Amicus Curiae Brief — Microsoft Corp. v. AT & T CORP.

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No. 05-1056 | OFFICE OF THE CLERK |

IN THE

Supreme Court of the United States

MICROSOFT CORPORATION,

Petitioner.

Vv.

AT&T Corp.,

Respondent.

On Writ of Certiorari to the

United States Court of Appeals

for the Federal Circuit

BRIEF OF AMICUS CURIAE

ELI LILLY AND COMPANY

IN SUPPORT OF PETITIONER

ROBERT A. ARMITAGE

JAMES J. KELLEY

Counsel of Record

EL! LILLY AND COMPANY

940 South East Street

Indianapolis, IN 46225

(317) 277-8110

December 15, 2006

pit

QUESTIONS PRESENTED

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

of the United States.” In this case, AT&T Corp (AT&T)

alleges that when Microsoft Corporation’s (Microsoft’s)

Windows operating system is installed on a_ personal

computer, the computer with the installed operating system

represents “the combination of such components” so as to

infringe AT&T’s patent purporting to claim 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. Microsoft infringed under section

271(f){1), it is alleged, when it supplied outside the United

States its Windows software code to foreign computer

manufacturers who then installed the code on foreign-

manufactured computers that were sold only to foreign

consumers. The two questions arising in this appeal can be

represented as follows:

(1) Whether software code that is recognized by a digital

computing machine and directs its functioning — such code

by itself being nothing more than an intangible sequence of

binary values, commonly expressed as sequence of 1’s and

0’s — can qualify as a “component” of a patented invention

within the meaning of section 271(f); and, if so,

(2) Whether the required duplication outside the United

States of the coding sequence, in order for it to be used in a

foreign country to operate computing machines, qualifies the

duplicated sequence-as having been “supplie[d] . . . from the

United States?”

TABLE OF CONTENTS

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J. INTEREST OF AMICUS CURIAE ........c.scscsssssesssereeseeeees l

She ANTI necenisstniisscatintecnsintinseteapemenatisineinanpesminesiin 2

FS ______._ Ea EY aR aE ED OR NNO EIEN 3

A. The Federal Circuit’s Conclusion That Software

Necessarily Qualifies as a Component of a Patented

Combination is Based on Faulty Jurisprudential

Foundations That Clearly Conflict with Section 101

SF Ce ai iactccccinsicaiciscssscetinincrisieiscinininihiiinianiiasiaintadiiinpaiiie 3

