Microsoft on patents: is it the software or the disk that counts?

by Matt Asay

Microsoft is in the midst of oral arguments before the Supreme Court this week [Full transcript here] with interesting repurcussions possible for the entire software industry. The WSJ has a good synopsis of what's at stake:
In general, patents are only enforceable in the country that issues them. Thus, it is no infringement for a foreign firm to manufacture and sell a rival's U.S.-patented device abroad. To extend their monopolies overseas, U.S. companies must obtain a patent in each nation where they wish to protect their inventions. Under a special exception, though, it is an infringement to ship U.S.-made components of a patented device for assembly overseas.

AT&T Inc. holds a patent for voice-compression technology that makes it easier to transmit and store speech on personal computers and other devices. Microsoft Corp. concedes installing the technology on U.S.-built computers would infringe the patent. But it says it isn't a violation to ship a master disk of the software overseas, where it duplicates the software for installation on computers assembled in Germany, Belgium and other countries.

Microsoft argues the "component" is a physical disk containing the software, and it is free to duplicate it overseas, much as it could duplicate any other patented device overseas. AT&T contends the software itself is the component, regardless of the medium.
So, what's the big deal? Well, as InformationWeek reports,
It's possible that in their decision, the justices could give broad opinions on the scope of patent law, how it affects innovation and even outsourcing....

That, despite the fact that Microsoft and its backers argue a victory for AT&T could put U.S. software developers at a disadvantage relative to foreign competitors, some of whom operate in countries with more lenient patent regulations. An AT&T win would "hinder software development in the U.S. and encourage companies to move their software development overseas," says Roger Kennedy, who represents Oracle in the Coalition For Patent Fairness.
What's most interesting in the case is what it means for the definition of a software product. Is it the software, or the disk that it ships on?
Justice Anthony Kennedy called it "odd" that Microsoft would be the party contending that a computer disk, rather than the software, is product. "I mean, Microsoft doesn't say please buy our disc because it's the prettiest disc in the business," he said. "It says buy our program because the program means something," he said.

"But the program is nothing until made into a physical manifestation that can be read by the computer," replied former Bush Solicitor General Theodore Olson, representing Microsoft. "An idea or a principle...can't be patented. It has to be put together with a machine and made into a usable device." In this case, "the components that make the machines run that are produced abroad are not supplied from the United States."
I'm trying to figure out the ramifications of Microsoft winning its suit on the definition alluded to above. Do we really want to tie code to physical media? Is that what Microsoft's argument requires?

I'm not sure, but this is a case worth watching.


Andrew J
2007-02-22 15:09:41
"in the midst ... this week" ?! Most Supreme Court hearings seem to last an hour, and that's how long this case took them to hear. The full transcript of the hearing arguments is actually available here (PDF file), the link above just gives a summary of the procedings.