Professional Documents
Culture Documents
Volume 87 | Issue 1
Article 6
2008
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INTRODUCTION
ECON. &
2008]
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When interpreting Congressional legislation, courts generally apply a presumption against extraterritoriality. 1 8 The presumption is
15. 127 S. Ct. 1746.
16. Id.
17. Id.
18. See, e.g., Small v. United States, 544 U.S. 385, 388-89 (2005); Foley Bros., Inc. v.
Filardo, 336 U.S. 281, 285 (1949); United States v. Delgado-Garcia, 374 F.3d
1337, 1344 (D.C. Cir. 2004); Reyes-Gaona v. N.C. Growers Ass'n, 250 F.3d 861,
864-65 (4th Cir. 2001); United States v. Gatlin, 216 F.3d 207, 211-12 (2d Cir.
2000); Nieman v. Dryclean U.S.A. Franchise Co., 178 F.3d 1126, 1129 (11th Cir.
1999).
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305
Courts, therefore, generally apply the presumption against extraterritoriality to avoid an unintended statutory interpretation that could
conflict with other nations' laws or disregard the interests of other
nations.
2.
U.S. patent law flows from the U.S. Constitution. 23 The Constitution authorizes Congress to "promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the
19. See, e.g., Foley Bros., 336 U.S. at 285; Carnero v. Boston Scientific Corp., 433 F.3d
1, 7 (1st Cir. 2006); Gatlin, 216 F.3d at 211-12; Nieman, 178 F.3d at 1129. Furthermore, policy considerations alone are not enough to overcome the presumption against extraterritoriality. See Subafilms, Ltd. v. MGM-Pathe Commc'ns
Co., 24 F.3d 1088, 1096 (9th Cir. 1994) ("[Tlhe ultimate touchstone of extraterritoriality consist[s] of an ascertainment of congressional intent; courts [do] not
rest solely on the consequences of a failure to give a statutory scheme extraterritorial application.").
20. E.E.O.C. v. Arabian Am. Oil Co., 499 U.S. 244, 248 (1991), superseded by statute
on other grounds, Civil Rights Act of 1991, 42 U.S.C. 2000e(f) (2006), as recognized in Fray v. Omaha World Herald Co., 960 F.2d 1370 (8th Cir. 1992); see also
F. Hoffman-La Roche Ltd. v. Empagran S.A., 542 U.S. 155, 164 (2004) (commenting that it is hoped that "the potentially conflicting laws of different nations [will]
work together in harmony" as a result of applying the presumption against extraterritoriality and similar principles).
21. See Subafilms, 24 F.3d at 1098; United States v. Nippon Paper Indus. Co., 109
F.3d 1, 3 (1st Cir. 1997). Comity, however, is a separate rule of construction. It is
applicable even if a statute has no extraterritorial reach. See In re Maxwell
Commc'n Corp., 93 F.3d 1036, 1047 (2d Cir. 1996).
22. Hilton v. Guyot, 159 U.S. 113, 164 (1895); see also In re Maxwell, 93 F.3d at 1048
("Comity is a doctrine that takes into account the interests of the United States,
the interests of the foreign state, and those mutual interests the family of nations
have in just and efficiently functioning rules of international law.").
23. See U.S. CONST. art. I, 8, cl. 8.
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28.
29.
30.
31.
32.
33.
Id.
Thomas & Betts Corp. v. Panduit Corp., 138 F.3d 277, 284 (7th Cir. 1998).
Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225 (1964).
See William Greubel, Note, A Comedy of Errors:Defining 'Component' in a Global
Information Technology Market-Accounting for Innovation by Penalizingthe Innovators, 24 J. MARSHALL J. COMPUTER & INFO. L. 507, 511 (2006) ("Equally if not
more important, U.S. patent laws provide incentives for patent holders to commercialize the claimed invention, method, assembly, or process.").
35 U.S.C. 154(a)(2) (2000).
Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 135 (1969); see also
35 U.S.C. 154 (2000).
35 U.S.C. 271 (2000).
Id. 154(a)(1).
