[Justice Ginsburg delivered the opinion of the Court. Justice Alito filed a concurring opinion, in which Justices Thomas and Breyer joined. Justice Stevens filed a dissenting opinion.]

In Microsoft Corp. v. AT&T Corp., 127 S. Ct. 1746 (U.S. Apr. 30, 2007), the Supreme Court reversed the Federal Circuit and held that the sending of Microsoft Corporation’s (“Microsoft”) Windows software abroad to foreign computer manufacturers, who then copied the software for installation on computers made and sold abroad, did not constitute infringement under 35 U.S.C. § 271(f).

The Supreme Court explained that it is the general rule under United States patent law that no infringement occurs when a patented product is made and sold in another country. There is an exception. Section 271(f) of the Patent Act, adopted in 1984, provides that infringement does occur when one “supplies . . . from the United States,” for “combination” abroad, a patented invention’s “components.” 35 U.S.C. § 271(f)(1). This case, explained the Court, concerns the applicability of § 271(f) to computer software, Windows operating system, first sent by Microsoft from the United States to a foreign manufacturer on a master disk, or by electronic transmission, then copied by the foreign recipient for installation on computers made and sold abroad. The master disk or electronic transmission Microsoft sends from the United States is never installed on any of the foreign-made computers in question. Instead, copies made abroad are used for installation.

AT&T Corporation (“AT&T”) holds a patent on an apparatus for digitally encoding and compressing recorded speech. Microsoft’s Windows operating system incorporates software code that, when installed, enables a computer to process speech in the manner claimed by that patent. In 2001, AT&T filed an infringement suit in the U.S. District Court for the Southern District of New York, charging Microsoft with liability for domestic and foreign installations of Windows. Regarding the foreign installations, the district court held Microsoft liable for infringement under § 271(f), and the Federal Circuit affirmed.

The Supreme Court reversed, beginning its analysis by reviewing its decision from some thirty-five years ago in Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518 (1972), which led Congress to enact § 271(f). In that case, the Supreme Court held that Deepsouth Packing Company (“Deepsouth”) did not infringe Laitram Corporation’s (“Laitram”) U.S. patent by making parts of a patented invention in the United States and selling those parts to foreign buyers for assembly and use abroad. Nor was Deepsouth liable for inducing or contributing to infringement because Deepsouth’s foreign buyers did not infringe Laitram’s patent by assembling the parts and using the assembled machine outside the United States. The Deepsouth Court emphasized that our patent system makes no claim to extraterritorial effect, and absent “a clear congressional indication of intent,” courts had no warrant to stop the manufacture and sale of parts of patented inventions for assembly and use abroad. In response to the Deepsouth decision, Congress enacted § 271(f), which expands the definition of infringement to include supplying from the United States a patented invention’s “components.”

After reviewing its decision in Deepsouth, the Supreme Court then considered when, or in what form, does software become a “component” under § 271(f). The Court noted that § 271(f)(1) applies to the supply abroad of the “components of a patented invention, where such components are uncombined in whole or in part, in such manner as to actively induce the combination of such components . . . .” The Court emphasized that the provision applies only to “such components” as are combined to form the “patented invention” at issue.

The Court concluded that until it is expressed as a computer-readable “copy,” e.g., on a CD-ROM, Windows software—indeed any software detached from an activating medium—remains “uncombinable.” It cannot be inserted into a CD-ROM drive or downloaded from the Internet; it cannot be installed or executed on a computer. The Court reasoned that abstract software code is an idea without physical embodiment, and as such, it does not match § 271(f)’s categorization: “components” amenable to “combination.” The Court analogized abstract software code to a blueprint or schematic that may contain instructions for the construction and combination of the components of a patented device, but is not itself a combinable component of that device.

The Court was not persuaded by AT&T’s distinction that after a device has been built according to a blueprint’s instructions, the blueprint’s work is done, whereas software’s instructions are contained in and continuously performed by a computer. The Court explained that what retailers sell, and consumers buy, are copies of software. It is the actual copy of the software on a CD-ROM, for example, that forms a usable, combinable part of a computer, not the abstract software code. Thus, the Court concluded, only a copy of Windows, not Windows in the abstract, qualifies as a “component” under § 271(f).

