February 21, 2007 12:25 PM PST

High court wrestles with software patent questions

WASHINGTON--Wading into a complex spat between Microsoft and AT&T, U.S. Supreme Court justices on Wednesday voiced skepticism with a prior reading of patent law that American software companies argue could place them at a global disadvantage.

The conflict centers on part of a U.S. statute that restricts American companies from shipping "components" made in the United States to foreign manufacturers, which could combine them to make a machine that infringes on U.S. patents. The statute does not stop them from sharing design plans that would spawn an identical product.

The U.S. software industry fears that a ruling against Microsoft could expand its vulnerability in patent infringement suits compared to global rivals and make it more attractive to locate its research operations abroad. AT&T, on the other hand, says software companies need only worry if they're committing infringement in the first place.

During hour-long oral arguments, some justices pressed AT&T attorney Seth Waxman, a former Solicitor General of the U.S. Department of Justice, to explain why Microsoft is supplying anything more than a blueprint when it ships software object code on "golden master discs" to foreign manufacturers for duplication and installation on individual machines.

"A machine in Europe is following instructions just the way an artisan would follow a blueprint," Justice David Souter said to Waxman. "What's the difference?"

There's "no question" that the master disc is more than a set of instructions, Waxman repeatedly asserted. He argued that it is a critical component that "interacts continuously with the hard drive" of any computer system that infringes on an AT&T patent covering a digital speech-coding technology.

Microsoft has conceded in earlier stages of litigation that its Windows object code, when copied and installed onto computers, leads to infringement of AT&T's patent. It has said it is willing to pay undisclosed damages based on sales of U.S. computers that commit such a violation.

But the software company, backed by the U.S. government, among others, disagrees with lower federal-court rulings that found it liable for foreign computers that infringe on the patent. Microsoft contends that all it provided to foreign manufacturers was a master disc that never became a physical "component" of any machine. Rather, the master disc acted as a sort of blueprint, copied and installed by manufacturers on foreign turf, argue Microsoft and its allies in the case, which also include Intel, Amazon.com, Yahoo, and free- and open-source developers.

If the high court sides with AT&T, "U.S. companies will be held liable for patent infringement whenever their products are copied abroad," and that's not what Congress intended, argued Theodore Olson, who served as solicitor general after Waxman and currently represents Microsoft.

Justice Stephen Breyer said he feared that a ruling in favor of AT&T would open the doors to patent infringement allegations so expansive that "transmission purely of information" could be considered a violation.

"I would be quite frightened of deciding for you and discovering vast numbers of inventions that can be thought of in the way you describe this one," he told Waxman.

Breyer suggested that if the court accepted AT&T's logic, it would be unlawful for an American to read the text of a patent claim over the phone to someone in a foreign country, who then decided to make the same product. Such a reading of the law "can't be right," he said.

Some justices, however, seemed to question Microsoft's distinction between the master discs it ships and the copies of code actually installed on computers by other companies.

"Microsoft doesn't say, please buy our discs because they're the prettiest discs in the business," Justice Anthony Kennedy said.

"Isn't this an artificial distinction?" Justice Samuel Alito asked Olson. He said he had gotten the impression that the previous courts ruled that Microsoft owed damages on its foreign sales because "it is so easy and inexpensive and fast to copy (software code) that simply sending information abroad is tantamount to making copies overseas."

Olson cautioned Alito against relying on such reasoning. "Patent laws can't be determined (based on) whether it's easy or fast or efficient to copy something," he said. "Where would that take us?"

The justices devoted only passing attention to another question raised by Microsoft in its appeal--the extent to which software should be patentable. Free- and open-software advocates had hoped that the case might provide a forum for the Supreme Court to take a stand on the issue and declare outright that software cannot be patented.

"We're operating under the assumption that software is patentable...but we've never held that in this court, ever," Breyer said, addressing attorney Daryl Joseffer, assistant to the solicitor general. "What should we do here?"

Joseffer insisted that the issue of software patentability is irrelevant to the case at hand. More important, he said, is clarifying that American companies cannot be held liable for copies of software or other machine parts made in another country, or they'll be at a serious disadvantage to their global rivals. "We haven't found a single country that would apply its laws in the same way," he told the justices.

Chief Justice John Roberts did not participate in the hearing, reportedly because he has disclosed in financial statements that he owns Microsoft stock. Because Microsoft lost at the lower-court level, it would need five justices on its side to prevail. A tie would result in a win for AT&T. A decision is expected by July 2007.

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The MOST important case before the court to date for software developers
Here's a riddle, see how smart you are:

IF MS loses this case, consider the following:

a student studies, in the US, a patented or patent pending (unbeknownst to her) algorithm as a past of her graduate or even under grad course. OF course she needs to know what's going on today in algorithms, right?

She then goes home to her native country.

Question - is she employable?

Answer - no, absolutely not, she's radioactive and no employer will touch her.


She is the means of transmission of a patented algorithm back to her country, simple as that. The patent holder can and will assert that the company who employs her violated the patent by using her to do development. If it's an American company, like M$, then they will be liable for everything she writes.

