Microsoft patent case stirs software export fears

In unlikely combination, U.S. government and advocates of free and open-source software are backing Microsoft in patent spat with AT&T.

It's not every day that both the U.S. government and advocates of free and open-source software align themselves in court with Microsoft.

But a high-stakes patent case, set to be argued before the U.S. Supreme Court on Wednesday morning, has attracted a slew of briefs supporting the Windows maker's stance in a complex battle with AT&T over rules governing software code exported to foreign locales.

The question boils down to whether American software makers are required to pay up for infringing on U.S. patents based not only on the number of software copies they supply on their home turf, but also on copies that foreign manufacturers make abroad.

"At its best, it amounts to a tax or surcharge on American-made software, which potentially puts U.S. software houses at a disadvantage with respect to their foreign competitors."
--Dick Turner, law partner, Sughrue Mion

An obscure section of federal patent law prohibits American companies from shipping boxes of parts to foreign manufacturers that could combine them to make a machine that infringes on U.S. patents. It does not, however, restrict sending blueprints that could theoretically prompt a foreign company to concoct an identical product. Those siding with Microsoft argue that the "golden master" disks shipped abroad, containing software to be copied and installed on computers there, are mere blueprints, immune from patent liability.

There's widespread fear that a loss for Microsoft could deal a multibillion-dollar blow to the American software industry. Critics of lower court rulings favoring AT&T say they defy Congress' intentions, forcing American companies to pay damages based both on infringing activity in the United States and abroad, whereas a foreign company found to have infringed on a U.S. patent would only have to pay damages based on its U.S. sales.

"At its best, it amounts to a tax or surcharge on American-made software, which potentially puts U.S. software houses at a disadvantage with respect to their foreign competitors," said Dick Turner, a patent law partner at the firm Sughrue Mion in Washington, D.C.

Taken to its extreme, some argue such a legal climate could spur companies to shift their research operations offshore.

"It's go to Canada, go to wherever you're going to go, so that your conduct--shipping software around the world in a global economy--is not being subjected to this United States rule," said Joseph Miller, a law professor at Lewis and Clark College who filed a brief in support of Microsoft at an earlier stage of the litigation.

Microsoft petitioned the Supreme Court to weigh the issue after a federal district court and the U.S. Court of Appeals for the Federal Circuit both found the company liable not only for violating AT&T's patent in U.S.-assembled computers but also in those abroad. The software giant has conceded that Windows software object code, after being supplied to manufacturers and installed on computers, gave users the ability to record, store and play back speech in a way that violated AT&T's patent.

But Redmond--allied with companies such as, Intel and Yahoo, the free and open-source software movement, the American Intellectual Property Law Association, and the Bush administration--argues that Congress never intended to hold American companies liable for such violations committed outside the country.

If AT&T wants relief for patent infringement on foreign soil, its solution "lies in obtaining and enforcing foreign patents, not in attempting to extend United States patent law to overseas activities," the U.S. Department of Justice's Office of the Solicitor General wrote in its brief.

That's not the way AT&T sees it. Attorneys for the corporation argue Congress adopted that portion of patent law precisely to provide extra international protection.

"It understood that foreign patent protections are sometimes weaker than their U.S. counterparts, wished to spare U.S. patent holders from the considerable expense of obtaining patent protections in dozens of foreign jurisdictions," they wrote in a brief filed with the high court. (PDF)

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