that company would have “supplie[d]”

a “component” of the patented cell line even though the al-

legedly infringing cells were never physically present in the

United States. Or outside the high technology sector, if one

held a patent on an automobile tire on the basis of the charac-

teristics of the tire’s tread design and an American company

shipped abroad a mold that embodied the tread design (which

is to say, all of the traits that make the patented invention

new and useful), under the Federal Circuit’s view, that com-

pany, too, would be an infringer.

In this manner, the Federal Circuit’s expansive interpre-

tation of the phrase “component{]} of a patented invention”—

particularly when coupled with its counter-textual construc-

tion of “supplie[d]”—opens a limitless door of unintended

consequences and eviscerates the ability of technology-based

companies to compete with patent holders in foreign markets.

The decision below thus jeopardizes the billions of dollars of

investments that American high-technology businesses have

made in overseas manufacturing facilities that the Federal

Circuit now considers to be domestic infringement opera-

tions. These companies must now reevaluate their business

models at potentially enormous cost. See Rosemarie Ham

Ziedonis, Patent Litigation in the U.S. Semiconductor Indus-

try, in PATENTS IN THE KNOWLEDGE-BASED ECONOMY 191

(Wesley M. Cohen & Stephen A. Merrill eds., 2003) (noting

that a facility for producing computer chips can cost more

than $1 billion to build and equip). It is for this and similar

reasons that this Court recently emphasized that “courts must

be cautious before adopting changes that disrupt the settled

expectations of the inventing community.” Festo Corp. v.

Shoketsu Kinzoku Kogyo Kabushiki Co., 535 U.S. 722, 739

(2002).

Because this case arises under the Federal Circuit’s pat-

ent jurisdiction, its expansion of Section 271(f)’s scope has

national application. The profound economic and techno-

logical consequences of this decision warrant this Court’s

review.

Il. THE DECISION BELOW CONFLICTS WITH

THIS COURT’S DECISIONS RESTRICTING

THE EXTRATERRITORIAL APPLICATION

OF U.S. LAW.

By eliminating the ability of American software compa-

nies—and other technology-based firms—to compete with

American patent holders in foreign markets, the decision be-

low exponentially expands the extraterritorial reach of U.S.

patent law. Yet the presumption against the extraterritorial

application of U.S. law is deeply rooted in this Court’s juris-

prudence. Indeed, in Empagran, 542 U.S. 155, this Court

recently emphasized that—in order to prevent U.S. en-

croachments on foreign sovereignty—courts must adopt any

reasonable construction of a statute that avoids extraterrito-

rial application. Jd. at 174. Because Congress did not clearly

express its intention for Section 271(f) to encompass intangi-

ble materials—let alone foreign-manufactured copies of in-

tangible materials—the Federal Circuit’s conclusion squarely

conflicts with this Court’s precedent restricting the extraterri-

torial reach of U.S. law.

1. It is a “longstanding principle of American iaw that

legislation of Congress, unless a contrary intent appears, is

meant to apply only within the territorial jurisdiction of the

United States.” EEOC v. Arabian Am. Oil Co., 499 U.S. 244,

248 (1991) (internal quotation marks omitted). This pre-

sumption against extraterritoriality is grounded in comity

considerations and “serves to protect against unintended

clashes between our laws and those of other nations which

could result in international discord.” J/d.; see also Foley

Bros. v. Filardo, 336 U.S. 281, 286 (1949) (holding that a

Statute imposing an eight-hour work day did not apply to

Americans employed overseas because “labor conditions .. .

are the primary concern of [the] foreign country” in which

the workers are employed).

The presumption against extraterritoriality also reflects

the fact that the legislative and executive branches are much

better equipped than the judiciary to evaluate the complex

foreign policy considerations raised by the extraterritorial

application of U.S. law. Indeed, decisions affecting interna-

tional relations are “of a kind for which the Judiciary has nei-

ther aptitude, facilities nor responsibility.” Chi. & S. Air

Lines, Inc. v. Waterman S.S. Corp., 333 U.S. 103, 111

(1948).

Because of these comity considerations and separation-

of-powers concerns, courts must not construe a U.S. law as

encompassing foreign conduct “unless ... the affirmative

intention of the Congress” to apply a law extraterritorially is

“clearly expressed” in the statutory language. Arabian Am.

Oil Co., 499 U.S. at 248 (internal quotation marks omitted);

see also Benz v. Compania Naviera Hidalgo, S. A., 353 U.S.

138, 147 (1957) (holding that the Labor Management Rela-

tions Act did not apply to a labor dispute involving a foreign

ship operated by foreign seamen because Congress had not

“clearly expressed” its “affirmative intention” to reach such

conduct).

Even where Congress has unequivocally expressed its

intention to give a U.S. law extraterritorial effect, the pa-

rameters of that authorization must be strictly construed in

light of the general presumption against extraterritoriality. In

Empagran, 542 U.S. 155, for example, this Court concluded

that the Sherman Act—which generally has been held to ap-

ply to foreign conduct—did not provide a cause of action for

plaintiffs harmed by foreign price-fixing activity that caused

both domestic and independent foreign effects because the

plaintiffs were harmed exclusively by the conspiracy’s for-

eign effects. Jd. at 173. The Court expressed concern that

the availability of such a suit would “create[] a serious risk of

interference with a foreign nation’s ability independently to

regulate its own commercial affairs.” /d. at 165. The Court

therefore held that, even if the more natural reading of the

statute encompassed the foreign activity, comity considera-

tions compelled a contrary conclusion because the statutory

language did not “show that [the Court] must accept th[e]

reading” that provided for an extraterritorial effect. Jd. at

174. The Court instructed that, as long as “the statute’s lan-

guage reasonably permits an interpretation consistent with”

the general presumption that Congress seeks to avoid inter-

ference with other nations’ sovereignty, a court “should

adopt it.” Jd.

2. The presumption against the extraterritorial applica-

tion of U.S. law is especially strong in the patent context be-

cause the application of U.S. patent law to foreign commer-

cial activity intrudes upon other nations’ intellectual property

schemes and thereby creates a significant risk of international

discord. This Court has thus long recognized that U.S. patent

laws generally are “not intended to[] operate beyond the lim-

its of the United States.” Brown, 60 U.S. (19 How.) at 195;

see also Dowagiac Mfg. Co., 235 U.S. at 650.

Indeed, the proposition that U.S. patent law generally

does not possess extraterritorial effect has been clear since at

least the mid-nineteenth century, when this Court held in

Brown that U.S. patent law did not extend to a French-built

vessel that sailed into an American port. 60 U.S. (19 How.)

at 198-99. The Court explained that applying U.S. patent law

to foreign-manufactured goods would “embarrass the treaty-

making power in its negotiations with foreign nations, and

... interfere with the legislation of Congress when exercising

its constitutional power to regulate commerce.” Jd. at 197.

The territorial limits on U.S. patent law not only reflect

the comity and separation-of-powers concerns that animate

the general presumption against extraterritoriality, but are

also an expression of “this Nation’s historical antipathy to

monopoly and of repeated congressional efforts to preserve

and foster competition.” Deepsouth, 406 U.S. at 530 (foot-

note omitted). Patent law strikes a delicate balance between

the objectives of promoting competition and rewarding inno-

vation. Thus, although the issuance of a patent precludes

competitors from making, using, or selling the patented in-

vention in the United States, the patent does not undermine

the “right of American companies to compete with an

American patent holder in foreign markets.” Jd. at 531 (em-

phasis added). “To the degree that the inventor needs protec-

tion in markets other than those of this country,” the inventor

must “seek it abroad through patents secured in countries

where his goods are being used.” /d.4

4 Legal commentators have also recognized the dangers inherent in

giving extraterritorial effect to U.S. patent law. See, e.g., Curtis A. Brad-

ley, Territorial Intellectual Property Rights in an Age of Globalism, 37

VA. J. INT’L L. 505, 584 (1997) (arguing that the territorial limits on U.S.

patent law should be preserved because “the extraterritorial application of

3. The Federal Circuit’s holding completely disregards

this presumption against the extraterritorial application of

U.S. law. Indeed, the Federal Circuit failed even to acknowl-

edge the presumption or this Court’s decisions applying it.

In light of the plain meaning of the statutory language, the

context in which the term “component” appears, and *»: leg-

islative history, it plainly cannot be said that Sectic 7' 6)

constitutes the requisite “clear[] express[ion]” of Congt.s’s

intent to so increase the potency of United States patents as

to proscribe foreign-made copies of software code and other

product designs shipped from the United States. Arabian

Am. Oil Co., 499 U.S. at 248 (internal quotation marks omit-

ted). Although Section 271(f) represents a clear expression

of Congress’s intent to extend U.S. patent law to proscribe

the act of shipping physical components from the United

States for assembly overseas, the foreign-made copies of the

Windows object code were not, as a factual matter, shipped

from the United States. And “[nJothing in § 271(f) or its en-

acting documents expresses an intent to attach liability to

manufacturing activities occurring wholly abroad.” App.,

infra, at 16a (Rader, J., dissenting). Moreover, even if the

Federal Circuit’s construction were the better reading of Sec-

tion 271(f), the statutory language certainly does not fore-

close the interpretation offered by Microsoft. The decision

below thus would still contravene this Court’s rule that courts

“should adopt” any interpretation of a “statute’s language

[that] reasonably permits” the conclusion that Congress in-

tended to avoid the extraterritorial application of U.S. law.

Empagran S. A., 542 U.S. at 174.5

[Footnote continued from previous page]

U.S. laws into other countries is arguably more parochial than global and

more likely to undermine rather than promote international cooperation”).

5 The Federal Circuit’s conclusion also conflicts with decisions in

which other circuits have faithfully applied the presumption against extra-

territoriality by refusing to give extraterritorial effect to statutes that

lacked the requisite clear expression of congressional intent. See, e.g.,

In holding that Section 271(f) applies to foreign-

manufactured copies of software, the Federal Circuit ac-

knowledged that it was seeking to account for “advances in a

field of technology . . . that developed after the enactment of

§ 271(f).” App., infra, at 10a; see also id. (“Section 271 (f), if

it is to remain effective, must therefore be interpreted in a

manner that is appropriate to the nature of the technology at

issue.”). When the Federal Circuit took it upon itself to en-

sure that Section 271(f) “remain[s] effective,” id., it arro-

gated to itself a legislative role that properly rests with Con-

gress and disregarded this Court’s admonition that words

must “be interpreted as taking their ordinary, contemporary,

common meaning at the time Congress enacted the statute.”