Furthermore, it will incumbent upon American companies overseas to KNOW BEFORE HIRING that the employee-candidate has NO forbidden fruit in their head, and obviously, it will be impossible to know "where the candidate has been" and what ideas they may have had contact with.

This is all a perfectly natural and inevitable consequence of permitting software patents.

So don't permit them.

EU- this is your chance to crush the US software makers. If M$ loses, they're toast. Students will think twice about studying in the US and employers will think thrice about employing them. Every bit of code will have a barnacle of bloodsucking lawyers attached to it such that code and ideas moves through the ideosphere in the US like a fly through molasses. Meanwhile, it's still 1990 in the EU and software gets better, cheaper and sprouts yet more industries and employment.

This is it EU, go for it.
Posted by asdf (241 comments )
Reply Link Flag
Déja vu
So this time is for real, MS is REALLY going down. Yeah, it must be the 257th time I hear someone saying that. Yet, every year passes, every year MS's profits grow...
Welcome to planet Earth, pal.
Posted by Fil0403 (1303 comments )
Link Flag
The worst scenario for MS ...
The worst scenario for Microsoft in this case is that they move a few miles to the north ...

It happened in the past. People that were not satisfied with what their country's laws allowed them moved elsewhere. MS might name this transfer "Operation Mayflower"...
Posted by hadaso (468 comments )
Reply Link Flag
Kennedy accidnetally says source is not violating and Waxman agrees!!
I especially love this:

JUSTICE KENNEDY: But suppose, suppose you had a machine that makes another machine, and if you ship that machine to Europe -- and there's a patent for the machine that makes it. If you ship it to Europe and it starts making another machine, the statute is not violated; and isn't that just what's happening here?

Actually, that is exactly what happens when source code goes to object code. A machine, the compiler, makes another machine, called object code through the mechanism of reading source code. So Kennedy has, quite accidentally, declared that sending source code overseas , where it is then compiled into objct code and distributed to NOT be violating the statute:

Waxman is falling all over himself to declare that that is NOT what is going on:

MR. WAXMAN: No, no, no. This is not a machine tool. The thing that was violated, the machine readable object code, is precisely what is installed on
the computer and precisely what is moved from one part of the computer to another in different forms as the computer operates and it continually instructs.

That is just hilarious. So object code is in violation, but source compiled overseas is not. I will keep that in mind. I have to go tell my friends.
Posted by asdf (241 comments )
Reply Link Flag
So then...
If we ship source overseas, have it compiled there, run it via a web
app, and use the results back here, has any infringement occurred?
I think I'll patent that system and method.
Posted by billmosby (536 comments )
Link Flag
Serves them right
They both take advantage of one of the most dubious claims to IP - patents, and now they don't like it when it hurts their own business.

Patents are a total crock of crap. If you can't make the product and copyright that invention, then you don't have an invention, you have an idea.

Software patents in particular are the worst of the lot, as they often include code that should firmly belong in the public sector - in the same way that you can't patent common language words, you should never be allowed to patent common use code.

And for the most part, the beneficiaries of patents are the worst kind of greedy corporate. Using their monetary advantage to grab designs and ideas they have no intention of producing - knowing that in order for certain products to be made, their patents must be used, and therefore royalties paid.

The idea that the small inventor is the main loser if patents go away is crap. If the inventor doesn't have to deal with large companies stealing his or her ideas through patenting their inventions before they can afford to do so, then they have time to seek financial backing to produce their designs and copyright them.

If they can't do so, I don't particularly care, because world can get along quite happily without all the crap thrown at us be late night infomercials. Ooooh no, we'll lost all those products that can slice eggs sideways and at the same time fry an orange, or give us a wonderful new way of sucking up my dog's ear wax. Imagine a world with no way for trailer trash to bedazzle jeans or life without new versions of fake jewelery. What would we do? How could we survive without Orangtastic boom gloop? What would we do without magic leather repair kits or how to print a Word document DVDs?
Posted by ajbright (447 comments )
Reply Link Flag
This is so sticky and horrible I can't watch
Sad it's come to this state of affairs.

Is the US Supreme Court asking MICROSOFT for it's legal opinion?!

This administration has coddled Business to the "Free: Market's,
and consumer's detriment.
Posted by technewsjunkie (1265 comments )
Reply Link Flag
That is so ignorant and biased I can't avoid to reply
Sad there are still ignorant people like you.

Is it your opinion that Microsoft doesn't have the right to be heard and defend itself in the world's biggest democracy (A.K.A. USA)?

Short-minded people like you keep thinking free is the way, when no one must have told you that, in the real world (this one), you get what you pay for.
Posted by Fil0403 (1303 comments )
Link Flag
That is so ignorant and biased I can't avoid to reply
Sad there are still ignorant people like you.

Is it your opinion that Microsoft doesn't have the right to be heard and defend itself in the world's biggest democracy (A.K.A. USA)?

Short-minded people like you keep thinking free is the way, when no one must have told you that, in the real world (this one), you get what you pay for.
Posted by Fil0403 (1303 comments )
Link Flag

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