1. Section 101 Limits Patent Eligible Subject

Matter to Tangible and Physical Products

I ccisessdeicnsincntniijenndianiensistniinsbbliiations 3

2. The Jurisprudential Foundations of the

Federal Circuit’s Decision Failed to

Recognize or Apply the Requirements for

Patent Eligibility Under Section 101................. 5

B. Software Code Cannot Represent a “Component” of

a Claim Directed to a Combination of “Elements.”........ 9

C. The IT Industry’s Complaints Against the Patent

System Are Partly Attributable to Failure of the

Lower Courts to Rigorously Apply Sections 101 and

SE PONE Di cicncttrintitiinenitaonnianemnniststasasenmsipitiadaradain 14

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TABLE OF AUTHORITIES

FEDERAL CASES

AT&T Corp. v. Microsoft Corp..,

414 F.3d 1366 (Fed. Cir. 2005)..............ceceeeeeeees

Cochrane v. Deener,

SE, SI int cee nniscnsiipn guna dibiemnaielmeabietinncsanid

Corning Glass Works v. Sumitomo Elec. U.S.A., Inc.,

868 F.2d 1251 (Fed. Cir. 1989).................c0ee. 14

Diamond vy. Chakrabarty,

4, |) 5 SS pe reo

Eolas Techs., Inc. v. Microsoft Corp.,

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

cert. denied, 126 S. Ct. 568 (2005).............-..265 6

Lab. Corp. of Am. Holdings v. Metabolite Labs., Inc.,

a is Gk BE Ci cciaciscnidccoccnsscsiccaseresaces 2

O.1. Corp. v. Tekmar Co., Inc.,

lege ge) ae Rr ee 10

State Street Bank & Trust Co. v. Signature Fin. Group, Inc.,

149 F.3d 1368 (Fed. Cir. 1998),

cert. denied, 525 U.S. 1093 (1999)................05 6

-iv-

FEDERAL STATUTES, RULES and OTHER

AUTHORITIES

I i ae 4

ET ILA ET passim

35 U.S.C. § 112, para. 6......ccccsssssssesseeeeceeeeesseeesspassim

I ial i ah i lal passim

ls eo innnidospneanieictneessikquuituswuaiduathe i

Act of Apr. 10, 1790, ch 7, § 1, 1 Stat. 109. 0.0.0... eee 4

Act of Feb. 21, 1793, ch. 11, § 1, 1 Stat. 318.............0.00.. 4

MISCELLANEOUS

Carl Shapiro, Navigating the Patent Thicket: Cross Licenses,

Patent Pools, and Standard-Setting (Mar. 2001), at

http://ssrn.com/abstract=273550

(last visited December 14, 2006)...................00 ccc eeeeeees 17

Eli Lilly and Company Annual Report, 2005, af

http://www. lilly.com/investor/annual_report/lillyar2005.pdf

DG Ste ME oices<sccncesciscusevesesessnsccetees 18

http://www.answers.com/topic/element

I es BI ncn cundatepsnteddasesecesosseusin 13

http://www.merriam-webster.com/dictionary/element

SN SI, UR AI. occn cccapdevansentesiueuensedcesevaie 13

-Ve

http://www.merriam-webster.com/dictionary/component

8 Ra eae 13

http://www.answers.com/topic/component

8 Re ee 13

Keith Maskus, Reforming U.S. Patent Policy: Getting the

Incentives Right, CSR No. 19, Council on Foreign Relations,

at

www.cfr.org/content/publications/attachments/PatentCSR.pd

f

(last visited Dec. 14, 2006)........cccccccsssecececessecevsveseeen 18

Microsoft Corporation Annual Report, Fiscal Year 2005 at

http://www.microsoft.com/msft/reports/ar06/staticversion/10

k fr inc.html

GUS ERI UR, BG, Fa os cee vvccssccccccerecessessceveusenne 18

POUT 6 BUNGE, GD. 1, BD. csssececccssecccesconeseavecstennnened

The Patent Reform Act of 2006, S. 3818, Enhances

Innovation and Promotes Economic Growth, at

www.patentfaimess.org/CPF_ White%20paper%20v3.pdf

CRUE WEN UD. BG, BID onde cnc scevicncveniedsccckendaneenunns 15

Top 300 Organizations Granted U.S. Patents in 2005, at

www.ipo.org/AM/TemplateRedirect.cfm?template=/CM/Co

ntentDisplay.cfm&ContentID=3384

eS 8 ee es 18,19

William C. Robinson, The Law of Patents for Useful

PUPRUERS: GTO CeO wicvnisciccesseccincsiasenictcommunaueel -

ofs

J. INTEREST OF AMICUS CURIAE '

Amicus curiae Eli Lilly and Company (“Amicus”) is a

research-based pharmaceutical company. Amicus discovers

and develops innovative medicines. Its innovations aim at

enabling patients to live longer, healthier, and more active

lives. To support its business, Amicus invests billions of

dollars annually in research and development. An

effectively functioning patent system is critical to its ability

to make R&D investments in discovering new medicines and

establishing their safety and effectiveness for human use.

Amicus’ dependence on the patent system renders the

integrity of the patent system of manifest importance to its

survival. Its business model is threatened, therefore, by

judicial decisions in patent cases that produce anomalous

results, create substantial clouds of uncertainty over the

reach of the patent laws, or fail to reflect the proper balance

in the patent laws between strong incentives to innovate and

rigorous application of the limitations that Congress placed

on patent protection.

Permitting the patent laws to overreach their

congressionally mandated boundaries § undermines

confidence in the patent system and respect for patents and

patenting. This disrespect operates to the detriment of

Amicus and others dependent upon respect for valid patent

rights for their economic survival.

Amicus has no financial interest in the parties to this

litigation or in the outcome of this specific case. Its interest

' This brief was not authored, in whole or in part, by counsel for

either party. No person or entity other than amicus curiae and its counsel

made a monetary contribution to the preparation or submission of this

brief. Amicus contacted both parties to obtain consent. Both parties

referred amicus to their respective global consent letters, which have

been lodged with the Clerk of the Court.

ie,

is that the patent laws be interpreted to protect innovation to

the fullest possible extent, consistent with the rigorous

conditions and requirements for patenting Congress has

imposed.