BedRoc Lid., LLC v. United States, 541 U.S. 176, 184 (2004)

(internai quotation marks omitted; emphasis added). Indeed,

this Court has expressly rejected judicial efforts to rewnte the

text of existing patent laws to cover technological advance-

ments not foreseen by Congress, and has explained that

[d]ifficult questions of policy concerning the

kinds of programs that may be appropriate for

patent protection and the form and duration of

such protection can be answered by Congress on

the basis of current empirical data not equally

available to this tribunal. It is our duty to con-

strue the patent statutes as they now read, in

light of our prior precedents, and we must pro-

ceed cautiously when we are asked to extend

[Footnote continued from previous page]

United States v. Javino, 960 F.2d 1137, 1143 (2d Cir. 1992) (holding that

26 U.S.C. § 5822, a provision of the National Firearms Act, does not ap-

ply to firearms made outside of the United States because “any statement

by Congress contrary to th[e] presumption” against extraterritoriality was

“absen[t]”); Asplundh Tree Expert Co. v. NLRB, 365 F.3d 168, 180 (3d

Cir. 2004) (holding that the National Labor Relations Act does not apply

to emp! »yees working temporarily outside the United States for United

States employers because the court could “discover no clearly expressed

congressional intention” to reach such extraterritorial activity).

patent rights into areas wholly unforeseen by

Congress.

Parker v. Flook, 437 U.S. 584, 595-96 (1978) (emphasis

added; footnote omitted); see also Brown, 60 U.S. (19 How.)

at 197 (patent laws “should not be strained by technical con-

structions to reach cases which Congress evidently could not

have contemplated”).®

4. The Federal Circuit’s conclusion that Section 271(f)

encompasses intangible materials and foreign-manufactured

duplicates will disrupt foreign countries’ intellectual property

law systems by subjecting foreign manufacturers to the re-

quirements of U.S. patent law. The possibility of such “inter-

ference with a foreign nation’s ability independently to regu-

late its own commercial affairs” is one of the primary reasons

that this Court has been extremely cautious about extending

U.S. law to foreign conduct. Empagran S.A., 542 U.S. at

165; see also Hartford Fire Ins. Co. v. California, 509 U.S.

764, 815 (1993) (“this and other courts have frequently rec-

ognized that, even where the presumption against extraterri-

toriality does not apply, statutes should not be interpreted to

regulate foreign persons or conduct if that regulation would

conflict with principles of international law”); Murray v.

Schooner Charming Betsy, 6 U.S. (2 Cranch) 64, 118 (1804)

(“an act of Congress ought never be construed to violate the

law of nations if any other possible construction remains”).

The Federal Circuit expressly declined to afford any

weight to the existence of foreign patent law, asserting that it

“must construe our statutes irrespective of the existence or

nonexistence of foreign patents.” App., infra, at 6an.2. The

court’s lack of regard for other nations’ intellectual property

nan, J., dissenting) (“[W]e must be careful to extend patent protection no

further than Congress has provided. In particular, were there an absence

of legislative direction, the courts should leave to Congress the decisions

whether and how far to extend the patent privilege into areas where the

common understanding has been that patents are not available.”).

law systems will likely foster retaliatory measures by foreign

countries, including efforts to extend their own patent laws

within the United States’ borders. Contrary to the Federal

Circuit’s expansive notion of its judicial role, it is Con-

gress—not the courts—that bears responsibility for making

decisions with such significant repercussions for foreign rela-

tions and international commerce. As this Court has ex-

plained, Congress “alone has the facilities necessary to make

fairly such an important policy decision where the possibili-

ties of international discord are so evident and retaliative ac-

tion so certain.” Benz, 353 U.S. at 147.

Ill. THIS CASE PRESENTS THE IDEAL

VEHICLE FOR AUTHORITATIVELY

CONSTRUING SECTION 271(F).

In October 2005, this Court declined to review the Fed-

eral Circuit’s holding in Eolas that intangible software code

can constitute a “component{] ... of a patented invention”

under Section 271(f). Microsoft Corp. v. Eolas Techs. Inc.,

126 S. Ct. 568 (2005). Eolas, however, was in an interlocu-

tory posture when the petition was filed because the Federal

Circuit had vacated those portions of the district court’s deci-

sion that rejected Microsoft’s anticipation, inequitable con-

duct, and prior art defenses, and had remanded for further

proceedings on those issues. 399 F.3d at 1341. Because the

Eolas petition for certiorari thus did not arise from a final

judgment on the merits, it was arguably ill-suited to address-

ing the question of Section 271(f)’s scope. See Estelle v.

Gamble, 429 U.S. 97, 114 (1976) (Stevens, J., dissenting)

(referring to the Court’s “normal practice of denying inter-

locutory review”). Indeed, the opposition brief repeatedly

emphasized the interlocutory nature of the case. See Brief in

Opposition at 4, Eolas (No. 05-288) (“The case is ... in a

classically interlocutory posture, counseling denial of review

for that reason alone.”).

Unlike Zolas, this cases arises from a final judgment on

the merits that the district court entered against Microsoft,

and it therefore suffers from none of £olas’s procedural

shortcomings. After the district court denied Microsoft’s

motion for partial summary judgment, the parties entered a

stipulated judgment that held Microsoft liable for both do-

mestic and foreign acts of infringement. App., infra, at 42a.

The only question preserved for appeal is whether Microsoft

is liable under Section 271(f) for Windows-based computers

manufactured and sold outside the United States. Moreover,

the parties have agreed to stipulated facts governing the Sec-

tion 271(f) issue, id. at 44a, and there are no disputes about

claim construction or patent enforceability. /d. at 42a (stipu-

lating that the ‘580 patent “is enforceable and not invalid”).

Because the legal issues are therefore clearly distilled, this

case is the ideal vehicle for this Court to declare an authorita-

tive construction of Section 271(f).

CONCLUSION

For the foregoing reasons, the petition for a writ of cer-

tiorari should be granted.

Respectfully submitted.

T. ANDREW CULBERT THEODORE B. OLSON

MICROSOFT CORPORATION Counsel of Record

One Microsoft Way MATTHEW D. MCGILL

Redmond, WA 98052 AMIR C. TAYRANI

(425) 706-6921 GIBSON, DUNN & CRUTCHER LLP

1050 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 955-8500

DALE M. HEIST

WOODCOCK WASHBURN LLP

One Liberty Place (46th F1.)

Philadelphia, PA 19103

(215) 564-8939

Counsel for Petitioner

February 17, 2006

APPENDIX

APPENDIX A

United States Court of Appeals,

Federal Circuit.

AT & T CORP.,

Plaintiff-Appellee,

Vv.

MICROSOFT CORPORATION,

Defendant-Appellant.

No. 04-1285

July 13, 2005

Stephen C. Neal, Cooley Godward LLP, of Palo Alto,

California, argued for plaintiff-appellee. With him on the

brief were Jonathan G. Graves and Nathan K. Cummings, of

Reston, Virginia. Of counsel on the brief was Laura A.

Kaster, AT & T Corp., of Bedminster, New Jersey.

Dale M. Heist, Woodcock Washburn LLP, of Philadel-

phia, Pennsylvania, argued for defendant-appellant. With

him on the brief were David R. Bailey and Lynn B. Morreale.

Of counsel on the brief were James H. Carter and James T.

Williams, Sullivan & Cromwell LLP, of New York, New

York, and Thomas Andrew Culbert, Microsoft Corporation,

of Redmond, Washington.

John D. Vandenberg, Klarquist Sparkman, LLP, of Port-

land, Oregon, for amici curiae Wacom Technology Corpora-

tion, et al.

Frank E. Scherkenbach, Fish & Richardson P.C., of Bos-

ton, Massachusetts, for amici curiae Adobe Systems, Inc., et

al. With him on the brief was Kurt L. Glitzenstein. Of coun-

sel on the brief was Jennifer K. Bush, of San Diego, Califor-

nia.

Before MAYER, LOURIE, and RADER, Circuit Judges.

Opinion for the court filed by Circuit Judge LOURIE.

Dissenting opinion filed by Circuit Judge RADER.

LOURIE, Circuit Judge.

Microsoft Corporation (“Microsoft”) appeals from the

judgment of the United States District Court for the Southemn

District of New York in favor of AT & T Corp. (“AT & T”),

holding that Microsoft was liable for infringement of

AT & T’s United States Reissue Patent 32,580 under 35

U.S.C. § 271(f) for copies of the Windows® operating sys-

tem that had been replicated abroad from a master version

sent from the United States. AT & T Corp. v. Microsoft

Corp., No. 01-CV-4872 (S.D.N.Y. Mar. 5, 2004). We af-

firm.

BACKGROUND

To facilitate international distribution of its flagship

product, Microsoft supplies a limited number of master ver-

sions of the Windows® software to foreign computer manu-

facturers and authorized foreign “replicators,” who, pursuant

to their licensing agreements with Microsoft, replicate the

master versions in generating multiple copies of Windows®

for installation on foreign-assembled computers that are then

sold to foreign customers. The master versions are created in

the United States and are sent abroad on so-called “golden

master” disks or via electronic transmissions.

The master versions of Windows® thus exported incor-

porate certain speech codecs,! which, when installed on a

computer, are alleged to infringe AT & T’s ’580 patent. Dur-

ing the course of AT & T’s suit against Microsoft for patent

infringement, Microsoft moved in limine to exclude evidence

of purported liability under 35 U.S.C. § 271(f) arising from

foreign sales of Windows®. In support of its motion, Micro-

soft argued that: (1) software is intangible information such

that it could not be a “component” of a patented invention

within the meaning of § 271(f); and (2) even if the Win-

dows® software were a “component,” no actual “compo-

nents” had been “supplied” from the United States as re-

quired by § 271(f) because the copies of Windows® installed

on the foreign-assembled computers had all been made

abroad.

By stipulation, the parties subsequently converted Mi-

crosoft’s motion in limine into a motion for partial summary

judgment of noninfringement under § 271(f), which the dis-

trict court denied on the basis that neither the jurisprudence

surrounding § 271(f) nor its legislative history supported Mi-

crosoft’s reading of the words “component” and “supplied.”

Reasoning that the patentability of software was well-

established and that the statute did not limit “components” to

tangible structures, the district court rejected Microsoft’s ar-

gument that software could not be a “component” of a pat-

ented invention under § 271(f). As for copies made abroad

from a master version sent from the United States, the district

court ruled that such copies were not shielded from § 271(f)

in light of the statute’s purpose of prohibiting the circumven-

tion of infringement through exportation. The parties there-

1 A “speech codec” is a software program that codes a speech

signal into a more compact form, and decodes it back into a signal

that sounds like the original. (Am. Compl. ¥ 14; J.A. 142).

after agreed to the entry of a stipulated final judgment hold-

ing Microsoft liable for infringement under § 271(f), while

expressly reserving Microsoft’s right to appeal that issue.

This appeal followed. We have jurisdiction pursuant to

28 U.S.C. § 1295(a)(1).

DISCUSSION

On appeal, Microsoft argues that the district court erred

in its determination of infringement under § 271(f), insisting

that the master versions of the Windows® software that it

exports for copying abroad are not “components” within the

meaning of §271(f). It also argues that liability under

§ 271(f) should not attach to the copies of Windows® made

abroad because those copies are not “supplied” from the

United States.