See Zaunbrecher, supra note 3, at 33.
See id. at 37 ("As a general matter, [the treaties] supported the territoriality of
patent law by allowing member states to maintain additional standards so long
as such standards did not conflict with the provisions of the TRIPS agreement.");
see also Agreement on Trade-Related Aspects of Intellectual Property Rights,
Agreement Establishing the World Trade Organization, Annex 1C, art. 1.1, Apr.
15, 1994, 33 I.L.M. 1197 [hereinafter TRIPS Agreement] ("Members shall be free
to determine the appropriate method of implementing the provisions of this
Agreement within their own legal system and practice."); Paris Convention for
the Protection of Intellectual Property art. 2, Mar. 20, 1883, 21 U.S.T. 1583 [hereinafter Paris Convention] (recognizing that member nations will develop their
own patent systems by requiring that citizens of one signing country enjoy the
same patent rights in another signing country as that country's own citizens).
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The Supreme Court first applied the presumption against extraterritoriality to U.S. patent law in 1856 in Brown v. Duchesne.34 Brown
35
involved a foreign ship docked in a U.S. port for commercial reasons.
Before entering U.S. waters, the ship had been outfitted with a U.S.
patented invention to help it sail on the ocean. 3 6 Once the ship was in
a U.S. port, the U.S. patent holder sued the ship master for patent
infringement because the invention was being used in the U.S.37
Even though a literal reading of the patent infringement statute supported the patent holder's position, the Court stressed that the resolution of the issue of liability "depend[ed] on the construction of the
patent laws." 38 The Court emphasized that U.S. patent laws "do not,
and were not intended to, operate beyond the limits of the United
States; and as the patentee's right of property and exclusive use is
derived from them, they cannot extend beyond the limits to which the
law itself is confined." 3 9 In support of its position, the Court compared
Congress' patent power to its treaty-making power, noting that they
0
are distinct powers that Congress usually exercises separately.4
Treaty-making power, which gives extraterritorial effect to laws,
should not be read into the patent power, which generally only applies
domestically.41 The Court said that this distinction was essential to
avoid a result that Congress could not have intended.42 For example,
had the ship master been found liable, U.S. patent holders would have
been able to hold a foreigner liable even if there was a U.S. treaty
absolving foreigners of liability for infringement when they enter the
country, severely weakening the treaty power of the U.S.43 Therefore,
the Court held that, despite the fact that part of the ship was patented
in the U.S., "the rights of property and exclusive use granted to a patentee does [sic] not extend to a foreign vessel lawfully entering one of
34. 60 U.S. 183 (1856). See generally Katherine E. White, The Recent Expansion of
Extraterritorialityin Patent Infringement Cases, 2007 UCLA J.L. & TECH. 2, 11
n.33 ("It is worth noting that at the time of this decision, the boundaries of the
United States were not as well defined as they are today.").
35. Brown, 60 U.S. at 189-90.
36. Id.
37. Id.
38. Id. at 194 (emphasis added).
39. Id. at 195.
40. Id.
41. Id.
42. Id. at 197 ("We think these laws ought to be construed in the spirit in which they
were made-that is, as founded in justice-and should not be strained by technical constructions to reach cases which Congress evidently could not have contemplated without departing from the principle on which they were legislating, and
going far beyond the object they intended to accomplish.").
43. Id. at 197.
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our ports."4 4 The ship master would be liable only if he tried to resell
the invention in the U.S.45
In 1915, the Supreme Court affirmed the vital role of the presumption against extraterritoriality in interpreting U.S. patent law. In
Dowagiac Manufacturing Co. v. Minnesota Moline Plow Co., a U.S.
patent holder sought to collect damages from a Canadian reseller of its
patented invention. 46 The patented invention was an improvement on
a grain drill. 4 7 The reseller purchased grain drills from an unauthorized supplier in the U.S. and resold them in Canada.48 The Court
held that the reseller was not liable for any of the products sold in
Canada because "[tihe right conferred by a patent under our law is
confined to the United States and its territories, and infringement of
this right cannot be predicated of acts wholly done in a foreign country."49 Relying on the presumption against extraterritoriality, the
Court quickly rejected the proposition that the Canadian reseller was
50
liable for patent infringement.