Il. INTRODUCTION

This case is symptomatic of how profoundly the law of

patenting inventions can go astray if rigor is not present in

the application of the conditions and requirements for

patenting. The courts below have overreached in

determining those acts that infringe a patent. While perhaps

not self-evident from the record below, this overreaching is a

byproduct of the failure of the courts below to rigorously

apply the prime statutory requirement for patenting — that

every claimed invention in a patent must be limited to

patent-eligible subject matter. This Court had the

opportunity recently to address the issue of “subject matter

eligibility” for patenting in Laboratory Corp. of America

Holdings, but dismissed certiorari as having been

improvidently granted. Lab. Corp. of Am. Holdings v.

Metabolite Labs., Inc., 126 S. Ct. 2921 (2006).

Given the overarching importance of the provisions in

the patent statute relating to subject matter eligibility for

patenting, this Court should decide this appeal by addressing

fully the rationale cf the Court of Appeals for the Federal

Circuit in its decision below, including its foundational

reliance on its own prior jurisprudence as to what subject

matter is eligible for patenting.

7 7 3 .

II. ARGUMENT

A. The Federal Circuit’s Conclusion That Software

Necessarily Qualifies as a Component of a Patented

Combination is Based on Faulty Jurisprudential

Foundations That Clearly Conflict with Section 101 of

Title 35.

1. Section 101 Limits Patent Eligible Subject Matter

to Tangible and Physical Products and Processes.

The requirement for “subject matter eligibility” for

patenting is principally set forth in 35 U.S.C. § 101:

Whoever invents or discovers any new and useful

process, machine, manufacture, or composition of

matter, or any new and useful improvement thereof,

may obtain a patent therefor, subject to the conditions

and requirements of this title.

Thus, to be eligible for patenting, an invention or discovery

that is claimed in a patent must fall squarely within one of

four categories of subject matter. If a claimed invention

cannot be characterized and set forth with definiteness as a

(1) process, (2) machine, (3) manufacture, or (4) composition

of matter, then the subject matter of the claim is not eligible

for patenting.

Machines, manufactures, and compositions of matter are

clearly tangible, physical things. Similarly, patent-eligible

processes have historically been defined as consisting of one

or more tangible, physical steps, rather than intangible or

mental ones. This Court has so interpreted the term

“process” as it is used in the patent statute:

A process is a mode of treatment of certain materials to

produce a given result. It is an act, or a series of acts,

performed upon the subject matter to be transformed

and reduced to a different state or thing.

ite

Cochrane v. Deener, 94 U.S. 780, 788 (1877) (emphases

added).

One of the most learned 19th century commentators on

the patent law was equally explicit that an “art” or “process”

was a sequence of acts undertaken on physical or tangible

subject matter:

An art or Operation is an act or a series of acts

performed by some physical agent upon some physical

object, and producing in such object some change

either of character or of condition. It is also called a

‘process,’ ....

William C. Robinson, The Law of Patents for Useful

Inventions, § 159 (1890). Patent law has consistently used

the terms “process” and “art” interchangeably.”

The requirements for physicality and tangibility of what is

being claimed, even if claimed as a “process,” have been part

of the patent statute from the very beginning of the U.S. law

on patenting. In the 1790 Patent Act, Congress used

different words to limit subject matter eligible for patenting

with precisely the same effect as in today’s section 101.

Under the 1790 patent law, patents were to be available only

for an “art, manufacture, engine, machine, or device, or any

improvement therein.” Act of Apr. 10, 1790, ch. 7, § 1,

1 Stat. 109.

The 1793 Patent Act shortened the statutory listing to “art,

machine, manufacture or composition of matter,” a

formulation that — with the clarifying definition of the term

“process” in 35 U.S.C. § 100(b) — has survived unchanged to

the present day. Act of Feb. 21, 1793, ch. 11, § 1, 1 Stat. 318.

From 1790 to the present day, patent statutes have

? 35 U.S.C. § 100(b) states that “‘process’ means process, art or

method.”

és

consistently provided that patents can issue only for physical

and tangible things — or processes for manipulating such

physical, tangible things. Thus, section 101 requires that

products eligible for patenting must be tangible and physical

things or processes carried out on tangible and physical

things.

2. The Jurisprudential Foundations of the Federal

Circuit’s Decision Failed to Recognize or Apply the

Requirements for Patent Eligibility Under Section

101.

In order to fully address the infringement issue in this

appeal, this Court would well-serve the patent system by

correcting the Federal Circuit’s jurisprudence relating to

section 101. This is appropriate because patent-eligibility

under section 101 was foundational to its holding on the

section 271(f) issue in this case.

