AT&T v. Microsoft: Is This a Case of Deepsouth Déjà Vu?

It has been stated many times by various courts that the patent laws of the United States do not reach beyond the borders of the United States. In an age of expanding world commerce, the territorial reach of our patent laws has sometimes made it difficult for U.S. inventors to meaningfully protect their intellectual property. For example, the Supreme Court holding in Deepsouth Packing Co. v. Laitram Corp. opened up a loophole that allowed unlicensed U.S. manufacturers to essentially export patented inventions, thereby trampling on the patent rights of U.S. patent holders selling to foreign markets. The Deepsouth loophole has long since been closed by Congress. However, with the advent of the information age and the software patent, new loopholes loom. The Supreme Court will have a chance to prevent a new loophole from opening when it decides AT&T Corp. v. Microsoft Corp. In AT&T v. Microsoft, Microsoft was alleged to have infringed an AT&T patent for a speech codec, an algorithm that transforms audible speech into compact, computerized numerical data. Microsoft incorporated the infringing codec into Microsoft Windows, which it provided to overseas distributors. If Microsoft had provided each salable copy of Windows by exporting it from the United States, it would have come squarely under§ 271(f) of the Patent Act, which prohibits the export of patented articles. However, software being what it is, such a distribution system would have been needlessly inefficient and costly. Instead, Microsoft provided a single master copy to be replicated by the foreign distributors. Thus, the central issue presented in the AT&T case becomes: is Microsoft liable for infringing AT&T\u27s patent based solely on the export of the master disk alone, or is it also liable for the copies that were produced overseas? The Federal Circuit responded by holding that Microsoft had essentially exported all of the infringing copies that were replicated in the foreign markets, and was therefore liable for the foreign copies as well-loophole closed. A strict territorial approach, however, as applied in Deepsouth, would demand the opposite result. In October 2006, the Supreme Court granted Microsoft\u27s certiorari petition, opening the possibility that the Court will reverse the Federal Circuit and open a new software patent loophole. The Supreme Court\u27s decision will have significant repercussions in the software industry. On the one hand, holding infringing software manufacturers liable for copies produced overseas will drastically increase their potential liability; on the other hand, the strict territorial approach could create a tempting opportunity for domestic software manufacturers to skirt U.S. patent laws. If the Supreme Court reverses the Federal Circuit, the case of AT&T v. Microsoft may tum out to be a case of Deepsouth deja vu. This Note asserts that Congress should take action to close such a loophole, and that indeed, what is really needed is a separate congressional enactment that deals specifically with the protection of software, something that existing patent statutes were not designed to do