In May, two long-anticipated and backto- back opinions, Microsoft v. AT&T, 127 S.Ct. 1746 (2007), and KSR Int’l Co. v. Teleflex, Inc., 127 S.Ct. 1727 (2007), issued from the U.S. Supreme Court. Commentators and authors expended thousands of words in the effort to be the one to guess correctly what steps would be taken by the Court. Most thought Microsoft would not break new ground, and it did not, and most thought KSR would find some way to hold on—just a little bit—to the motivation teaching suggestion test, and it did.

In KSR, the Supreme Court reminded the Federal Circuit that common sense really does matter, even when considering whether an invention is obvious in light of existing technology. Depending on perspective, the decision either significantly altered the standard for denying or overturning patent grants based on the “obviousness” of the claimed invention, or it simply clarified existing law. The Supreme Court’s opinion itself asserts that it was simply reiterating and clarifying existing law. Yet inventors and patent lawyers—long used to drafting patent applications under the strict motivation teaching suggestion test— certainly feel the change. Drafting and prosecuting patent applications, at least until the PTO issues guidelines (expected at the end of July) and the Circuit puts its gloss on the KSR decision, will be something akin to a walk through a minefield.

Rather than addressing here the scope of the extensively debated KSR decision (including in the Reed Smith Bulletin 07-032), in the next issue, IP Moves will present an article discussing the implications of the expected guidelines from the Patent Office, as well as the Federal Circuit cases applying the Court’s decision. The Microsoft case dealt with Section 271(f) of the Patent Statute. As general rule, no infringement of a U.S. patent occurs when a patented product is made and sold in a foreign country. Recognizing that this created something of a loophole for U.S. companies that manufacture component parts of patented combinations, which parts are then shipped abroad for assembly and sale abroad, Congress enacted a provision in the Patent Act, Section 271(f), providing a limited exception to the general rule. In the circumstances in which the component parts of a patented combination are supplied from within the United States for assembly abroad, then infringement does occur.

The Microsoft case was factually simple. AT&T owns a patent for an apparatus (a computer) for digitally encoding and compressing recorded speech that required the combination of both a computer and software capable of digitally encoding and compressing recorded speech. AT&T acknowledged that neither a computer nor software, standing alone, could infringe its patent. Microsoft, within the United States, makes copies of its Windows software, which it then sells to end-users and computer manufacturers, both domestically and abroad. As admitted by Microsoft, the software, once installed in a computer, enables a computer to process speech, much as claimed in the AT&T patent.

But for sales of its Windows software abroad, Microsoft does not make and ship each and every disk to be used in installing software on individual computers. Instead, it makes in the United States a so-called “master” disk, which is then shipped abroad so that copies may be made and then, using these disks onto which the software was copied, the software is loaded on to computers for sale to the public. As to these foreign “copies,” Microsoft asserted that it did not infringe the Patent Act because Microsoft was not supplying a Section 271(f) “component” for assembly of a combination invention abroad. The Supreme Court defined the issues as (1) when and in what form, does software qualify as a Section 271(f) component, and (2) whether “components” of the AT&T patented invention were “shipped” from within the United States as required for infringement under Section 271(f). The Court reasoned that there are two ways in which software may exist: as a tangible—such as when it exists on a CD-ROM, and as being abstract—such as when it is viewed simply as software code. Despite the clever analogy, the conclusion by the Court was simple: when Section 271(f) uses the word “component,” it means an existing component—one capable of being shipped, and having been shipped, as an assembled whole from the United States into foreign countries. It does not mean the instructions needed to build the component abroad. This did not break new ground; it simply confirms that the statute meant what it says.