The Federal Circuit has taken views that appear on their

face to be inconsistent with the requirement that patented

inventions themselves must be physical and tangible. It has

treated the four statutory categories for subject matter

eligibility as more illustrative than definitive. It has cited the

concreteness of the utility of the patented subject matter as

sufficient evidence of its eligibility for patenting. The

Federal Circuit has also moved the question of subject matter

eligibility for patenting away from a focus on the claimed

invention itself by emphasizing the role of other factors

relating to patentability. The court’s deviation from the

words of the patent statute is best captured in this passage

from its 1998 State Street Bank decision:

The question of whether a claim encompasses statutory

subject matter should not focus on which of the four

categories of subject matter a claim is directed to —

process, machine, manufacture, or composition of

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matter — but rather on the essential characteristics of

the subject matter, in particular, its practical utility.

Section 101 specifies that statutory subject matter must

also satisfy the other “conditions and requirements” of

Title 35, including novelty, nonobviousness, and

adequacy of disclosure and notice. For purpose of our

analysis, as noted above, claim | is directed to a

machine programmed with the Hub and Spoke

software and admittedly produces a “useful, concrete,

and tangible result.” This renders it statutory subject

matter, even if the useful result is expressed in

numbers, such as price, profit, percentage, cost, or loss.

State Street Bank & Trust Co. v. Signature Fin. Group, Inc.,

149 F.3d 1368, 1375 (Fed. Cir. 1998), cert. denied, 525 U.S.

1093 (1999) (citation omitted).

The Federal Circuit’s State Street Bank opinion provided

the foundation for its subsequent decision in Eolas Techs.,

Inc. v. Microsoft Corp., 399 F.3d 1325 (Fed. Cir.), cert.

denied, 126 S. Ct. 568 (2005). The Eolas court held that

computer software code by itself represented patent-eligible

subject matter. In its decision in the present case, the Federal

Circuit relied explicitly on Eolas to support its conclusion

that software code necessarily can qualify as a component of

a patented combination under a section 271(f) infringement

analysis:

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

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

was answered in the affirmative in Eolas Techs. Inc. v.

Microsoft Corp., which issued while the instant appeal

was pending. In that case, we held that “[w]ithout

question, software code alone qualifies as an invention

eligible for patenting,” and that the “statutory language

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 purposes of § 271(f).

AT&T Corp. v. Microsoft Corp., 414 F.3d 1366, 1369

(Fed. Cir. 2005) (citations omitted).

Contrary to Eolas, software code by itself is not patent-

eligible subject matter under section 101. Software code

(commonly known as “object code”) is universally

understood as being a sequence of binary values that is

commonly represented as a series of “zeros” and “ones.” Its

alter ego is so-called “source code” that is written in a

human-intelligible computer programming language.” Thus,

what the “object code” encodes is a set of instructions

(information) that can be recognized by a digital computing

machine. Through the computing machine’s recognition of

the object code, the computing machine’s functioning is

directed.

Software, whether machine-recognized “object code” or

human-intelligible “source code,” is — in and of itself —

simply information. It is instructions or directions. It is

clearly not a “process, machine, manufacture, or composition

of matter” under section 101 any more than it would have

been an “art, manufacture, engine, machine, or device” under

the 1790 Patent Act.

The Federal Circuit, therefore, contradicted the patent

statute when it reached its Eolas conclusion that software

code alone could be subject matter eligible for patenting.

Although the Federal Circuit correctly took notice of the fact

that software code can produce “useful, concrete and

tangible results,” it ignored the explicit section 101

requirements that preclude issuing or maintaining a patent on

results, however useful, tangible and concrete, as opposed to

products and processes.

> See Petitioner's Brief at 1, 3-5.

efin

Section 101 completely refutes the notion that Congress

permitted an invention to be patented simply because the

inventor could point to a useful, concrete and tangible result

produced by an invention. It is the invention itself as set out

in the claim in the patent that must be tangible and physical,

as must — in the case of a combination — any of its discrete

elements.

The jurisprudential foundations of the present case, which

include the erroneous State Street Bank framework for

deciding issues of subject matter eligibility for patenting and,

more especially, the Eolas holding that software code alone

qualifies as an invention eligible for patenting, clearly

conflict with section 101 and led to the wrong decision in

this case. To resolve this case, therefore, this Court should

specifically disavow the analytical framework in State Street

Bank, which can be wrongly construed to support patent-

eligibility for software code and other intangible subject

matter so long as it produces “concrete results.” This Court

should hold that Congress, while making eligible for

patenting anything under the sun made by man through

expansive and inclusive language,* has for more than 200

years consistently limited what can be patented to physical

and tangible things, not intangibles that might produce some

“useful, tangible, and concrete results.” Finally, because

software code is not in and of itself subject matter eligible

for patenting, it does not automatically follow, as the Federal

Circuit has held in Eolas, that it can represent a “component”

under section 271(f) of a patented combination.