The first question, ie., whether software may be a

“component” of a patented invention under § 271(f), was an-

swered in the affirmative in Eolas Techs. Inc. v. Microsoft

Corp., 399 F.3d 1325 (Fed. Cir. 2005), which issued while

the instant appeal was pending. In that case, we held that

“[{w]ithout question, software code alone qualifies as an in-

vention eligible for patenting,” and that the “statutory lan-

guage did not limit section 271(f) to patented ‘machines’ or

patented ‘physical structures,’” such that software could very

well be a “component” of a patented invention for the pur-

poses of § 271(f). Jd. at 1339.

The remaining question, then, is whether software repli-

cated abroad from a master version exported from the United

States—with the intent that it be replicated—may be deemed

“supplied” from the United States for the purposes of

§ 271(f). That question is one of first impression, the answer

to which turns on statutory interpretation, an issue of law that

we review de novo. Romero v. United States, 38 F.3d 1204,

1207 (Fed. Cir. 1994). The statute at issue, 35 U.S.C.

§ 271(f), provides that:

(1) Whoever without authority supplies or

re causes to be supplied in or from the United

States all or a subsiantial portion of the com-

ponents of a patented invention, where such

components are uncombined in whole or in

part, in such manner as to actively induce the

combination of such components outside of

the United States in a manner that would in-

fringe the patent if such combination occurred

within the United States, shall be liable as an

infringer.

(2) Whoever without authority supplies or

causes to be supplied in or from the United

States any component of a patented invention

that is especially made or especially adapted

for use in the invention and not a staple article

or commodity of commerce suitable for sub-

stantial noninfringing use, where such com-

ponent is uncombined in whole or in part,

knowing that such component is so made or

adapted and intending that such component

will be combined outside of the United States

in a manner that would infringe the patent if

such combination occurred within the United

States, shall be liable as an infringer.

35 U.S.C. § 271(f) (2000) (emphases added).

In its briefs, Microsoft maintains that no liability at-

taches under § 271(f) for foreign-replicated copies of Win-

dows® because they are not “supplie[d] or cause[d] to be

supplied in or from the United States.” According to Micro-

soft, a foreign-replicated copy made from a master version

supplied from the United States has actually been “manufac-

tured” abroad by encoding a storage medium with the Win-

dows® software. We disagree that no liability attaches.

When interpreting a statutory provision “[w]e start, as

always, with the language of the statute,” giving the words

“their ordinary, contemporary, common meaning, absent an

indication Congress intended them to bear some different

import.” Williams v. Taylor, 529 U.S. 420, 431, 120 S.Ct.

1479, 146 L.Ed.2d 435 (2000) (internal quotation marks and

citations omitted). As the statute sets forth no specific defini-

tion of the word “supplied,” we accordingly look to its “ordi-

nary, contemporary, common meaning,” which is necessarily

context-dependent. In the present case, § 271(f) is being in-

voked in the context of software distribution. Therefore, in

order for us to properly const.ue the “supplie[d] or cause[d]

to be supplied in or from the United States” requirement, we

must look at the way software is typically “supplied.”

Given the nature of the technology, the “supplying” of

software commonly involves generating a copy. For exam-

ple, when a user downloads software from a server on the

Internet, the server “supplies” the software to the user’s com-

puter by transmitting an exact copy. Uploading a single copy

to the server is sufficient to allow any number of exact copies

to be downloaded, and hence “supplied.” Copying, therefore,

is part and parcel of software distribution. Accordingly, for

software “components,” the act of copying is subsumed in

the act of “supplying,” such that sending a single copy

abroad with the intent that it be replicated invokes § 271(f)

liability for those foreign-made copies.2

2 The dissent grounds its disagreement on a purported distinc-

tion between the statutory term “supplies” and such terms as

“copying,” “replicating,” or “reproducing.” Whatever the distinc-

tion in other contexts, we are interpreting a statutory term in the

context of the facts before us. To decide otherwise would emascu-

late § 271(f) for software inventions. Obtaining foreign patents

would surely alleviate some avoidance of American law, but we

[Footnote continued on next page}

Indeed, Microsoft has taken full advantage of the replic-

able nature of software to efficiently distribute Windows®

internationally. At the same time, however, Microsoft posits

that § 271(f) liability should attach only to each disk that is

shipped and incorporated into a foreign-assembled computer.

See Tr. of Dec. 12, 2003 Hearing, at 16:10-17 (J.A. 359).

We reject this theory of liability as it fails to account for the

realities of software distribution. “[T]he appellate process is

not a mere academic exercise,” Rosemount, Inc. v. Beckman

Instruments, Inc., 727 F.2d 1540, 1543 (Fed. Cir. 1984), and

we cannot disregard the nature of the relevant technology and

business practices underlying a particular litigation. It is in-

herent in the nature of software that one can supply only a

single disk that may be replicated—saving material, ship-

ping, and storage costs—instead of supplying a separate disk

for each copy of the software to be sold abroad. All of such

resulting copies have essentially been supplied from the

United States. Where there are competing interpretations of

a statute that imposes liability for certain acts, an interpreta-

tion that allows liability to attach only when a party acts in an

unrealistic manner is unlikely to be correct. See Haggar Co.

v. Helvering, 308 U.S. 389, 394, 60 S.Ct. 337, 84 L.Ed. 340

(1940) (“A literal reading of [a statute] which would lead to

absurd results is to be avoided ....”). We therefore reject

Microsoft’s reading of § 271(f).

We also reject Microsoft’s argument that Pellegrini v.

Analog Devices, Inc., 375 F.3d 1113 (Fed. Cir. 2004), com-

pels reversal. Pellegrini held that liability under § 271(f)

may exist only where a component itself—as opposed to in-

structions for manufacturing the component or management

[Footnote continued from previous page]

must construe our statutes irrespective of the existence or nonexis-

tence of foreign patents.

oversight—has been “supplie[d] or cause[d] to be supplied in

or from the United States.” Pellegrini, 375 F.3d at 1118. In

the present case, what is being supplied abroad is an actual

component, i.e., the Windows® operating system, that is

ready for installation on a computer to form an infringing ap-

paratus—not instructions to foreign software engineers for

designing and coding Windows®. Thus, Pellegrini does not

control this case.

Additionally, we cannot accept Microsoft’s suggestion

that software sent by electronic transmission must be treated

differently for purposes of § 271(f) liability from software

shipped on disks, see Tr. of Dec. 12, 2003 Hearing, at 8:8-17

(J.A. 351), as it would amount to an exaltation of form over

substance. Liability under § 271(f) does not depend on the

medium used for exportation: a disk is merely a container

that facilitates physical handling of software, much like bot-

tles for liquids or pressurized cylinders for gases. As we em-

phasized in Eolas, the applicability of § 271(f) is not limited

to “structural or physical” components. Eolas, 399 F.3d at

1339 (“[E]very component of every form of invention de-

serves the protection of section 271(f).”). Therefore, whether

software is sent abroad via electronic transmission or shipped

abroad on a “golden master” disk is a distinction without a

difference for the purposes of § 271(f) liability. Liability un-

der § 271(f) is not premised on the mode of exportation, but

rather the fact of exportation.

Our interpretation of “supplie{d] or cause[d] to be sup-

plied in or from the United States” in the context of software

comports with Congress’s motivation for enacting § 271(f).

It is a well-established principle that “[i]n expounding a stat-

ute, we must . . . look to the provisions of the whole law, and

to its object and policy.” United States v. Heirs of Boisdore,

49 US. (8 How.) 113, 122, 12 L.Ed. 1009 (1850).

In :984, Congress enacted § 271(f) in response to the

Supreme Court’s ruling in Deepsouth Packing Co. v. Laitram

Corp., 406 U.S. 518, 92 S.Ct. 1700, 32 L.Ed.2d 273 (1972),

that exposed a loophole in § 271 that allowed potential in-

fringers to avoid liability by manufacturing the components

of patented products in the United States and then shipping

them abroad for assembly. As explained in the Congres-

sional Record:

[Section 271(f)] will prevent copiers from

avoiding U.S. patents by supplying compo-

nents of a patented product in this country so

that the assembly of the components may be

completed abroad. This proposal responds to

the United States Supreme Court decision in

Deepsouth Packing Co. v. Laitram Corp., 406

U.S. 518, 92 S.Ct. 1700, 32 L.Ed.2d 273

(1972), concerning the need for a legislative

solution to close a loophole in patent law.

H.R. 6286, Patent Law Amendments Act of 1984, 130 Cong.

Rec. 28069 (Oct. 1, 1984). At the time of its enactment,

§ 271(f) was touted as a “housekeeping-oriented” measure,

without which “the patent system would not be responsive to

the challenges of a changing world and the public would nvt

benefit from the release of creative genius.” Jd. However, it

is clear from the legislative history that § 271(f), which

“close[d] a loophole,” was remedial in nature, such that it

“should be construed broadly to effectuate its purposes.”

Tcherepnin v. Knight, 389 U.S. 332, 336, 88 S.Ct. 548, 19

L.Ed.2d 564 (1967). Congress obviously intended the statute

to have an extraterritorial effect to the extent that the exporta-

tion was facilitated by acts in the United States, and the acts

at issue here originating from the United States can be under-

stood to be similarly within the meaning of the statute.

Were we to hold that Microsoft’s supply by exportation

of the master versions of the Windows® software—

specifically for the purpose of foreign replication—avoids _

infringement, we would be subverting the remedial nature of

10a

§ 271(f), permitting a technical avoidance of the statute by

ignoring the advances in a field of technology—and its asso-

ciated industry practices—that developed after the enactment

of § 271(f). It would be unsound to construe a statutory pro-

vision that was originally enacted to encourage advances in

technology by closing a loophole, in a manner that allows the

very advances in technology thus encouraged to subvert that

intent. Section 271(f), if it is to remain effective, must there-

fore be interpreted in a manner that is appropriate to the na-

ture of the technology at issue.

For this reason, we find Microsoft’s lock-and-key hypo-

thetical, in which a single master key is sent abroad for mass

replication, to be unpersuasive and irrelevant to this case. A

lock-and-key assembly is a different type of technology from

software, with different uses, such that its mode of mass pro-

duction and consequent manner of supply abroad could very

well be different from the way Microsoft conveniently hy-

pothesizes it to be. While it is clear that a software manufac-

turer would want several million exact copies of a specific

software program generated abroad for distribution, it is un-

clear why a lock-and-key manufacturer would want several

million exact copies of a specific key made, as the point of

having a lock-and-key assembly is to allow access control by

a few keys. We prefer an interpretation of § 271(f) that is

informed by actual industry practices, not by hypothetical

scenarios that have no bearing on the technical realities of the

invention at issue.

Finally, Microsoft’s impassioned recitation of a parade

of horribles that may befall the domestic software industry-

such as the relocation of manufacturing facilities overseas-

provides an insufficient basis for reaching a different result in

this case. After all, the enactment of § 271(f) could have

been similarly thought to result in the export of jobs, and

Congress still enacted that provision. Moreover, possible

loss of jobs in this country is not justification for misinter-

lla

preting a statute to permit patent infringement. More impor-

tantly, however, “[i]t is enough that Congress intended that

the language it enacted would be applied as we have applied

it.” Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 576,

102 S.Ct. 3245, 73 L.Ed.2d 973 (1982). Therefore, “[t}he

remedy for any dissatisfaction with the results in particular

cases lies with Congress” and not with this court. /d.