Based on that reasoning, the Supreme Court concluded that Microsoft was not liable for infringement because it did not “suppl[y] . . . from the United States” components of the computers. Instead, the foreign-made copies of Windows actually installed on the computers were “supplie[d]” from places outside the United States.

The Supreme Court further agreed with Judge Rader’s dissent below that “supplying” is ordinarily understood to mean an activity separate and distinct from any subsequent copying or replicating. Moreover, nothing in § 271(f)’s text renders ease of copying a relevant factor in triggering liability for infringement. The Court concluded that the copies of Windows actually installed on the foreign computers were not themselves supplied from the United States, but were generated by third parties outside the United States.

Although copying software abroad is easy and inexpensive, the Court noted, the same could be said of other items that could be copied from a master, such as keys or machine parts. The Court reasoned that “[s]ection 271(f) contains no instruction to gauge when duplication is easy and cheap enough to deem a copy in fact made abroad nevertheless ‘supplie[d] . . . from the United States.’” 127 S. Ct. at 1757. Moreover, “[t]he absence of anything addressing copying in the statutory text weighs against a judicial determination that replication abroad of a master dispatched from the United States ‘supplies’ the foreign-made copies from the United States within the intendment of § 271(f).” Id.

Furthermore, the Court concluded that any doubt that Microsoft’s conduct falls outside § 271(f)’s compass would be resolved by the presumption against extraterritoriality. The Court explained that “the presumption that United States law governs domestically but does not rule the world applies with particular force in patent law.” Id. at 1758. “Applied to this case, the presumption tugs strongly against construction of § 271(f) to encompass as a ‘component’ not only a physical copy of the software, but also software’s intangible code, and to render ‘supplie[d] . . . from the United States’ not only exported copies of software, but also duplicates made abroad.” Id.

Nor was the Court persuaded by AT&T’s urging that reading § 271(f) to cover only those copies of software actually dispatched from the United States creates a “loophole” for software makers. The Court reasoned that the “loophole” is “properly left for Congress to consider, and to close if it finds such action warranted.” Id. at 1759. The Court explained that Congress enacted § 271(f) as a direct response to a gap in our patent law revealed by the Deepsouth decision, in which the items exported were kits containing all the physical, readily assemblable parts of a machine, not an intangible set of instructions.

Having attended to the gap made evident in Deepsouth, Congress did not address other arguable gaps, such as supplying information, instructions, or other materials needed to make copies abroad. Thus, the Court concluded, “[g]iven that Congress did not home in on the loophole AT&T describes, and in view of the expanded extraterritorial thrust AT&T’s reading of § 271(f) entails, our precedent leads us to leave in Congress’ court the patent-protective determination AT&T seeks.” Id. at 1760.

The Court further noted that Congress is doubtless aware of the ease with which software can be copied and has addressed that problem in certain instances, for example, in the Digital Millennium Copyright Act, 17 U.S.C. § 1201 et seq. Similarly, the Court held that “[i]f the patent law is to be adjusted better ‘to account for the realities of software distribution,’ . . . the alteration should be made after focused legislative consideration, and not by the Judiciary forecasting Congress’ likely disposition.” Id. (citation omitted). Justice Alito, in a concurring opinion joined by Justice Thomas and Justice Breyer, agreed with the majority’s holding, but would extend it one step further. The majority declined to reach the issue of whether a disk shipped from the United States and used to install Windows directly on a foreign computer would give rise to liability under § 271(f) if the disk were removed after installation. Justice Alito opined that even that situation would not give rise to § 271(f) liability because the physical form of the Windows program on the master disk is the engravings on the CD-ROM, he concluded, and no physical part of the disk becomes a physical part of the foreign-made computer.

In a dissenting opinion, Justice Stevens wrote that if a disk with software inscribed on it is a “component,” then he “find[s] it difficult to understand why the most important ingredient of that component is not also a component.” Id. at 1763. The master disk, he opined, is the functional equivalent of a warehouse of components. Whether attached or detached from any medium, software plainly satisfies the dictionary definition of the word “component,” he concluded. And unlike a blueprint that merely instructs a user how to do something, he noted, software actually causes infringing conduct to occur.