* This Court has properly construed § 101 broadly, noting that

Congress intended statutory subject matter to “include anything under the

sun that is made by man.” See Diamond v. Chakrabarty, 447 U.S. 303,

309 (1980) (quoting 82d Cong., 2d Sess., 5 (1952); H.R. Rep. No. 1923,

82d Cong., 2d Sess., 6 (1952)).

on

B. Software Code Cannot Represent a “Component” of a

Claim Directed to a Combination of “Elements.”

When an invention is claimed as a combination of

elements, as most are, the patent statute requires that each

such element itself must be physical and tangible. This

limitation exists because 35 U.S.C. § 112, sixth paragraph,

requires that the individual claim elements of combinations

must be limited to specific structures, materials or acts.

Thus, even if section 101 did not so require, every invention

expressed as a combination of elements must be physical and

tangible because section 112 commands that each of its

constituent elements must be structures, materials, or acts.

The provisions of section 112, sixth paragraph, state:

An element in a claim for a combination may be

expressed as a means or step for performing a specified

function without the recital of structure, material, or

acts in support thereof, and such claim shall be

construed to cover the corresponding structure,

material, or acts described in the specification and

equivalents thereof.

(emphases addea) !n this paragraph, Congress dealt with the

situation in which an inventor of a combination of discrete

elements seeks to describe one or more of the elements in a

claim of a patent wholly in terms of the function to be

pefformed by the element or elements.

A claim element of this type is commonly referred to as a

“means-plus-function” element where the claimed

combination represents a product (machine, manufacture or

composition of matter) or a “step-plus-function” element

where the claimed combination represents a process. Under

section 112, sixth paragraph, a means-plus-function or step-

plus-function element, although failing to explicitly set out a

specific structure, material, or act in the claim itself, will

nonetheless be limited to the corresponding structures or

-10-

materials or acts described in the patent specification and the

equivalents thereof. The terms “structure” and “material”

relate to inventions claimed in terms of a product, while the

term “acts” relates to inventions claimed as processes. O. /.

Corp. v. Tekmar Co., Inc., 115 F.3d 1576, 1582-83 (Fed. Cir.

1997) (“In this paragraph, structure and material go with

means [products], acts go with steps [processes].”).

The plain meaning of section 112, sixth paragraph, is that

a discrete element of a claim to a combination must either be

set out as something tangible and physical (i.e., a structure,

material or act), or, if it is expressed as a means or step for

performing a specified function, then it will nonetheless be

interpreted as something tangible and physical, ie., the

structure, material, or acts described in the specification or

equivalents thereof. Either way, each and every element in a

claim to a combination can only be subject matter that is

tangible and physical.

The remaining inquiry in this case, then, involves the

relationship between the “components” of a claimed

combination and the constituent “elements” of the claimed

invention. In particular, must the component or components

of a patented invention that is claimed as a combination of

elements necessarily also be tangible and physical for the

purposes of determining infringement under section 271(f)?

The Federal Circuit’s erroneous holding that software

code by itself was patent-eligible permitted it to avoid

addressing the relationship between the terms “elements”

and “components.” More importantly, it meant that the

Federal Circuit could avoid grappling with the actual claims

of the patent and any analysis of the discrete elements of the

claimed combinations.

Claim 24 of the patent in suit is both illustrative and

representative of the patent claims. Claim 24 can be parsed

into its constituent elements as follows:

sas

24. Apparatus for encoding a speech pattern

comprising

[1] means for partitioning a speech pattern into

successive time frames;

[2] means responsive to the frame speech pattern for

generating for each frame a set of speech parameter

signals;

[3] means responsive to said frame speech

parameter signals and said frame speech pattern for

generating a signal representative of the differences

between said frame speech pattern and said frame

speech parameter signal set;

[4] means responsive to said frame speech

parameter signals and said differences representative

signal for generating a first signal corresponding to

said frame speech pattern;

[5] means responsive to said frame speech

parameter signals for generating a second frame

corresponding signal;

[6] means for generating a signal corresponding to

the differences between said first and second frame

corresponding signals; and

[7] means responsive to said frame differences

corresponding signal for producing a third signal to

modify said second signal to reduce the frame

differences corresponding signal.