We have considered Microsoft’s other arguments and

conclude that they are either unpersuasive or unnecessary for

resolution of this appeal.

CONCLUSION

For the foregoing reasons, the judgment of the district

court holding Microsoft liable under § 271(f) is

AFFIRMED.

RADER, Circuit Judge, dissenting.

This court today determines that supplying a single

“component” of a patented invention from the United States

gives rise to endless liability in the United States under

§ 271(f) for products manufactured entirely abroad. To my

eyes, this judgment disregards the existing international

scheme of patent law with potential consequences beyond a

“parade of horribles [in] the domestic software industry.”

Therefore, although agreeing that software may be a compo-

nent of a patented invention under § 271(f) and that elec-

tronic transmissions of software from the United States must

receive the same treatment as software shipped from the

United States on disks, I respectfully dissent from the propo-

sition that foreign manufacture of a mere component of a

patented product creates liability in the United States under

§ 271(f).

As noted by this court, section 271(f) imposes liability

on anyone who “without authority supplies ... from the

United States . . . the components of a patented invention .. .

12a

in such a manner as to actively induce the combination of

such components outside of the United States in a manner

that would infringe the patent ... .” Today’s judgment turns

on the meaning of “supplies.” This court purports to con-

strue that term according to its “ordinary, contemporary,

common meaning.” The ordinary meaning of “supplies,”

however, does not include “copying,” “replicating,” or “re-

producing”—in effect “manufacturing.” The act of supply-

ing is separate and distinct from copying, reproducing, or

manufacturing. Thus, this court provides extraterritorial ex-

pansion to U.S. law by punishing under U.S. law “copying”

that occurs abroad. While copying in Diisseldorf or Tokyo

may indeed constitute infringement, that infringement must

find its remedy under German or Japanese law.

Each manufacture of a patented product constitutes a

separate and distinct act of infringement. Microsoft “sup-

plied” a master disc to New York, Diisseldorf, and Tokyo.

The district court properly assessed damages against Micro-

soft under § 271(a) for each copy of the master manufactured

and implemented into an infringing product in New York.!

Similarly, section 271(f) attaches liability to each individual

export from the United States of components of an incom-

plete irivention for assembly abroad. As for manufacturing

copies in Diisseldorf and Tokyo for the German and Japanese

markets, those acts create liability only under German or

Japanese law. Nonetheless, this court extends § 271(f) to

cover extraterritorial copying in Diisseldorf and Tokyo. This

extraterritorial expansion of U.S. patent law contravenes the

| Microsoft might also be liable for supplying the master to

Dusseldorf and Tokyo if copies made in those overseas locations

are sold back into the U.S. market. See 35 U.S.C. § 271(a) & (c)

(prohibiting importing into the United States patented inventions

or components thereof).

13a

precedent of this court and the Supreme Court that expressly

confines the rights conferred by Title 35 to the United States

and its Territories. See Dowagiac Mfg. Co. v. Minn. Moline

Plow Co., 235 U.S. 641, 650, 35 S.Ct. 221, 59 L.Ed. 398

(1915) (“The right conferred by a patent under our law is

confined to the United States and its Territories (Rev.Stat.,

§ 4884) and infringement of this right cannot be predicated

on acts wholly done in a foreign country.” (citing United

Dictionary Co. v. G & C Merriam Co., 208 U.S. 260, 265, 28

S.Ct. 290, 52 L.Ed. 478 (1908))); accord Int'l Rectifier Corp.

v. Samsung Elecs. Co., 361 F.3d 1355, 1360 (Fed. Cir. 2004);

Pellegrini v. Analog Devices, Inc., 375 F.3d 1113, 1117 (Fed.

Cir. 2004); Rotec Indus., Inc. v. Mitsubishi Corp., 215 F.3d

1246, 1251 (Fed. Cir. 2000); see Waymark Corp. v. Porta

Sys. Corp., 245 F.3d 1364, 1367-68 (Fed. Cir. 2001) (holding

that liability under § 271(f) attaches with mere shipment of

the component from the United States and does not consider

the presence or absence of acts occurring abroad).

Again this extraterritorial expansion flows from this

court’s broad construction of “supplies.” This court reasons

that the “nature of the technology” justifies a different, unor-

dinary, and uncommon construction of that term. Thus, this

court distinguishes intangible software components from

tangible components on the grounds that “the ‘supplying’ of

software commonly involves generating a copy.”

To the contrary, copying and supplying are separate acts

with different consequences—particularly when the “supply-

ing” occurs in the United States and the copying occurs in

Disseldorf or Tokyo. As a matter of logic, one cannot sup-

ply one hundred components of 2 patented invention without

first making one hundred copies of the component, regardless

of whether the components supplied are physical parts or in-

tangible software. Thus, copying and supplying are different

acts, and one act of “supplying” cannot give rise to liability

for multiple acts of copying.

l4a

The court’s proposition today that “the ‘supplying’ of

software commonly involves generating a copy” does not

actually distinguish software components from physical

components of other patented inventions. The only true dif-

ference between making and supplying software components

and physical components is that copies of software compo-

nents are easier to make and transport. The ease of copying a

patented component is not the proper basis for making dis-

tinctions under § 271(f).

Possibly recognizing defects in its reasoning, this court

limits its novel uncommon construction of “supplies” to

“software ‘components,’ [because for those inventions] the

act of copying is subsumed in the act of ‘supplying,’ .. . .”

Rather than “according the same treatment to all forms of

invention,” Eolas Techs. Inc. v. Microsoft Corp., 399 F.3d

1325, 1339 (2005) (citing TRIPS Agreement, Part II, Section

5 (1994) (“Patents shall be available and patent rights enjoy-

able without discrimination as to the place of inven-

tion{ ][and] the field of technology . . . .”) (emphases added)),

this court creates a new rule that foreign copying of a com-

ponent of a patented invention shipped from the U.S. gives

rise to liability in the U.S. Apparently this rule applies only

to software inventions. This application of “supplies” solely

to software components ignores this court’s case law that re-

fuses to discriminate based on the field of technology. /d.

The language of § 271(f) does not discriminate based on field

or form of technology, yet this court invents such a distinc-

tion.

This court also declines to treat software the same as

other inventions because a literal application of § 271(f)

“fails to account for the realities of software distribution . . .

and [this court] cannot disregard the nature of the relevant

technology and business practices underlying a particular

litigation.” However, in Pellegrini an American corporation

provided the instructions and corporate oversight that

15a

“cause[d] the components of the patented invention to be

supplied,” but no part of the accused products ever entered or

exited the United States. 375 F.3d at 1118. Thus, the pro-

duction of the infringing products in Pellegrini was “facili-

tated by acts in the United States.” Despite economic harm

to the plaintiff and economic benefit to the defendant both in

the United States, this court strictly construed § 271(f) to

“appl[y] only where components of a patent[ed] invention are

physically present in the United States and then either sold or

exported... .” /d. at 1117. This court should exercise the

same restraint demonstrated in Pellegrini by refusing to

broaden § 271(f) to accommodate the “nature of the relevant

technology and business practices underlying a particular

litigation.”

In fact, the “realities of software distribution” or “nature

of the relevant technology and business practices” theory

amounts to the following: “section 271(f) liability attaches if

this court perceives that the patented component is cheaper or

more convenient to replicate abroad than to ship from the

United States.” In sum, this “nature of the business” theory

has no statutory support and may well not even be based on

an accurate understanding of the nature of the software busi-

ness.

Furthermore, this court’s dismissal of Pellegrini because

Microsoft supplied an actual component of the patented in-

vention and not merely instructions as in Pellegrini does not

reconcile the holding of Pellegrini with today’s ruling.

Pellegrini holds that “the language of § 271(f) clearly con-

templates that there must be an intervening sale or exporta-

tion; there can be no liability under § 271(f) unless compo-

nents are shipped from the United States for assembly.” 375

F.3d at 1117. In the case before this court Diisseldorf and

Tokyo distributors copy the components supplicd from the

United States and then install those copies into the infringing

products. The German and Japanese manufacturers do not

16a

install the actual component “supplied” from the U.S. (the

master disc). Instead, they install a copy made in Dusseldorf

or Tokyo. Thus, under Pellegrini liability cannot attach un-

der § 271(f) because the components actually assembled into

the infringing products were never literally “shipped from the

United States.” To my eyes, today’s ruling departs from the

holding of Pellegrini.

The majority also purports to construe § 271(f) to “com-

port with Congress’[s] motivation for enacting § 271(f).”

Apart from the impossibility of divining Congressional intent

divorced from the language of the law, this court’s reasoning

misses the policy behind § 271(f). Congress enacted § 271(f)

in response to the Supreme Court’s holding in Deepsouth

Packing Co. v. Laitram Corp., 406 U.S. 518, 92 S.Ct. 1700,

32 L.Ed.2d 273 (1972). Deepsouth held that making and

shipping component parts of a patented combination inven-

tion did not constitute “making” the patented invention in the

United States. /d. at 527-29, 92 S.Ct. 1700 (“We cannot en-

dorse the view that the ‘substantial manufacture of the con-

stituent parts of a machine’ constitutes direct infringement

when we have so often held that a combination patent pro-

tects only against the operable assembly of the whole and not

the manufacture of its parts.”). Thus, because Deepsouth was

not “making” the invention in the United States before expor-

tation, there was no direct infringer in the United States to

enable a charge of contributory infringement. /d. at 527, 92

S.Ct. 1700. Deepsouth \et U.S. manufacturers escape in-

fringement by making and exporting less than the complete

patented invention. Section 271(f) closed that loophole by

attaching liability to U.S. manufacturers for making and ex-

porting components of the patented invention.

Nothing in § 271(f) or its enacting documents expresses

an intent to attach liability to manufacturing activities occur-

ring wholly abroad. This court’s ruling, however, does ex-

actly that: It holds Microsoft liable for the activities of for-

17a

eign manufacturers making copies of the patented component

abroad.

To the contrary, §271(f) protects only components

“supplied in or from the United States.” This language lim-

ited § 271(f) to ensure it would not embrace manufacturing

or copying activities occurring abroad. The “supplied in and

from the United States” limitation would be wholly unneces-

sary, and indeed would contradict the intent of the law, if the

law intended, as this court holds today, to regulate activities

occurring in Diisseldorf or Tokyo. Had Congress intended to

give extraterritorial effect to U.S. patent laws, it would have

expressly stated so. Instead, Title 35 expressly limits liability

under § 271(f) to activities occurring in the United States that

result in the literal shipment of components “in or from the

United States.”

As a final refusal to confront the central issues of this

case, the court today dismisses Microsoft’s lock-and-key hy-

pothetical as “irrelevant,” as merely a scenario “without bear-

ing on the technical realities.” To the contrary, just as com-

puters easily can make copies of software components of

patented computer products, key replication machines easily

can make copies of the key component of a patented lock

product. A computer needs a master copy to replicate the

software; similarly, a key replication machine needs a master

copy to replicate the key. Thus, under a fair presentation of

the hypothetical, a U.S. manufacturer supplies a single mas-

ter key of a patented lock invention from the United States.