The presumption against extraterritoriality appeared again in
1972. In Deepsouth Packing Co. v. Laitram Corp., the Supreme Court
reaffirmed that U.S. patent law was limited to the territorial jurisdiction of the U.S.51 Additionally, before this case arose, Congress had
codified that U.S. patent law was subject to the presumption against
extraterritoriality in section 154(a)(1) of the Patent Act.5 2 In Deepsouth, the holder of a U.S. combination patent 5 3 for a shrimp deveiner
sued a U.S.-based exporter for infringement. 5 4 The exporter made all
of the components of the invention in the U.S. and then shipped the
components in separate boxes to locations outside the U.S. where they
44. Id. at 198.
45. Id. at 196 ("If it had been manufactured on her deck while she was lying in the
port of Boston, or if the captain had sold it there, he would undoubtedly have
trespassed upon the rights of the plaintiff, and would have been justly answerable for the ...
46.
47.
48.
49.
50.
51.
52.
53.
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were fully assembled and sold. 55 The Court first found that a combination patent can only be infringed once the invention is fully assembled.56 This invention, however, was fully assembled outside the
U.S.57 The Court further held that it was not infringement "to make
or use a patented product outside of the United States,"58 and, thus,
the exporter did not infringe the patent. 59 In support of its holding,
the Court highlighted that "the wording of [the Patent Act] reveals a
Congressional intent" to have patent holders secure protection abroad
through foreign patents.60 Moreover, the Court underscored that it
would "require a clear and certain signal from Congress" before there
could be infringement of any kind for acts performed outside the
U.S.61
B.
Section 271(9
Congress responded to Deepsouth by enacting section 271(f). According to the legislative history for the section, Congress "specifically
intended 271(f) as a response to"62 Deepsouth to "close [the] loophole
in patent law" exposed by the case. 63 Section 271(f) provides the
following:
(1) Whoever without authority supplies or causes to be supplied in or from the
United States all or a substantial portion 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 outside of
the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.
(2) Whoever without authority supplies or causes to be supplied in or from the
United States any component of a patented invention that is especially made
or especially adapted for use in the invention and not a staple article or commodity of commerce suitable for substantial noninfringing use, where such
component is uncombined in whole or in part, knowing that such component is
so made or adapted and intending that such component will be combined
outside of the United States in a manner that would infringe the patent if
such combination
occurred within the United States, shall be liable as an
64
infringer.
55.
56.
57.
58.
59.
60.
61.
62.
63.
64.
Id. at 523-24.
Id. at 528.
Id.
Id. at 527.
Id. at 532.
Id. at 531.
Id.
Fisch & Allen, supra note 12, at 565.
S. REP. No. 98-663 (1984), as reprinted in 1984 U.S.C.C.A.N. 5827, 5828.
35 U.S.C. 271(0 (2000) (emphasis added).
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2008]
Exports
Software exported on golden master disks does not easily fit into
the structure of section 271(f). For this reason, controversy surrounded the issue of whether U.S. software exporters could be liable
under the section. 76 Specifically, the controversy focused on whether
68. Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518, 519 (1972).
69. Fisch & Allen, supra note 12, at 571.
70. See Greubel, supra note 27, at 516; see also Enpat, Inc. v. Microsoft Corp., 6 F.
Supp. 2d 537 (E.D. Va. 1998) (finding that section 271(f) did not apply to sales of
software abroad where use of the software potentially infringed a method patent);
Aerogroup Int'l, Inc. v. Marlboro Footworks, Ltd., 955 F. Supp. 220, 231-32
(S.D.N.Y. 1997) (holding that section 271(f) did not apply to a design patent for a
shoe sole because there cannot be any "component parts"). But see W.R. Grace &
Co. v. Intercat, Inc., 60 F. Supp. 2d 316, 320 (D.Del. 1999) (finding that section
271(f) applied to a patent for a chemical composition).
