Microsoft hopeful of win in high court

Microsoft left its first-ever appearance before the U.S. Supreme Court on Wednesday encouraged about its chance of winning a case that could have broader implications for patent protection of software sold overseas.

The attorney for its opponent, AT&T, faced a tough battery of questions from justices seeking to discern the precise nature of software code that is sent to manufacturers abroad for installation on computers.

Microsoft General Counsel Brad Smith said in an interview that "there were probing questions for both sides. But we certainly came away encouraged about our chances for success."

In 2001, AT&T filed a claim charging that part of Microsoft's Windows operating system violated its patent on technology for converting recordings from analog to digital signals.

Microsoft doesn't dispute that copies of Windows sold in the United States were in violation and has agreed to pay AT&T royalties.

But AT&T also wants money for copies of Windows sold outside the U.S. It cites a 1984 statute aimed at companies shipping components of patented products overseas for assembly, thus avoiding liability for violating U.S. patents.

The complex case hinges on some very technical distinctions about the software code Microsoft sends — typically on a "golden master disk" — to foreign manufacturers to be copied onto computers.

AT&T argued, and two lower federal courts agreed, that copying the code is tantamount to supplying an actual component, which is what the 1984 statute forbids.

Microsoft, joined by the U.S. government and supported by many of its software rivals, said the code itself is not a component of the final computer until it is copied onto a hard drive or installation disk. Transmitting just the master disk is not a violation, they argued.

Broadly, Microsoft v. AT&T could test how much power the court thinks a U.S. patent holds in other countries.

Justice Stephen Breyer expressed concern that AT&T's argument, which he said could be construed as saying "the transmission purely of information is the transmission of a component," would apply beyond software.

In biology or medicine, for example, the instructions for making a U.S.-patented drug could be sent overseas, and the instructions themselves could be deemed a component under the lower court's ruling.

"Then suddenly it's our patent law and not the foreign patent law that would govern," Justice Breyer said.

Seth Waxman, AT&T's attorney, replied that the 1984 statute "doesn't reach what anybody does overseas." It only applies to the actions of U.S. companies, he said.

Microsoft's Smith said the outcome of the case could have implications regarding where U.S. companies do their research and development in a global economy.

"If the lower court decision were to prevail, it would create an incentive for U.S. companies to move research-and-development jobs offshore, because that would be the only way to avoid the worldwide reach of U.S. patent laws" and liability, Smith said.

Ian Chan Hodges, national director of the American Ingenuity Alliance — a group trying to unite intellectual-property owners and organized labor — said it was ironic Microsoft was sounding the alarm about R&D jobs going overseas considering it has substantial research arms in India, China and elsewhere.

"If they do prevail, I'm not sure exactly how it helps the American technology industry as far as jobs are concerned if U.S. patent holders aren't able to sue American infringers abroad," Chan Hodges said.

The Supreme Court is expected to rule on the case by July.

Benjamin J. Romano: 206-464-2149 or bromano@seattletimes.com