US patent law is limited by Microsoft court case

The US Supreme Court has said that Microsoft cannot be punished for the breach of a US patent that takes place on foreign soil. The Court said that mass distributed software is not a ‘component’ eligible for US patent protection abroad.

Telecoms firm AT&T took Microsoft to court over a technology in its Windows operating system that converts speech to digital  information. Microsoft acknowledged the violation in the US, but the telecoms firm sought compensation for all copies of Windows sold abroad. As Windows runs on the vast majority of the world’s computers, Microsoft could have been found liable for a massive settlement, but the Supreme Court has ruled in its favour.

US patent law states that it does not apply to products made and sold in another country. There is an exception, which is for products whose components are supplied from the US for assembly abroad. “The question before us: Does Microsoft’s liability extend to computers made in another country when loaded with Windows software copied abroad from a master disk or electronic transmission dispatched by Microsoft from the United States?” said Justice Ruth Bader Ginsburg of the Supreme Court in its ruling. “Our answer is ‘No’.”

The court’s ruling hung on a technicality of the distribution of Microsoft’s products. It sends master copies of its software abroad to be duplicated under licence and installed on machines. The court found that because it was not the exact software it sent abroad but a copy of it that ended up on machines, there was no infringement: “The master disk or electronic transmission Microsoft sends from the United States is never installed on any of the foreign-made computers in question,” wrote Ginsburg. “Instead, copies made abroad are used for installation. Because Microsoft does not export from the United States the copies actually installed, it does not supply from the United States “components” of the relevant computers’, and therefore is not liable.”

AT&T had won its case in the District Court and the Appeals Court, but lost at the Supreme Court, with seven judges backing the verdict and one dissenting.

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