Foreign manufacturers then copy that key for foreign sale as

part of the patented lock product.2 I doubt that the U.S.

2 The court’s dismissal of the “key” hypothetical is easily ad-

dressed by adjusting the facts of the hypothetical. Consider a lock-

and-key combination that recognizes the voice of the key’s rightful

owner. Only after confirming the identity of the owner does the

[Footnote continued on next page]

18a

manufacturer who supplied the single master key would be

liable under § 271(f) for the multiple infringing lock products

manufactured and sold abroad. Yet this court creates liability

under indistinguishable circumstances.

Other possible scenarios further highlight difficulties

with this court’s holding. For example, this court’s holding

would seem to impose liability under § 271(f) for foreign-

manufactured copies on an individual who purchased a copy

of AT & T’s patented software and then shipped it overseas

knowing that it would be copied and sold in Disseldorf or

Tokyo. The same problem might arise if the individual ships

the purchased software to Diisseldorf with no intention of

making further copies, but the Diisseldorf distributor of its

own accord then makes and sells foreign copies. Before this

opinion, the law would have suggested that AT & T would

need to resort to German law and courts to determine any

infringement for the copies manufactured and sold in Diissel-

dorf, but apparently this court purports to change that basic

tenet of patent law.

This court reinforces one point several times, namely

that its judgment reaches a just result by imposing liability

for multiple infringing acts by foreign manufacturers on a

U.S. “supplier” of a single patented component. This empha-

sis suggests that AT & T might otherwise have no remedy for

infringement occurring wholly outside the United States.

AT & T, however, is not left without remedy. AT & T can

protect its foreign markets from foreign competitors by ob-

[Footnote continued from previous page]

lock expose the opening for the key and the key expose the teeth

necessary to rotate the locking mechanism. Thus, each lock and

key may have the same shape, thereby decreasing manufacturing

costs, and yet allow access to a limited number of persons.

19a

taining and enforcing foreign patents. Section 271(f) protects

foreign markets from domestic competitors. Section 271(f)

does not, or at least did not until today, protect foreign mar-

kets from foreign competitors. This court’s expansion of

§ 271(f) to offer protection to foreign markets from foreign

competitors distorts both the language and the policy of the

statute. This court should accord proper respect to the clear

language of the statute and to foreign patent regimes by limit-

ing the application of § 271(f) to components literally

“shipped from the United States.” Pellegrini, 375 F.3d at

1117.

For the foregoing reasons, I must respectfully dissent.

20a

APPENDIX B

United States District Court,

Southern District of New York.

AT & T CORP., Plaintiff,

MICROSOFT CORPORATION, Defendant.

No. 01 Civ 4872(WHP).

March 5, 2004.

Jonathan G. Graves, Frank V. Pietrantonio, Brian M.

Koide, Cooley Godward, LLP, Reston, VA, for Plaintiff.

Stephen C. Neal, Cooley Godward, LLP, Palo Alto, CA,

for Plaintiff.

Robert D. Kaplan, Hallie B. Levin, Friedman Kaplan

Seiler & Adelman LLP, New York, NY, for Plaintiff.

Laura A. Kaster, Dina Mack, AT & T Corp., Bedmin-

ster, NJ, for Plaintiff, of counsel.

Dale M. Heist, David R. Bailey, Paul B. Milcetic,

Woodcock, Washburn, Kurtz, MacKiewicz & Norris LLP,

Philadelphia, Pennsylvania, for Defendant.

James H. Carter, Sullivan & Cromwell, New York, NY,

for Defendant.

T. Andrew Culbert, Microsoft Corporation, Redmond,

WA, for Defendant, of Counsel.

2la

MEMORANDUM AND ORDER

PAULEY, J.

On June 4, 2001, plaintiff AT & T Corp. (“AT & T”)

filed this patent infringement action alleging that certain of

defendant Microsoft Corporation’s (“Microsoft”) products

containing speech codecs! infringe its United States Reissue

Patent No. 32,580 (the “580 patent”).2 Currently before this

Court is Microsoft’s motion for partial summary judgment?

1 “A speech codec is a software program that is capable of cod-

ing—converting a speech signal into a more compact code—and

decoding—converting the more compact code back into a signal

that sounds like the original speech sign il.” . mended Complaint

(“Am.Compl.”) { 14.

2 Familiarity with this Court’s prior Memoranda and Orders is

presumed. See, e.g., AT & T Corp. v. Microsoft Corp., 01 Civ.

4872(WHP), 2003 WL 21459573 (S.D.N.Y. June 24, 2003) (con-

struing claims in the 580 patent); AT & T Corp. v. Microsoft Corp.,

01 Civ. 4872(WHP) (S.D.N.Y. Sept. 3, 2003) (amending construc-

tion of the term “representative”); AT & T Corp. v. Microsoft

Corp., 290 F.Supp.2d 409 (S.D.N.Y. 2003) (granting partial sum-

mary judgment limiting damages pursuant to the patent marking

statute, 35 U.S.C. § 287(a)); AT & T Corp. v. Microsoft Corp., 01

Civ. 4872(WHP), 2004 WL 188078 (S.D.N.Y. Feb. 2, 2004)

(granting partial summary judgment prohibiting Microsoft from

asserting the defenses of equitable estoppel and implied license);

AT & T Corp. v. Microsoft Corp., 01 Civ. 4872(WHP), 2004 WL

232725 (S.D.N.Y. Feb. 9, 2004) (granting partial summary judg-

ment prohibiting Microsoft from asserting the defense and coun-

terclaim of inequitable conduct); AT & T Corp. v. Microsoft Corp.,

01 Civ. 4872(WHP), 2004 WL 292321 (S.D.N.Y. Feb. 17, 2004)

(denying partial summary judgment on invalidity); AT & T Corp.

v. Microsoft Corp., 01 Civ. 4872(WHP), 2004 WL 309150

(S.D.N.Y. Feb. 19, 2004) (amending construction for term “excita-

tion”).

3 Microsoft originally styled this motion as one in limine to ex-

clude evidence of foreign sales. On March 4, 2004, the parties

[Footnote continued on next page]

22a

to exclude sales of goods incorporating foreign-replicated

copies of its infringing Windows software‘ from any dam-

ages award, pursuant to 35 U.S.C. § 271(f). For the reasons

set forth below, Microsoft’s motion is denied.

This case presents a novel issue regarding the applica-

tion of Section 271(f) with profound ramifications for Micro-

soft and other United States software manufacturers. In the

end, the issue of liability under Section 271(f) for foreign

replication of infringing software supplied from the United

States is a question of law ripe for review by the Federal Cir-

cuit.

BACKGROUND

The facts underlying this motion are not in dispute, and

are drawn from a Stipulated Statement of Facts, dated

March 4, 2004, and marked as Court Exhibit 1. (Trial Tr. at

1064.) Microsoft conceives, writes, compiles, tests, debugs

and creates a master version of its Windows operating system

software in Redmond, Washington. Microsoft makes a lim-

ited number of “golden master” disks in the United States on

which the machine-readable object code> for the Windows

[Footnote continued from previous page]

stipulated in open court to convert the motion to one for partial

summary judgment. (Trial Transcript, dated March 4, 2004 (“Trial

Tr .”) at 1063-64.)

4 For purposes of this motion only, this Court assumes that the

object code and software at issue infringe AT & T’s 580 patent.

5 According to Microsoft Corporation, its software engineers

develop a source code, which is the “human readable form of the

software.” The source code is put through a compiler which trans-

forms it into object code. Object code is merely the “machine

readable version” of the source code in the form of ones and Zeros.

The object code is then burned onto the golden master disk by a

laser for easier transport abroad. (Transcript of Oral Argument,

[Footnote continued on next page]

23a

operating system software is stored. Some golden master

disks are shipped abroad to foreign computer manufacturers,

known as foreign “original equipment manufacturers,” or

“OEMs”. Pursuant to licensing agreements with Microsoft,

those foreign OEMs use the golden master disks to install

foreign-replicated copies of the Windows operating system

software onto foreign-assembled computers. While each

OEM receives a single golden master disk, that disk is never

installed on a computer sold to consumers. Instead, the

golden master disk is used by the OEM to obtain and then

replicate object code to install on foreign-assembled com-

puters.

Microsoft also ships golden master disks to Microsoft-

authorized foreign “replicators” who make copies of the

Windows operating system software object code and ship

those foreign-replicated copies to foreign computer manufac-

turers.

Additionally, Microsoft supplies its Windows operating

system object code from the United States to certain foreign

OEMs and authorized foreign replicators by sending them a

single encrypted electronic transmission of the object code

that was created in the United States. The foreign OEMs and

replicators decrypt the transmission and install copies of the

object code for the Windows operating system software onto

computer hardware to form computer systems, and optionally

create CDs or other media containing a foreign-replicated

copy of the object code.

[Footnote continued from previous page]

dated December 12, 2003 (“Tr.”) at 5-6.) See also Microsoft Corp.

v. Comm'r of Internal Revenue, 311 F.3d 1178, 1181, 1187 (9th

Cir. 2002) (describing golden masters).

24a

During the time relevant to this action, the golden master

disks and the encrypted electronic transmissions that Micro-

soft sends overseas included copies of the accused codecs

that infringe AT & T’s 580 patent. Microsoft acknowledges

that it ships the golden masters and sends the encrypted elec-

tronic transmissions containing the infringing object code

with the intent and knowledge that the software will be in-

stalled on foreign-manufactured computers. Microsoft fur-

ther acknowledges that it ships the golden masters and en-

crypted electronic transmissions containing the infringing

object code with the intent that the foreign OEMs and author-

ized replicators will make copies of the object code for the

Windows operating system and install those copies onto

computer hardware. This computer hardware is manufac-

tured overseas and the completed systems containing the ob-

ject code created in the United States are then sold to end-

users overseas. The parties agree that, other than the object

code contained on the golden master disks and the encrypted

electronic transmissions of Windows object code, Microsoft

does not supply any other “component” from the United

Siates for assembly abroad. Additionally, Microsoft ac-

knowledges that the copying of the software from the golden

master disks and the encrypted electronic transmissions over-

seas is an essential part of the manufacturing process abroad

for computers containing Windows. (Tr. at 9.)

AT & T alleges that Microsoft’s foreign sales of its Win-

dows software containing the allegedly infringing codecs

constitute acts of infringement under 35 U.S.C. § 271(f) that

trigger liability and damages. Microsoft contends that Sec-

tion 271(f) does not attach liability to foreign-replicated cop-

ies of its object code because it falls outside the purview of

Section 271(f)’s prohibition on foreign assembly of infring-

ing goods. Specifically, Microsoft argues that the object

code or software contained on the golden master disks is

merely “intangible information,” and thus not a “component”

as contemplated by Section 271(f). Additionally, Microsoft

25a

argues in its reply brief that Section 271(f) does not attach

liability to foreign-replicated copies of the software or object

code because the copies themselves are not “supplied from”

the United States. Microsoft’s arguments are without menit.

