Background
AT&T held U.S. Patent No. 6,836,463 covering computer-implemented methods for processing and encoding speech — technology that AT&T contended was practiced by Microsoft’s Windows operating system. Microsoft shipped “golden master” discs of the Windows source code to foreign PC manufacturers, who then replicated the discs and installed the software on computers assembled abroad for sale outside the United States. AT&T argued that Microsoft was liable under 35 U.S.C. § 271(f), which extends patent liability to any party who supplies from the United States “components” of a patented invention for combination abroad into an infringing product.
The district court and the Federal Circuit both held that § 271(f) applied: Windows was a component of the patented speech-processing system, and Microsoft had supplied it (in the form of the master disc) from the United States for combination into foreign computers. Microsoft petitioned for certiorari, arguing that the Federal Circuit’s interpretation expanded § 271(f) far beyond its statutory text and intent.
The Court’s Holding
The Supreme Court reversed 7-1. The Court held that software code, as an abstract entity, is not itself a physical “component” that can be “supplied” from the United States under § 271(f). While the master disc shipped by Microsoft was a physical object, the relevant “component” for § 271(f) purposes was the software code installed on each foreign-built computer — and those copies were made abroad, not supplied from the United States. The statute requires that the patented component itself be supplied from the United States; copies made abroad from a master are foreign-made copies, not U.S.-supplied components.
The Court applied the presumption against extraterritorial application of U.S. law: absent a clear statutory statement, U.S. patent law does not reach foreign conduct. Microsoft’s liability under § 271(f) could only arise for copies of Windows installed on computers sold in the United States — not for the vastly larger number of foreign copies made from master discs sent abroad. The Court expressly left to Congress the question of whether § 271(f) should be amended to reach software shipped on master discs for foreign replication.
Key Takeaways
- Software, as abstract code, is not itself a physical “component” for purposes of § 271(f) — the copies of the software installed on foreign-made computers are foreign-made copies, not components supplied from the United States.
- Under the presumption against extraterritoriality, U.S. patent law does not reach foreign manufacturing steps unless Congress has clearly extended it to do so — and § 271(f) did not clearly reach the shipment of golden master discs for foreign software replication.
- The ruling has significant implications for the global software industry: companies that license software to foreign manufacturers for local installation are generally not exposed to § 271(f) liability for the foreign copies, even if the master disc originated in the United States.
- Congress has not amended § 271(f) in response to Microsoft v. AT&T, leaving the statute’s limited reach as confirmed by the Supreme Court as controlling law.
Why It Matters
Microsoft v. AT&T resolved a major open question about the reach of U.S. patent law in a globalized software economy. Before the decision, the Federal Circuit’s rule would have exposed any U.S. software company that distributed code globally — whether on disc or over the internet — to § 271(f) liability for the entire worldwide installed base of foreign installations. The Supreme Court’s narrower interpretation of § 271(f) substantially limited that liability to domestic sales and installations, enabling a more commercially rational approach to global software distribution.
The case also reinforced the broader principle that U.S. patent law has limited extraterritorial reach — a principle with continuing relevance as cloud computing, internet services, and global software distribution make it increasingly difficult to identify where a patented “use” occurs. For technology companies, the ruling confirmed that foreign software distribution and replication generally does not generate U.S. patent liability, unless Congress amends the statute to say otherwise.