Supreme Doubts on Software Patents

Analysis: The Supreme Court this week had a chance to dig deeper into the issue of software patents as it resided over oral arguments in the patent case between Microsoft and AT&T.

The companies went before the high court with a relatively straightforward dispute: Is Microsoft violating U.S. patent law by sending master copies of Windows to foreign manufacturers for replication on computers made outside the United States?

Whether Windows is copyrighted or patented is simply not germane to the case. But that didn’t prevent the justices from asking whether software can be patented — even though they’re not ruling on it here.

Certain facts in the case are beyond dispute. The Windows code contains speech coding and decoding technology patented by AT&T. Microsoft pays royalties to AT&T for all U.S. copies of Windows.

Microsoft also ships the Windows object code — complete with the AT&T speech technology — to foreign companies. The code is then copied and installed on computers assembled and sold overseas, beyond the reach of U.S. patent laws. Microsoft pays no royalties to AT&T on those copies of Windows.

That amounts to patent infringement, AT&T contends, since U.S. law prohibits companies from compiling component parts of a U.S. patented invention for assembly overseas to circumvent U.S. laws. Nothing, AT&T argues, is more essential to the operation of a personal computer than the Windows operating code.

At issue is whether Microsoft’s master disk is a component part of the computers built overseas. Microsoft says no, since the master disk itself is not installed on any computers.

“What is patented?” asked Justice John Paul Stevens. “Is the physical object [master disk] patented or is the software patented?” And from Antonin Scalia: “You can’t patent…on-off, on-off code in the abstract, can you?”

Ruth Bader Ginsberg, noting that Microsoft contends the Windows code is nothing more than a blueprint, wanted to know, “Can a blueprint be patented? Can a mold be patented?”

The answer to all their questions? No.

“They asked the question even though that is not an issue in this case,” said Steve Lieberman, a patent litigation specialist for the Washington, D.C., law firm of Rothwell, Figg, Ernst & Manbeck. “The court is uncomfortable with the idea that things that are not physical can be patented.”

Although the court will not base its ruling on the software patents, Lieberman said it may very well make comments on the subject that “would influence how courts rule in the future.”

“Software by itself can’t be patented,” Lieberman said, a point both Microsoft’s and AT&T’s attorneys stressed to the court. “What software does in combination with something else, though, is well established as patentable. Windows is copyrighted, which covers the expression of the code. What is patented is what Windows can do in combination [with a computer].”

As for the actual case before the court, Lieberman said Microsoft is trying “to take advantage of the different metaphysical characteristics of software. The master disk is not part of what is sold or manufactured outside the United States.”

Or, as Microsoft general counsel Brad Smith said in a statement, “The law at the center of this case was intended to close a loophole that allowed companies to manufacture all the components of patented inventions in the United States, but avoid patent liability by assembling those U.S.-made components in other countries.”

Smith added that both the district court and appeals court rulings against Microsoft unfairly interpreted patent law.

“We believe that this law was applied improperly by the lower court to find liability based solely on computers manufactured overseas,” he said. “For that reason, we are asking the court to reverse the ruling of the lower court.”

AT&T argues in its brief filed with the court, “Microsoft’s object code is not just a component, but the key component of the foreign-made devices in terms of their ability to practice AT&T’s invention. Although that object code must be combined with physical components to form such a device, it is plainly a component of that device.”

Lieberman supports the AT&T point of view: “Software is probably the most important component in the Windows operating system. [Microsoft’s position] doesn’t make any sense.”

Nevertheless, based on the justices’ grilling of AT&T attorney Seth Waxman, Lieberman predicted, “The betting line would have to be on Microsoft [to win the case].”

Even if Microsoft loses, Congress is already conducting hearings on patent reform with an eye to removing the very ambiguities currently before the court in Microsoft v. AT&T.

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