I. Summary Judgment Standard

Rule 56(c) of the Federal Rules of Civil Procedure pro-

vides that summary judgment “shall be rendered forthwith if

the pleadings, depositions, answers to interrogatories and

admissions on file, together with the affidavits, if any, show

there is no genuine issue as to any material fact and that the

moving party is entitled to judgment as a matter of law.”

Fed. R. Civ. P. 56(c); accord Celotex Corp. v. Catrett, 477

U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986);

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106

S.Ct. 2505, 91 L.Ed.2d 202 (1986). The burden of demon-

strating the absence of any genuine dispute as to a material

fact rests with the moving party. See, e.g., Adickes v. S.H.

Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d

142 (1970); Grady v. Affiliated Cent., Inc., 130 F.3d 553, 559

(2d Cir. 1997). The movant may meet this burden by dem-

onstrating a lack of evidence to support the nonmovant’s case

on a material issue on which the nonmovant has the burden

of proof. Celotex, 477 U.S. at 323.

To defeat a summary judgment motion, the nonmoving

party must do “more than simply show that there is some

metaphysical doubt as to the material facts.” Matsushita

Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586,

106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Indeed, the nonmov-

ing party must “set forth specific facts showing that there is a

genuine issue for trial.” Fed. R. Civ. P. 56(e); accord Matsu-

shita Elec., 475 U.S. at 587. In evaluating the record to de-

termine whether there is a genuine issue as to any material

fact, the “evidence of the nonmovant is to be believed and all

justifiable inferences are to be drawn in his favor.” Liberty

26a

Lobby, 477 U.S. at 255; accord Schering Corp. v. Geneva

Pharms., 339 F.3d 1373, 1377 (Fed. Cir. 2003).

II. Section 271(f) of the Patent Act

Section 271(f) of the Patent Act was enacted to prevent

infringers from escaping liability under United States patent

law by manufacturing or supplying a component of a pat-

ented invention from the United States and exporting it for

combination into an end product overseas. /magexpo, L.L.C.

v. Microsoft Corp., No. Civ. A. 3:02CV751, 2003 WL

23147556, at *1 (E.D. Va. Aug. 19, 2003); accord 35 U.S.C.

§ 271(f); Aerogroup Int'l, Inc. v. Marlboro Footworks, Lid.,

955 F.Supp. 220, 232 (S.D.N.Y. 1997) (citing Windsurfing

Int'l, Inc. v. Fred Ostermann GmbH, 668 F.Supp. 812, 820-

21 (S.D.N.Y. 1987), aff'd, 1 F.3d 1214 (Fed.Cir.1993)); H.R.

6286, Patent Law Amendments Act of 1984, Congressional

Record, Oct. 1, 1984, 28069 at H10525-6 (“Legislative His-

tory”) (Section 271(f) “prevent[s] copiers from avoiding U.S.

patents by supplying components of a patented product in

this country so that the assembly of the components may be

completed abroad.”). Components supplied from foreign

countries and incorporated into foreign-assembled products

do not implicate Section 271(f). Aerogroup Int'l, 955

F.Supp. at 232. Section 271(f) states:

(1) Whoever without authority supplies or

causes to be supplied in or from the United

States all or a substantial portion of the com-

ponents of a patented invention, where such

components are uncombined in whole or in

part, in such manner as to actively induce the

combination of such components outside of

the United States in a manner that would in-

fringe the patent if such combination occurred

within the United States, shall be liable as an

infringer.

27a

(2) Whoever without authority supplies or

causes to be supplied in or from the United

States any component of a patented invention

that is especially made or especially adapted

for use in the invention and not a staple article

or commodity of commerce suitable for sub-

stantial noninfringing use, where such com-

ponent is uncombined in whole or in part,

knowing that such component is so made or

adapted and intending that such component

will be combined outside of the United States

in a manner that would infringe the patent if

such combination occurred within the United

States, shall be liable as an infringer.

35 U.S.C. § 271(f).

Under paragraph (1) components may be staple articles

or commodities of commerce which are also suitable for sub-

stantial non-infringing use, but under paragraph (2) the com-

ponents must be especially made or adapted for use in the

invention. See Bristol-Myers Squibb v. Rhone-Poulenc

Rorer, Inc., 95 Civ. 8833 (RPP), 2001 WL 1263299, at *4-5

(S.D.N.Y. Oct. 19, 2001). Additionally, paragraph (2) re-

quires the infringer to have an intent that a component “will

be combined outside of the United States in a manner that

would infringe if the combination occurred within the United

States.” 35 U.S.C. § 271(f)(2). “Actual combination or as-

sembly of the components by the alleged infringer [is] not

required” to trigger liability under Section 271(f). Waymark

Corp. v. Porta Sys. Corp., 334 F.3d 1358, 1361 (Fed. Cir.

2003). Here, it is undisputed that Microsoft’s object code is

especially made and supplied from the United States for use

in its Windows operating s ~*:m, that Microsoft intended the

components to be combined outside of the United States, and

that Microsoft intended that the infringing object code be di-

28a

rectly incorporated as an essential part of the foreign-

manufactured computers. (Court Ex. 1; Tr. at 9.)

Congress enacted Section 271(f) in response to Deep-

south Packing Co. v. Laitram Corp., 406 U.S. 518, 92 S.Ct.

1700, 32 L.Ed.2d 273 (1972), where the Supreme Court rec-

ognized a “loophole” in infringement law allowing copiers to

escape liability by finalizing assembly of products outside the

United States. See H.R. 6286, Patent Law Amendments Act

of 1984, Congressional Record, Oct. i, 1984, 28069,

H10525-6. In Deepsouth, the Supreme Court held that

manufacturing components of a patented invention in the

United States, but assembling those components into the pat-

ented invention outside the United States, was not “making,”

and thus did not constitute infringement under Section 271(a)

of the Patent Act. 406 U.S. at 527-28. In the wake of Deep-

south, Congress enacted Section 271(f) to prevent infringers

from exploiting that loophole. See H.R. 6286, Patent Law

Amendments Act of 1984, Congressional Record, Oct. 1,

1984, 28069, H10525-6. The legislative history of Section

271(f) reads in pertinent part:

Part of the subcommittee’s job is to secure for the own-

ers of intellectual property, including patent holders, a

workable, efficient, and vigorous set of laws to protect their

creations. ... [W]ithout enactment of these housekeeping-

oriented measures, the patent system would not be responsive

to the challenges of a changing world and the public would

not benefit from the release of creative genius. ... Section

101 [of the Bill] makes two major changes in the patent law

in order to avoid encouraging manufacturing outside the

United States.... [Section 271(f)] will prevent copiers

from avoiding U.S. patents by supplying components of a

patented product in this country so that the assembly of the

components may be completed abroad. This proposal re-

sponds to [Deepsouth] concerning the need for a legislative

solution to close a loophole in patent law.

29a

H.R. 6286, Patent Law Amendments Act of 1984, Con-

gressional Record, Oct. 1, 1984, 28069, H10525 (emphasis

added).

Section 271(f) bridges the Deepsouth synapse by includ-

ing as infringement under the Patent Act the assembly of any

component of a patented invention, supplied from the United

States, into a product assembled outside of the United States.

35 U.S.C. § 271(f). Microsoft does not dispute the construc-

tion of Section 271(f), but argues that: (1) its object code or

software is not a “component” under Section 271(f); and (2)

its foreign-replicated copies are not “supplied from” the

United States. Otherwise, Microsoft acknowledges that its

actions satisfy the requirements of Section 271(f). (Court Ex.

1.)

Ill. Software as a Component

Microsoft argues that foreign-replicated copies of its

Windows operating system software cannot be statutory

“components” supplied from the United States to form for-

eign-assembled computer systems because “the infringing

Windows operating system software stored on the golden

master disks [and sent electronically] is intangible informa-

tion,” and the golden master disk is “simply a medium for

transmission of the software information,” and is never in-

corporated into an end product abroad. (MS Br. at 1; Court

Ex. 1.) The object code or software that is contained on each

golden master disk or transmitted electronically, as opposed

to the golden master disk or method of encrypted transmis-

sion itself, is at the heart of the parties’ dispute and this

Court’s analysis. It is undisputed that the infringing software

is intentionally shipped abroad for incorporation into foreign-

assembled computers. (Court Ex. 1.) Indeed, the golden

master disk simply recognizes the economic efficiencies in

shipping Microsoft’s software abroad, and does not alone

insulate Microsoft from liability under Section 271(f). See

30a

Eolas Techs. Inc. v. Microsoft Corp., 99 C0626, 2004 WL

170334, at *3-5 (N.D. Ill. Jan. 15, 2004).

Microsoft argues that its infringing software must be a

“physical product” to constitute a “component” under Sec-

tion 271(f). As noted, Section 271(f) precludes exportation

of certain “component(s)” of patented inventions. 35 U.S.C.

§ 271(f). Microsoft contends that infringing software trans-

ported by golden master disk or through electronic transmis-

sion is merely “intangible information,” and thus not a “com-

ponent” as contemplated by Section 271(f). It is well-

established, however, that software can be a component of a

patented invention or infringing device. See, e.g., In re Alap-

pat, 33 F.3d 1526, 1545 (Fed. Cir. 1994) (“[A] computer op-

erating pursuant to software may represent patentable subject

matter, provided, of course, that the claimed subject matter

meets all the other requirements of Title 35.”); Jmagexpo,

L.L.C. v. Microsoft Corp., No. Civ. A 3:02CV751, 2003 WL

23147556 (E.D. Va. Aug. 19, 2003) (in examining Microsoft

NetMeeting units exported overseas on golden master disks,

holding that Microsoft’s “code is a patentable apparatus” and

that the golden master and code constitute “components” un-

der Section 271(f)); Eolas Techs. Inc. v. Microsoft Corp., 274

F.Supp.2d 972, 973 (N.D. Ill. 2003) (holding that the soft-

ware in a computer product “is, in law, the legal equivalent

of a piece of computer hardware and not the legal equivalent

of a chemical formula”); N7P, Inc. v. Research In Motion,

Lid., 261 F.Supp.2d 423, 431 (E.D. Va: 2002) (noting that

defendant supplied “application programs” that are “compo-

nents combined with ({an] Intel processor outside the United

States” and especially adapted for use in the infringing prod-

uct); United States Patent & Trademark Office Manual of

Patent Examining Procedure (the “MPEP”) § 2106, at 2100-

13 (8th ed.2003) (noting that a computer program has func-

tional and structural elements, can be recited as part of a

claim, statutory manufacture or machine, and noting that

“[w]hen a computer program is recited in conjunction with a

3la

physical structure, such as a computer memory, Office per-

sonnel should treat the claim as a product claim.”) (emphasis

added); see also Southwest Software, Inc. v. Harlequin Inc.,

226 F.3d 1280, 1287-88, 1298-99 (Fed. Cir. 2000). Indeed,

Microsoft acknowledges that software is patentable (Tr. at

10; MS Reply at 1), and it argued successfully to the Ninth

Circuit that its golden master disks that contain the object

code at issue here were tangible export property for tax pur-

poses. Microsoft Corp. v. Comm'r of Internal Revenue, 311

F.3d 1178, 1185 (9th Cir. 2002) (holding that the software or

object code contained on the golden master disks was “export

property,” that only contemplates tangible property, and find-

ing “computer software reproductions similar to ‘films, tapes,

[and] records”’) (alteration in original). Tellingly, Microsoft

retreated from this argument in its reply brief and at oral ar-

gument.