The seven discrete elements of claim 24 are each

expressed in the means-plus-function format that is permitted

under section 112, sixth paragraph.° Under the provisions of

* Claims 10~18, 24-31, 33-36, and 40-41 of the patent at issue are all

subject to section 112, sixth paragraph, as claims set out in a “means-

plus-function” format. The remaining 20 claims are process claims that

-12.

section 112, sixth paragraph, each of these seven discrete

elements is limited to specific, corresponding structures,

materials, and acts set out in the patent specification and the

equivalents thereof.

If the Federal Circuit had not short-circuited its analysis

by concluding that software code itself was patent-eligible

subject matter, its inspection of the patent claims would have

led it to conclude that software code by itself could not have

formed any one of the discrete elements of the combination

claimed in the patent. The reason it would have made such a

conclusion is that, as discussed above, software code by

itself is neither a structure, a material, nor an act, as each

discrete element of the claims to a combination must be.

The only remaining question for the court would have

been whether the term “component” with respect to a

combination under 271(f) could have a different meaning

from the term “element” used in section 112, sixth

paragraph. While it might be possible to marshal an

argument that a component might consist of one or more

elements, it is not possible to support a contrary contention —

an element certainly cannot be subdivided into components

though any stretch of the patent laws.

First, there is no basis for concluding that, in enacting

section 271(f), Congress intended that a single component of

a patented combination would be anything different from —

most particularly anything lesser than — a discrete element of

a patented combination. In particular, Congress provided no

framework for parsing a claim into components in any

manner differently from parsing the claim into elements.

Second, nothing in the patent statute provides any basis

for concluding that, having explicitly set out the

requirements for claiming a combination of elements,

are not on their face set forth in a “step-plus-function” format.

ott.

Congress intended a different formulation for determining

the discrete components forming the claimed combination.

Indeed, a holding that the “components” of a claimed

combination should be ferreted out by subdividing the

discrete elements of that combination would only succeed in

making the law of patent infringement under section 271(f)

hopelessly uncertain and unpredictable. This would be the

last thing that Congress could have intended in crafting a

provision defining the infringement of a patent.

Furthermore, the terms “element” and “component” are

linguistically synonymous. An “element” is commonly

understood as a “fundamental, essential, or irreducible

constituent of a composite entity,”® or “a constituent part” or

“a distinct part of a composite device.”’ A “component” is

either the same (e.g., a “constituent element, as of a system”

or “a constituent part”) or very nearly so (e.g., a “part of a

mechanical or electrical complex.”*)

Finally, the Federal Circuit has interpreted the term

“element” to be either synonymous with or representative of

a subset of a “component” (but never vice versa) for the

purposes of interpreting other issues of patent infringement:

““Element’ may be used to mean a single limitation [in a

patent claim], but it has also been used to mean a series of

limitations which, taken together, make up a component of

the claimed invention.” Corning Glass Works v. Sumitomo

Elec. U.S.A., Inc., 868 F.2d 1251, 1259 (Fed. Cir. 1989).

In light of the entire statutory framework for patents,

6

http://www_answers com/topic/element (last visited Dec. 14, 2006).

. http://www.merriam-webster.com/dictionary/element (last visited

Dec. 14, 2006).

* _ http://www.merriam-webster.com/dictionary/component _ (ast

visited Dec. 14, 2006) or http://www.answers.com/topic/component (last

visited Dec. 14, 2006).

sit.

therefore, the “elements” and “components” of patented

combinations must be parsed in an identical fashion. The

conclusion that the terms “elements” and “components” have

synonymous meanings under the patent law is necessary not

only in view of the plain meaning of the terms themselves,

but also because this is the only logical implementation of

Congress’ intent in the use of the term “component” in

section 271(f). It necessarily follows that each component of

that combination must likewise be tangible and physical.

A proper analysis under the patent statute disqualifies the

Microsoft software code by itself as being a discrete

component of the patented combination because software, by

itself, is not tangible or physical. The supply of the software

code itself cannot, therefore, actively induce the

infringement of a patent under section 271(f).

C.The IT Industry’s Complaints Against the Patent

System Are Partly Attributable to Failure of the

Lower Courts to Rigorously Apply Sections 101 and

112 of Title 35.

