Generally, no infringement occurs when a patented product is made and sold outside the United States. Congress specifically enacted 35 U.S.C. § 271(f) as an exception to the general rule to prevent exporting components of an invention patented within the United States for assembly outside of the United States. In Microsoft Corp. v. AT&T Corp., No. 05-1056 (April 30, 2007), the U.S. Supreme Court narrowly construed § 271(f), holding that software which would infringe a U.S. patent if installed on a computer within the United States can be exported and installed on a computer outside the United States without violating 35 U.S.C. § 271(f), so long as the foreign installation is made from copies of the exported software.

AT&T owns a patent covering a computer used to digitally encode and compress recorded speech. Microsoft’s Windows operating system includes software code that, if installed on a computer within the United States, would infringe AT&T’s patent. AT&T contended that a master disk containing Windows that was shipped by Microsoft to foreign manufacturers constituted a “component” supplied from the United States for assembly abroad and, therefore, Microsoft was liable for infringement under § 271(f). Microsoft argued that the foreign computers had been installed with copies made from the exported master disk rather than a direct installation from the exported master disk. The District Court held Microsoft liable under § 271(f), and a divided Federal Circuit panel affirmed. In a 7-1 opinion, the Supreme Court agreed with Microsoft and reversed. In so holding, the Supreme Court reasoned that the Windows software on the foreign computers was installed from foreign-made copies of the master disk and that the installed software was therefore not a component supplied from the United States within the meaning of § 271(f).

First, the Supreme Court reasoned that it was the actually installed copy of Windows rather than Windows in the abstract that qualified as a “component” under § 271(f). Id. at 9. The Court reasoned that software is a component that can be combined as part of an invention only when it is expressed as a tangible, computer-readable copy, for example, on a CD-ROM. Id.

The Court likened abstract software code to a blueprint, and stated that, although a blueprint may contain precise instructions for the construction and combination of the components of a patented device, it is not itself a combinable component. Id. at 10. The Court further stated that the extra step of copying software onto a medium that can be read by a computer is essential, as it is required to render the software into a usable, combinable part of the computer. Id. at 11. Second, the Supreme Court found that the master disk exported by Microsoft had not been used to install the software onto the foreign-made computers. Id. at 12. The Court reasoned that the very components exported from the United States, and not the foreign-made copies, must be combined into the patented invention to trigger liability under § 271(f). Id. at 13.

Third, reasoning that foreign conduct is generally the domain of foreign law, the Court held that any doubt should be resolved according to a presumption against extraterritoriality. Id. at 15. The Court stated that foreign law alone, not United States law, currently governs the manufacture and sale of components of patented inventions in foreign countries, and the proper remedy for AT&T lies in obtaining and enforcing foreign patents. Id. at 16.

Finally, the Court noted the ease with which software could be copied and recognized that its holding left what AT&T characterized as a “loophole” for software makers. Nevertheless, the Court considered the issue properly left for Congress to address in future legislation should it deem appropriate. Id. at 17.

In a concurring opinion joined by two other justices, Justice Alito argued that a component of a machine must be something physical, and, because the engravings on a CD-ROM remain on a disk in a form unchanged by the copying process, there is nothing to suggest that any physical part of a software disk ever becomes a physical part of a foreign-made computer. Accordingly, the concurring opinion seems to imply that no infringement would occur if the master disk itself is used in a foreign country to install Windows on a foreign-made computer. The majority opinion expressly declined to address this issue. Id. at 13, n. 14.