Microsoft urges this Court to narrowly interpret the term

“component” in Section 271(f) to exclude software or object

code. However, there is no limitation of the term “compo-

nents,” either in the statutory text or in the legislative history,

to machines or other structural combinations. W.R. Grace &

Co. v. Intercat, Inc., 60 F.Supp.2d 316, 320-21 (D. Del.

1999) (finding 271(f) liability for supply of chemical compo-

sition from the United States for combination with other ma-

terials abroad); see also Moore U.S.A. Inc. v. Standard Regis-

ter Co., 144 F.Supp.2d 188, 195 (W.D.N.Y. 2001) (finding

paper, glue and blueprints for making envelopes “compo-

nents” under 271(f)); Lubrizol Corp. v. Exxon Corp., 696

F.Supp. 302, 325 (N.D. Ohio 1988) (same for supply of lu-

bricant additive for combination in a lubricant composition

outside the United States). Further, there is nothing in the

legislative history of Section 271(f) or in any jurisprudence

interpreting it to say that software cannct be a component

under Section 271(f). W.R. Grace, 60 F.Supp.2d at 321 (“A

contrary holding . .. would be tantamount to legislating addi-

tional language to a statute.”). Indeed, excluding protection

32a

for inventions using software “would not be responsive to the

challenges of a changing world,” as software and computers

have become an essential part of society and business since

the enactment of Section 271(f). H.R. 6286, Patent Law

Amendments Act of 1984, Congressional Record, Oct. 1,

1984, 28069, H10525.

Microsoft cites to several cases in support of its conten-

tion that software cannot be a component under Section

271(f). (MS Br. at 9-10.) Those cases are distinguishable, as

they all involve design or method patents, which have no

components, or instructions for assembly of products abroad,

which is not a component. See, e.g., Standard Havens

Prods., inc. v. Gencor Indus., Inc., 953 F.2d 1360, 1374

(Fed. Cir. 1991) (holding 271(f) inapplicable to a method

patent for producing asphalt, “not the apparatus for imple-

menting that process”); Enpat, Inc. v. Microsoft Corp., 6

F.Supp.2d 537, 538-39 (E.D. Va. 1998) (finding no 271(f)

liability for a method patent with no components where the

patent only described steps required to accomplish a task);

Pellegrini v. Analog Devices, Inc., C.A. No. 02-11562-RWZ,

2003 WL 21026797, at *1 (D. Mass. May 7, 2003) (finding

no 271(f) iiability for exportation of instruction for foreign

disposal of computer chips); Aerogroup Int'l, 955 F.Supp. at

231-32 (Section 271(f) inapplicable for a design patent for a

shoe sole where the patent claimed no “components” and the

soles were manufactured abroad).

Notably, the two other courts that have considered the

precise issue before this Court have held that Microsoft’s ex-

port of its golden master disks containing infringing code

constitutes the supply of a “component” under Section

271(f). Eolas Techs. Inc. v. Microsoft Corp., 274 F.Supp.2d

972 (N.D. Ill. 2003), reconsideration denied, 2004 WL

170334, at *3-5 (N.D. Ill. Jan. 15, 2004); Imagexpo LLC v.

Microsoft Corp., 2003 WL 23147556 (E.D. Va. Aug. 19,

2003). Additionally, in N7P, Inc. v. Research in Motion,

33a

Ltd., 261 F.Supp.2d 423, 436-37 (£.D. Va. 2002), a district

court granted summary judgment of infringement pursuant to

Section 271(f), finding that the defendant’s transmission net-

work for its Blackberry wireless email/paging devices manu-

factured in Canada fell within Section 271(f) because it in-

corporated domestically-supplied components, such as Mi-

crosoft’s Exchange Server software, that the defendant com-

bined outside the United States. Microsoft only distinguishes

these cases by noting that they were decided before Bayer

AG v. Housey Pharms., Inc., 340 F.3d 1367 (Fed. Cir. 2003).

(Tr. at 18; MS Reply Br. at 6.)

Microsoft argues that Bayer compels a finding that it is

not liable for infringement and damages for foreign sales of

computers containing the infringing software. In Bayer, the

Federal Circuit addressed the term “component” in Section

271(g) of the Patent Act. Bayer, 340 F.3d at 1376-77. Sec-

tion 271(g) prohibits importation into the United States of

products produced by “patented manufacturing processes,

i.e., methods of actually making or creating a product as op-

posed to methods of gathering information about, or identify-

ing a substance worthy of further development.” Bayer, 340

F.3d at 1370. In dicta, the Federal Circuit stated that the term

“component” in Section 271(g) “appears to contemplate a

physical product.” Bayer, 340 F.3d at 1376-77. However,

Microsoft wrenches the Federal Circuit’s comment out of its

context; it is not the clear statement of law on Section 271(f)

liability that Microsoft would have this Couri adopt.

In Bayer, the Federal Circuit held that Section 271(g)

does not proscribe the transmission of “information” into the

United States. 340 F.3d at 1371. The “information” in

Bayer, however, was markedly different than the software or

object code at issue here. The information in Bayer was data

generated from a patented method to identify whether a given

substance had a particular property, namely, whether that

substance activated or inhibited protein activity in a cell.

34a

Bayer, 340 F.3d at 1369. This data could be used to identify

effective drugs for treating diseases. The patentee alleged

that Bayer used the patented process outside the United

States, subsequently imported into the United States the data

generated from that process, identified effective drugs from

that data, and manufaciured those drugs in the United States.

Bayer, 340 F.3d at 1369-70. The Federal Circuit held that

importation of the data generated from the patented process

did not infringe under Section 271(g) because that Section is

directed towards articles of manufacture, and not data or “in-

formation” used to identify those articles. Bayer, 340 F.3d at

1370. Indeed, the data produced from the patented process

abroad was not directly used to manufacture the drugs at is-

sue in the United States. Bayer, 340 F.3d at 1369-70.

Bayer’s holding does not advance this Section 271(f)

analysis because: (1) Bayer only applies to Section 271(g);®

and (2) the “information” or “data processing” that resulted

from a patented process in Bayer is completely unrelated to

the software or object code at issue here. For example, here

the software or object code itself is an essential part of the

end product and component-assembly abroad. In contrast, in

Bayer the resulting data created by a patented process was

transferred to the United States from abroad and was ulti-

mately used to identify drugs which were then manufactured

in the United States. Bayer, 340 F.3d at 1368-69. Thus, in

Bayer, the transmitted “data” at issue was not incorporated

into the end-product; it was the result of a patented process,

not part of it. In this action, the object code at issue actually

contains the patented codecs, which are not derived from a

6 Indeed, the only mention of Section 271(f) in Bayer is a pass-

ing reference to Congress’s intent to avoid encouragement of

manufacturing infringing goods outside the United States. Bayer,

340 F.3d at 1371.

35a

similar method patent, and the infringing code is sent over-

seas to be incorporated directly into the end-product abroad.

Citing the dicta in Bayer, Microsoft argues that the ob-

ject code contained on the golden master is intangible infor-

mation, and thus cannot trigger liability under Section 271(f).

Microsoft’s argument, however, relies heavily on the pre-

sumption that the object code on the golden master disks and

in the encrypted transmissions is the type of intangible in-

formation or data from a patented process that did not trigger

Section 271(g) liability in Bayer. As noted above, this Court

rejects that presumption.

IV. Foreign-Replicated Copy as a Component

In its reply brief, Microsoft advances the argument that a

foreign-replicated copy of the infringing software does not

constitute a “component” supplied from the United States,

and thus cannot trigger Section 271(f) liability. This Court

heard AT & T’s response at oral argument, and agrees with

its position.

Microsoft contends that since the object code eventually

incorporated into the foreign computers is replicated abroad,

those foreign-replicated copies cannot be considered to be a

component “supplied from” the United States. Specifically,

Microsoft argues that the foreign-replicated copies cannot

“be said to have been ‘supplied’ from the U.S. even though

they never touched U.S. soil.” (MS Reply Br. at 1.) Essen-

tially, Microsoft seeks to equate replication of the object code

abroad with the manufacturing or “supply” of it from abroad.

Microsoft’s argument ignores the undisputed fact that the ob-

ject code is originally manufactured in the United States, and

supplied from the United States to foreign replicators or

OEMs with the intention of incorporating such software into

foreign-assembled computers. (Court Ex. 1.) The fact that

Microsoft ships one golden master disk or sends one elec-

tronic transmission with the infringing object code to each

foreign OEM, rather than shipping one CD for each computer

36a

for efficiency purposes, cannot shield Microsoft from the let-

ter and intent of the statute—to prohibit circumvention of

infringement of a United States patent by supplying certain

infringing components from the United States, and shipping

them abroad for incorporation into a finished product that

would infringe if assembled in the United States.’ See 35

U.S.C. 271(f); H.R. 6286, Patent Law Amendments Act of

1984, Congressional Record, Oct. 1, 1984, 28069, H10525;

Imagexpo, 2003 WL 23147556; Eolas Techs., 2004 WL

170334, at *3-5.

In support of its argument, Microsoft analogizes its

software to a “mold” for tires that is exported to a foreign

plant to make tires there for combination with foreign-made

cars. Microsoft argues that its software, like the foreign-

molded tires, cannot be said to be components of the patented

combination “supplied” from the United States because Sec-

tion 271(f) looks to the place from which the “component” in

question was made and supplied. Unlike the tires that are

manufactured from a mold, however, the software here has

already been manufactured in, and supplied from, the United

States and is only copied abroad—the software is not a mold

for the creation of another separate type of component. In-

deed, there is no evidence before this Court that the foreign-

incorporated object code or software is being created anew

from instructions concerning a process for creating code

abroad. See Enpat, 6 F.Supp.2d at 538-39 (finding no 271(f)

liability for a method patent with no components where the

7 Indeed, at oral argument, Microsoft acknowledged that if indi-

vidual disks with the infringing Windows operating system object

code were sent abroad for incorporation into each foreign-

assembled computer (rather than one golden master disk), Micro-

soft would be liable for infringement under Section 271(f). (Tr. at

16, 28.) Under this scenario, Microsoft would be liable for direct

infringement under Section 271(f). NTP, 261 F.Supp.2d at 436-37.

37a

patent only described steps required to accomplish a task);

Pellegrini, 2003 WL 21026797, at *1 (finding no 271(f) li-

ability for exportation of instruction for foreign disposal of

computer chips). Further, Microsoft’s tire mold is devoid of

any content until rubber is poured into it and a separate and

distinct object, a tire, is created. Here, again, the software

itself is the component, or the “tire”, rather than a mold.