The facts of this case provide especially compelling

policy reasons for this Court to clarify that patenting of

inventions must be reserved for subject matter that is

tangible and physical and, most particularily, where the

invention can be characterized as a combination of elements

or components, such discrete elements or components must

themselves be tangible and physical things.

Petitioner Microsoft and many other companies in the

information technology (“IT”) industry are members of a

group that has taken the name “Coalition for Patent

Fairness.” This group has described a wide-ranging set of

problems that its members assert they experience with the

patent system. The Coalition and its members are seeking

legislative redress, including sweeping changes to U.S.

P

patent law. One aspect of the redress they seek is legislation

that would repeal section 271(f) outright.

A prime complaint that Microsoft and other Coalition

members have with the current operation of the U.S. patent

system is the lack of appropriate notice. They cite the

difficulty in identification of adversely owned patents of

potential relevance to the products and services that come

from their respective research and marketing efforts. Their

search for greater certainty in the patent system has

undeniable validity - identifying potentially infringed

patents relevant to a new product offering should not be a

Magical Mystery Tour for the potential infringer.

It is apparent that Microsoft and the members of this

Coalition believe that the serious problems arising from such

occult patenting must be addressed:

[W]hen a business is developing a new product, it

often is extraordinarily difficult — notwithstanding the

business’s best efforts — to identify all of the existing

patents, let alone pending patent applications, that may

be relevant to each of the components that make up

that new product. This problem is compounded by the

fact that patent holders’ subsequent infringement

claims sometimes bear little relation to the invention

described in the patent and therefore cannot be

anticipated by the potential defendant.”

Without question, patents containing claims to subject

matter that is ephemeral and abstract, rather than clearly

identified as physical and tangible, complicates the ability to

identify those patents that may be relevant to making the

* “The Patent Reform Act of 2006, S. 3818, Enhances Innovation and

Promotes Economic Growth,” p. iI, at

http://www.patentfairness.org/CPF_White%20paper®o20v3 pdf (last

visited Dec. 14, 2006).

- 16-

commercial decisions to bring new products or services to

market.

Limiting patenting to what Congress dictated via

35 U.S.C. §§ 101 and 112 can be eligible for patenting will

squarely address the concerns of Microsoft and the IT

industry with regard to the ability to understand patents and

identify the relevance of what is being claimed. Claim 24 of

the AT&T patent provides a proverbial “poster child” for the

concerns of the Coalition for Patent Fairness as they relate to

the inability to identify potentially infringed patents.

Because inventors are permitted by Congress to set out a

claim entirely in the form of a series of means for performing

a set of functions, it is particularly important to require that

each such element of those claims relate to an identifiable

structure, material, or act for carrying out the described

function set forth in the claim itself or identified in the patent

specification. If the discrete elements of a claim can consist

solely of information, and the content of the information is,

in turn, identified only by its function when put to some use,

understanding the nature of what has been patented becomes

much more difficult.

The consequence of errant Federal Circuit rulings on what

is eligible for patenting has in large measure produced — or at

least seriously exacerbates — the concerns expressed by the

Coalition for Patent Fairness. The consequence of reversing

this errant jurisprudence of the Federal Circuit would at a

minimum substantially dilute such concerns. If this Court

clarifies that each element in a claimed combination must be

tied to a specific structure, material, or act —- either one

expressly set out in the claim or identified in the patent

specification — the task of identifying patents that will be of

relevance to a product could be remarkably simplified. What

is being patented should be identified with more specificity

than just that it is a set of machine-recognizable instructions

for carrying out some desired function.

. -

The Coalition for Patent Fairness is not the only entity

raising concerns over patenting in the information

technology industry sector. While the Coalition has

identified the problems with fully understanding the import

of individual patents, other commentators have noted that

such problems with individual patents are magnified when

such patents are sought and issue in the thousands and tens

of thousands, year after year, thereby creating so-called

“patent thickets.”'® By permitting individual patents to issue

that overreach the subject matter eligibility constraints on

patenting, the collective impact of the creation of “thickets”

of such patents in an affected area of technology creates the

possibility of patent overprotection beyond anything

envisioned by Congress in enacting rigorous requirements

for patenting.

