Does US Patent Law have Extraterritorial Application?

The US Patent Act (title 35 U.S.C) is the legal framework for patent protection in the US.  The US Patent Act § 101 defines what is patentable in the US:  "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 therefore…" Section 271 of the US Patent Act sets the requirements for a valid cause of action on patent infringement.  Within section 271, literal (f) is one of the ones raising controversy because §271(f) seems to invite for extraterritorial application.  This article analyses § 271(f) of the US Patent Act in light of its most relevant court interpretation in AT&T v. Microsoft. 

The US Congress enacted section 271(f) after the decision on Deepsouth Packing Co. v. Laitram Corp.  In this case, defendant, a US corporation, was accused of patent infringement under the US Patent Act.  Yet, defendant was not found liable of patent infringement because even though it manufactured parts of the patented invention in the US, these parts were shipped overseas and assembled abroad.  Thus, no real patent infringement occurred in the US because manufacturing 'parts' of a patented invention in the US did amount to infringement as long as the parts were not assembled in the US territory. 

Currently 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 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 components 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.

 (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 substantial non-infringing use, where such component 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."
 

A simple reading of § 271(f), may infer that manufacturing 'parts' of a patented invention for a later assembly abroad may constitute infringement under the US Patent Act.  The next questions are how the US courts have interpreted the wording of § 271(f)?  Have US courts taken steps in deciding on the extra-territorial application of the law or have they left this sensitive issue to the US legislator?

AT&T Corp. v. Microsoft Corp., (414 F.3d 1366 (Fed. Cir. 2005), cert. granted, 127 S. Ct. 467 (U.S. Oct. 27, 2006)) is the US case that concretely addressed the interpretation of § 271(f).  AT&T was the holder of software patent 32,580 (a speech compression code).  Microsoft shipped a 'master copy' of this compression code abroad for later installation in Microsoft computers manufactured in foreign countries.  AT&T sued Microsoft for patent infringement under 35 USC § 271(f).   AT&T alleged Microsoft violated § 271(f) of the US Patent Act by supplying the master copy of its patented product to different countries and by installing copies in Microsoft foreign assembled products.   

Before the District Court, Microsoft alleged that the 'master copy' sent abroad were not a 'component' within the meaning of § 271(f) and the electronic transmission of the master copy abroad was just a mere 'intangible information' that could not amount to patent infringement under this section of the Patent Act.  The District Court held for AT&T and ordered Microsoft to pay damages.  Even though the damages issue was settled at this level, Microsoft reserved its right to appeal the District Court's interpretation of § 271(f).

On appeal, the court held that the master copy was a component within the meaning of § 271(f) because it was the actual software product that did not require further codification abroad.  Regarding the supply issue, the court held that sending (transmitting) a master copy of the software abroad via electronically means constituted 'supply' within the meaning of the statute and as envisioned by the US Congress. 

The Supreme Court granted certiorari on October 2006 and decided on April 30, 2007.  Before the Supreme Court, Microsoft reiterated its argument that the master copy did not constitute a 'component' within the meaning of § 271(f) and that the electronic delivery of the copy did not constitute 'supply' under the same section of the Patent Act. 

The Supreme Court held that the copies installed in computers assembled abroad were not 'supplied' by Microsoft 'from the US' according to the exact meaning of § 271(f).  The Supreme Court held:

  "Because Microsoft does not export from the United States the copies of Windows  installed on the foreign-made computers in question, Microsoft does not “suppl[y] . . .  from the United States” “com-ponents” of those computers, and therefore is not liable  under §271(f)as currently written."

First, the Supreme Court held that the master copy, agreeing with Microsoft, is not a component as required by § 271(f).  The Supreme Court's reasoning seems to suggest that an extra step or requirement is needed.  A combination or codification in the case of software of the components is required for the infringement.  "Combinable part of a computer; easy or not, the extra step is essential. Moreover, many tools may be used easily and inexpensively to generate the parts of a device. Those tools are not, however, “components” of the devices in which the parts are incorporated, at least not under any ordinary understanding of the term “component,”" the Court said.

Regarding the issue of 'supply' under § 271(f), the Supreme Court held that the copies installed in those foreign assembled computers were not shipped from the United States.  Indeed, those copies were "supplied from outside the United States."  The Supreme Court does not agreed with the Appellate court when it said that the act of copying is subsumed on the act of supplying. 

Thus, judgment was reversed.  Microsoft position prevailed under the shade of a legitimate argument against extra-territorial application of the US Patent Law.   This is the Supreme Court's statement regarding extraterritorial application of § 271(f):

 "Any doubt that Microsoft’s conduct falls outside §271(f)’s com-pass would be resolved  by the presumption against extraterritoriality. Foreign conduct is generally the domain  of foreign law, and in the patent area, that law may embody different policy judgments  about the relative rights of inventors, competitors, and the public. Applied here, the  presumption tugs strongly against construing §271(f) to encompass as a “component”  not only a physical copy of software, but also software’s intangible code, and to render  “sup-plie[d] . . . from the United States” not only exported copies of software, but also  duplicates made abroad. Foreign law alone, not United States law, currently governs the  manufacture and sale of components of patented inventions in foreign countries. If  AT&T de-sires to prevent copying abroad, its remedy lies in obtaining and en-forcing  foreign patents."