An interesting post from Dennis Crouch's Patently-O site on a case between MSFT and AT&T pending certiori to the Supreme Court. Supreme Court Likely to Hear Transnational Patent Law Dispute. The case basically questions whether Section 271(f) of the Patent Act covers damages based on foreign sales (by MSFT) of software components exported from the US that infringe on a US patent (belonging to AT&T). Crouch suggests the important implication that if American firms are liable for overseas sales, this may cause important R&D jobs to move to foreign research centers (if a firm creates infringing software components overseas they did not export it from under the jurisdiction of US patent law).

The current situation differs from recent MSFT legal interactions with the US patent system, as its now arguing not about the interpretation of any particular patent, but of a general reading of patent doctrine. Consequently, because MSFT may have to live with the policy implications of its own arguments in coming years as a major patenting firm rather than simply risking damage payments to a counter-litigant, MSFT probably had a top notch patent team determine how Section 271(f) could affect the long term IP strategies of the company. Fortunately, it appears MSFT's views against AT&T have solid basis. Based on Crouch's comments and the DOJ's amicus, MSFT's position in this case aligns with the general interests of American companies.

But lets consider for a moment that MSFT, as a patent licensing power, by arguing against coverage of foreign sales by Section 271(f), may be curbing revenue from licensing its US patents to overseas firms. Thus my first reaction was that MSFT should try to lose the case, cut AT&T as a loss, and put more projects in its extensive network of foreign R&D centers. Or, MSFT may be avoiding follow-on litigation of similar cases and exhorbitant damages from them; it probably figures these would far exceed the costs of applying for patents and licensing them from foreign jurisdictions.

Excerpts from Crouch:

The DOJ and PTO have given their solid support to Microsoft’s petition for certiorari in its battle over transnational patent infringement. This support makes grant of the petition highly likely.

This case, ...questions the scope of Section 271(f) of the Patent Act. That statute allows a U.S. patentee to collect damages for foreign sales of a patented invention based on the export of one or more of its components from the U.S. Recently, the CAFC has expanded the common interpretation of the statute to include the export of software code (AT&T, Eolas) as well as to the export of elements used in a patented method (Union Carbide). In a case that is difficult to square with AT&T or Eolas, the court held that the “component” does not apply to plans or instructions.

In this case, Microsoft’s software code was generated in the U.S. and then shipped abroad where copies were then generated and distributed. AT&T claims (and courts have thus far agreed) that sales of those foreign copies infringe the U.S. patent and create liability...

From a business perspective, this interpretation of the statute gives business executives another reason to send software jobs overseas. If the component was not exported from the U.S., there will be no damages under 271(f).

In their brief supporting the petition, ...the DOJ ...agree(s) that software can be a component of a patented invention. They argue, however, that the foreign replicas do not create liability under the act because the replicas themselves were not supplied from the United States (as is required by the statute). According to the brief, the lower court’s interpretation “improperly extends United States patent law to foreign markets and puts United States software companies at a competitive disadvantage vis-a-vis their foreign competitors in foreign markets.”

The Government argues that the extraterritorial nature of U.S. patents should be narrowly construed and that if someone wants rights to stop foreign infringement, then they should get foreign patents.

posted by Noel Le @ 9:58 AM | International, Patents, Supreme Court

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