Court finds Microsoft infringed AT&T codec patent

Microsoft infringed an AT&T patent for speech-coding technology in its distribution of a master version of the Windows operating system outside of the U.S. for replication abroad, the U.S. Court of Appeals for the Federal Circuit ruled Wednesday, concluding the final issue remaining from a 2001 lawsuit.

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Microsoft agreed to an undisclosed settlement with AT&T in March of 2004 in the case, which was filed in the U.S. District Court for the Southern District of New York, but as part of that agreement, the software maker was given the right to appeal liability for patent infringement. A three-judge panel from the Court of Appeals rendered Wednesday's decision, with circuit judges Alan D. Lourie and Haldane Robert Mayer deciding that Microsoft infringed the AT&T patent and Randall R. Rader dissenting.

The District Court ruled that software copies made from a master version, sent from the U.S. are not shielded from patent law, which prohibits circumvention of infringement by exportation of products.

Microsoft argued on appeal that the District Court had erred in that finding. "According to Microsoft, a foreign-replicated copy made from a master version supplied from the United States has actually been 'manufactured' abroad by encoding a storage medium with the Windows software. "We disagree that no liability attaches," Wednesday's Appeals Court ruling said.

Calling copying "part and parcel of software distribution," the court found that in the case of software components "the act of copying is subsumed in the act of 'supplying,' such that sending a single copy abroad with the intent that it be replicated invokes liability for those foreign-made copies." The court further rejected Microsoft's contention that liability should apply only to each disk that is shipped and incorporated into computers assembled outside of the U.S. on the grounds that the argument "fails to account for the realities of software distribution."

The court also rejected Microsoft's argument that software sent electronically should be treated differently with regard to liability from software shipped on master, or "golden" disks, and found an "insufficient basis" for the company's "impassioned recitation of a parade of horribles that may befall the domestic software industry -- such as the relocation of manufacturing facilities."

"Possible loss of jobs in this country is not justification for misinterpreting a statute to permit patent infringement," the court found.

In his dissenting opinion, Rader disagreed with the majority's interpretation of the patent infringement statute related to components shipped from the U.S, contending that his judicial colleagues had expanded the legal protection to non-U.S. markets and non-U.S. competitors.

Representatives of Microsoft and AT&T were not immediately available to comment on the case Thursday.