The aggregate impact of patent overprotection has been

examined in a recent report published by the Council on

Foreign Relations. This report characterizes overprotection,

including the development of alleged “patent thickets” as a

possible threat to the Nation’s economic well-being:

America’s robust economic competitiveness is due in

no small part to a large capacity for innovation. That

Capacity is imperiled, however, by an increasingly

overprotective patent system. Over the past twenty-

five years, American legislators and judges have

operated on the principle that stronger patent

protection engenders more innovation. This principle

is misguided. Although intellectual property rights

(IPR) play an important role in innovation, the recent

‘© The term “patent thicket” has been used to describe the

proliferation of patents impacting some areas of technology. Carl

Shapiro, Navigating the Patent Thicket: Cross Licenses, Patent Pools,

and Standard-Setting (March 2001), at //ssrn.com/a =273550

(last visited Dec. 14, 2006).

-18-

increase in patent protection has not spurred ini.ovation

so much as it has impeded the development and use of

new technologies.''

Objective evidence that “overprotection” may be at work

in the information technology industry sector is difficult to

find. In its absence, however, empirical evidence

demonstrates an order of magnitude difference in patenting

in the IT industry sector compared to other high-technology

industry sectors, notably the pharmaceutical industry. As an

example of the comparative patenting intensity in relation to

research and development expenditures, Microsoft expended

$6 billion on R&D in its fiscal year 2005 ending on June

30.'2 During 2005, the United States Patent and Trademark

Office issued a total of 750 patents to Microsoft.’ By

comparison, Amicus Eli Lilly and Company expended $3

billion on R&D during 2005 and was issued 48 patents —

one-half of Microsoft's R&D expense, but one-fifteenth

fewer issued U.S. patent ."*

Comparable data for other leading companies in these two

high-technology industry sectors appears to confirm an order

of magnitude greater intensity of patenting for information

' Keith Maskus, Reforming U.S. Patent Policy: Getting the

Incentives Right, CSR No. 19, Council on Foreign Relations, p. 3, at

www cfr org/content/publications/attachments/PatentCSR.pdf (last

visited Dec. 14, 2006).

. Microsoft Corporation Annual Report, Fiscal Year 2005 at

. ft/ °

ml (last visited Dec. 14, 2006).

’ es 300 Organizations Granted U.S. Patents : 2005, at

conten (last visited December 14, =

* Eli Lilly and Company Annual Report, 2005, p. 1, at

Organizations Granted U.S. Patents in 2005, id

-19-

technology companies: '*

Information Technology Pharmaceutical

IBM 2941 Pfizer 389

Hewlett-Packard 1808 Johnson & Johnson 379

Micron 1561 Bayer 176

Intel 1549 Sanofi-Aventis 145

Texas Instruments 734 Bristol-Myers Squibb 113

Sun Microsystems 715 Merck 100

At least part of this apparent difference in the pattern of

patenting may be attributable to the ability (under current

Federal Circuit jurisprudence) to obtain patents by skirting

the statutory requirements under either or both of sections

101 and 112.

If such overreaching and overprotection are creating the

adverse consequences noted in recent reports and analyses,

the overreaching and overprotection phenomena could be

addressed by this Court holding that section 101’s subject

matter eligibility requirements, as set out by Congress in the

present patent statute and in each of its predecessors for over

200 years, must be rigorously observed - claims and their

constituent elements must be directed to tangible and

physical subject matter.

IV. DISPOSITION BY THIS COURT

Amicus Eli Lilly and Company, therefore, asks that this

Court declare the following:

(1) While Congress intended that anything under the sun

made by man is eligible for patenting, it has limited patent-

eligible subject matter to what is physical and tangible. This

'* Top 300 Organizations Granted U.S. Patents in 2005, id.

-20-

rule excludes patenting software and software code alone,

but does not bar from patent-eligibility tangible inventions

expressed as novel computing machines.

(2) It is not sufficient for patent eligibility that the

subject matter claimed in a patent produce a concrete, useful

and tangible result; the patented subject matter must itself be

concrete, useful and tangible.

(3) Subject matter that is not itself eligible for patenting

cannot represent a component of a combination invention

under 35 U.S.C. § 271(f) because each such component must

itself be a concrete and tangible entity, i.e., each component

must represent something that is or could be expressed as a

claim element that is expressly defined as a structure,

material, or act, or that would be so limited under the

provisions of 35 U.S.C. § 112, sixth paragraph

CONCLUSION

The ruling of the Court of Appeals for the Federal Circuit

should be reversed because it conflicts with the plain

meaning and purpose of sections 101 and 112 of the patent

Statute.

Respectfully submitted,

Robert A. Armitage

James J. Kelley

Counsel of Record

Eli Lilly and Company

940 South East Street

Indianapolis, IN 46225

(317) 277-8110

December 15, 2006