As noted in /magexpo, the golden master or electronic

transmission at issue here contains object code that becomes

an essential component of the finished computer product. “In

other words, the overseas replicator [or OEMs] do[ ] not

simply construct the computer product using a plan, design,

or recipe supplied by Microsoft. Instead, the functional nu-

cleus of the finished computer product is driven by the code,

which is transmitted through the golden master.” /magexpo,

2003 WL 23147556. This Court agrees and finds Micro-

soft’s “tire mold” analogy unpersuasive.

V. Policy Argument

Finally, Microsoft advances a “doomsday” policy argu-

ment to buttress its position, namely that if Section 271(f)

liability attaches to foreign distribution of its infringing soft-

ware, it “would simply pick up [its] manufacturing operation

for the golden master, go [one] hundred miles north to Van-

couver, set up the operation in Vancouver, [and] burn [its]

golden master CDs [there].” (Tr. at 21-22.) Microsoft as-

serts that this would be the only option to “reduce by two-

thirds our exposure in all of these patent cases” relating to

Section 271(f) liability for worldwide sales.8 (Tr. at 22.)

Additionally, Microsoft complains that, unlike United States-

based companies, foreign software companies do not face

8 Notably, Microsoft’s policy argument does not address distri-

bution of the infringing software through electronic transmission.

38a

Section 271(f) liability, and can sell software world-wide

without incurring the same liability in the United States. (Tr.

at 22.) While this Court appreciates Microsoft’s concerns

about a paradigm shift for United States software manufac-

turers, those concerns are better addressed through manufac-

ture of non-infringing goods or Congressional action, rather

than a judicial engraftment on Section 271(f) of the Patent

Act.

CONCLUSION

For the reasons set forth above, defendant Microsoft

Corporation’s motion for partial summary judgment pursuant

to 35 U.S.C. § 271(f) is denied.

39a

APPENDIX C

UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

04-1285

AT&T Corp.,

Plaintiff-Appellee,

MICROSOFT CORPORATION,

Defendant-Appellant.

ORDER

UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

A petition for rehearing en banc having been filed by the

APPELLANT, and a response thereto having been invited by

the court and filed by the APPELLEE, and the matter having

first been referred as a petition for rehearing to the pane! that

heard the appeal, and thereafter the petition for rehearing en

banc and response having been referred to the circuit judges

who are in regular active service,*

UPON CONSIDERATION THEREOF, it is

ORDERED that the petition for rehearing be, and the

same hereby is, DENIED and it is further

ORDERED that the petition for rehearing en banc be,

and the same hereby is, DENIED.

40a

The mandate of the court will issue on October 27, 2005.

Circuit Judge GAJARSA did not participate in the vote.

FOR THE COURT,

/s/

Jan Horbaly

Clerk

Dated: October 20, 2005

cc: Dale M. Heist

Stephen C Neal

John D. Vandenberg, Frank Scherkenbach

Janine A. Carlan

AT&T V MICROSOFT, 04-1285

(DCT - 01-CV-4872)

* Two amicus curiae briefs were filed and circulated.

Note: Pursuant to Fed. Cir. R. 47.6, this order is not citable

as precedent. It is a public record.

4la

APPENDIX D

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

AT&T Corp. 01 Civ. 4872 (WHP)

Plaintiff,

STIPULATED

v. JUDGMENT

MICROSOFT CORPORATION

Defendant.

On June 4, 2001, plaintiff AT&T Corp. (“AT&T”) filed

this patent infringement action alleging that certain of defen-

dant Microsoft Corporation’s (“Microsoft”) products contain-

ing speech codecs infringe its United States Reissue Patent

No. 32,580 (the “580 patent”). The parties have now reached

a settlement pursuant to which they have agreed to the entry

of judgment based on the record and the stipulated facts as

set forth in Court’s Exhibit 1, and have also agreed that nei-

ther party would appeal any issue with one exception: both

parties intend that Microsoft will reserve one issue for ap-

peal, namely this Court’s ruling with respect to Microsoft’s

liability under 35 U.S.C. § 271(f).

42a

WHEREAS, the Parties have agreed and hereby stipu-

late, by and through their counsel of record herein, that

judgment be entered in favor of AT&T and against Mi-

crosoft as follows:

IT IS HEREBY ORDERED, ADJUDGED and DE-

CREED THAT, final judgment shal] be entered in favor

of AT&T and against Microsoft as follows:

U.S. Patent Number Reissue 32,580 (the ‘580 pat-

ent) has been infringed under 35 U.S.C. § 271(a)

and (b), is enforceable and not invalid. The parties

have agreed to an unconditional settlement payment

based upon this ruling.

AT&T’s infringement claim under 35 U.S.C.

§ 271(c) is dismissed without prejudice.

All of Microsoft’s counterclaims are hereby dis-

missed with prejudice.

Based on the stipulated facts, the Court has deter-

mined that the golden master disks and the en-

crypted transmissions of Windows object code con-

tain “components” supplied from the United States

by Microsoft within the meaning of 35 U.S.C.

§ 271(f} and the Court has further determined that

the computer systems assembled abroad with the

foreign-replicated Windows object code that was in-

stalled from the golden master disks or the en-

crypted transmissions contain “components” that

were supplied by Microsoft from the United States.

Based on the Court’s determinations set forth in its

opinion of March 5, 2004, and hereby adopted by

the Court in this final judgment, Microsoft concedes

that it has infringed under 35 U.S.C. § 271(f). The

parties have agreed upon an additional settlement

payment conditioned upon a final appellate determi-

nation affirming this Court’s ruling under 35 U.S.C.

43a

§ 271(f). Accordingly, the Court hereby enters

judgment in favor of AT&T and against Microsoft

on AT&T’s claims pursuant to 35 U.S.C. § 271(f).

6. The parties intend that Microsoft shall have the right

to appeal the Court’s determination and the judg-

ment of infringement under 35 U.S.C. § 271(f) en-

tered herewith.

7. This Court shall retain jurisdiction to enforce the

terms of the Settlement Agreement between the Par-

ties;

8. The Clerk of the Court is directed to enter the fore-

going stipulated judgment as the final judgment in

this case.

9. Each party shall bear its own costs and attorneys

fees.

DATED: March 5, 2004

New York, New York

/s/_

William H. Pauley III, District Judge

/s/

Stephen C. Neal, Esq., Cooley Godward LLP

Counsel for AT&T CORP.

/s/

Dale M. Heist, Esq., Woodcock Washburn LLP

Counsel for MICROSOFT CORPORATION

APPENDIX E

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

AT&T Corp. 01 Civ. 4872 (WHP)

Plaintiff, STIPULATED

STATEMENT

v. OF FACTS

CONCERNING

MICROSOFT CORPORATION | 35 U.S.C. § 271(F)

Defendant.

COURT’S EXHIBIT 1

The parties hereby stipulate to the following facts con-

cerning the issue of infringement pursuant to 35 U.S.C.

§ 271(f):

1. Plaintiff AT&T Corp. (“AT&T”) owns all right, ti-

tle, and interest in and to United States Patent Num-

ber Reissue 32,580 entitled “Digital Speech Coder”

(the “580 Patent”);

2. On June 4, 2001, AT&T filed a complaint against

defendant Microsoft Corporation (“Microsoft”) in

45a

the United States District Court for the Southern

District of New York (“District Court”), seeking a

judgment that Microsoft has infringed the ‘580 Pat-

ent under 35 U.S.C. § 271 and seeking damages for

such infringement (the “Dispute”’);

AT&T has alleged that Microsoft’s foreign sales

constitute acts of infringement under 35 U.S.C.

§ 271(f) and the District Court has entered summary

judgment that Microsoft’s foreign sales are subject

to liability in accordance with AT&T’s allegation

(the “271(f) Ruling”);

Microsoft conceives, writes, compiles, tests, debugs

and creates a master version of its Windows operat-

ing system software in Redmond, Washington. Mi-

crosoft makes a limited number of “golden master”

disks in the United States on which the machine-

readable object code for the Windows operating sys-

tem software is stored;

Some golden master disks are shipped abroad to for-

eign computer manufacturers, known as foreign

“original equipment manufacturers” or “OEMs.”

Pursuant to licensing agreements with Microsoft,

those foreign OEMs use the golden master disks to

install the foreign-made copies of Windows operat-

ing system software onto computers. Each OEM

receives a single golden master disk, and that disk

itself is never installed on a computer that is then

sold. Instead, that golden master disk is used by the

OEM to obtain and then replicate object code that is

then installed on computers that are sold;

Microsoft also ships golden master disks to Micro-

soft authorized foreign “replicators” who make cop-

ies of the Windows operating system software ob-

ject code and ship those foreign manufactured cop-

ies to foreign computer manufacturers;

10.

46a

Microsoft also supplies its Windows operating sys-

tem object code from the United States to certain

foreign OEMs and authorized foreign replicators by

sending to foreign OEMs or replicators a single en-

crypted transmission of the object code. The for-

eign OEMs and replicators decrypt the transmission

and install copies of the object code for the Win-

dows operating system software onto computer

hardware, to form computer systems, and optionally

create CDs or other media with a copy of the same;

During the time relevant for this lawsuit, the golden

master disks that Microsoft shipped overseas and

foreign electronic transmissions included copies of

the codecs that AT&T accused of ——s the

“580 patent;

Microsoft intends that the foreign OEMs and au-

thorized replicators make the copies of the object

code for the Windows operating system (created

from the golden master disks and/or electronically

transmitted software code) and Microsoft further in-

tends that the foreign OEMs and authorized replica-

tors install those copies onto computer hardware.

This computer hardware is manufactured overseas;

the computer systems are assembled and the com-

pleted systems are then sold to end-users overseas.

AT&T alleges, and Microsoft disputes, that the

“golden master disks” and the encrypted transmis-

sions of Windows object code constitute “compo-

nents” within the meaning of 35 U.S.C. 271(f).

AT&T alleges, and Microsoft disputes, that the

computer systems assembled abroad with the for-

eign replicated object code contain “components”

that were supplied by Microsoft from the United

States. In a ruling announced on February 17, 2004,

the District Court ruled in favor of AT&T on this is-

47a

sue. The parties agree that, other than the “golden

master disks” and the encrypted transmissions of

Windows object code, Microsoft does not supply

any “component” from the United States for assem-

bly abroad.

11. The District Court ruled in favor of AT&T on all

271(f) issues in an opinion dated March Sth, 2004.

AT&T and Microsoft have entered into a confidential

settlement agreement pursuant to which Microsoft has agreed

to pay damages to AT&T in connection with AT&T’s allega-

tions that Microsoft’s United States sales infringe the ‘580

patent. The settlement agreement obligates Microsoft to

make an additional payment of damages to AT&T in the

event that the District Court’s 271(f) ruling is affirmed on

appeal.

/s/

William H. Pauley III, District Judge

/s/

AT&T Corp.

_/s/

MICROSOFT CORPORATION

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.