71. T.D. Williamson, 723 F. Supp. at 592; see also David M. Wilson, The Golden
Master and the Horrorof Extraterritoriality:AT & T v. Microsoft and the Spector
of Global Liability Under 35 U.S.C. 271(f), 7 Hous. Bus. & TAx L.J. 424, 443
(2007) ("What constitutes a component? Mechanical parts, as considered in Deep.
south, have been unquestionably classified as components since the statute's first
applications. Courts have concluded that chemicals constitute components of
patented chemical compositions as well. Blueprints, paper, and glue are also
components of a patented form.").
72. See, e.g., AT & T Corp. v. Microsoft Corp., 414 F.3d 1366 (Fed. Cir. 2005), rev'd,
127 S. Ct. 1746 (2007); Eolas Technologies Inc. v. Microsoft Corp., 399 F.3d 1325
(Fed. Cir. 2005).
73. 399 F.3d 1325.
74. 414 F.3d 1366.
75. See Greubel, supra note 27, at 516.
76. See, e.g., Brief of the Software & Information Industry Association as Amicus
Curiae Supporting Petitioner, Microsoft Corp. v. AT & T Corp., 127 S. Ct. 1746
(2007) (No. 05-1056), 2006 WL 3740362 (arguing that the broad interpretation of
section 271(f) exposes U.S. companies to excessive liability, harms the U.S. economy, and disrespects other nations and, thus, that the Federal Circuit should be
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77.
78.
79.
80.
81.
82.
83.
reversed); Brief for the United States as Amicus Curiae Supporting Petitioner,
Microsoft Corp. v. AT & T Corp., 127 S. Ct. 1746 (2007) (No. 05-1056), 2006 WL
3693464 (arguing for reversal of the Federal Circuit because an expansive reading of section 271(f) harms the competitiveness of U.S. companies and negatively
affects the harmony among the patent law systems of the United States and
other nations); Brief for Intellectual Property Professors as Amici Curiae in Support of Reversal, Microsoft Corp. v. AT & T Corp., 127 S. Ct. 1746 (2007) (No. 051056), 2006 WL 3740618 (arguing for reversal of the Federal Circuit because the
decision was against the territorial limits of patent law and would disadvantage
U.S. software companies); Brief for U.S. Philips Corp. & Philips Electronics
North America Corp. as Amici Curiae in Support of Respondent, Microsoft Corp.
v. AT & T Corp., 127 S. Ct. 1746 (2007) (No. 05-1056), 2007 WL 197102 (arguing
that the Federal Circuit decision should be upheld because to do otherwise would
treat software companies differently from other companies); Brief for Wisconsin
Alumni Research Foundation, Research Corp. Technologies, Inc., & the Regents
of the University of California as Amici Curiae Supporting Respondent, Microsoft
Corp. v. AT & T Corp., 127 S. Ct. 1746 (2007) (No. 05-1056), 2007 WL 215264
(arguing that the Federal Circuit decision should be upheld because it properly
holds infringers liable for circumventing U.S. patent law).
See, e.g., AT & T Corp., 414 F.3d 1366, rev'd, 127 S. Ct. 1746; Eolas Technologies
Inc., 399 F.3d 1325.
Fisch & Allen, supra note 12, at 574.
Id.
Id. at 574-75.
Id. at 575. This is the precise sequence of events that gave rise to the charge of
infringement in both Eolas Technologies Inc., 399 F.3d at 1331, and AT & T
Corp., 414 F.3d at 1752-53, rev'd, 127 S. Ct. 1746.
399 F.3d 1325.
Id.
2008]
The Federal Circuit again addressed liability for patent infringement under section 271(f) for exported software in AT & T Corp. v.
Microsoft Corp.9 1 AT & T held a patent for a computer that digitally
encoded and compressed recorded speech. 9 2 However, when installed
on a computer, the Microsoft Windows operating system infringed on
AT & T's patent because it permitted the computer to process recorded
speech as defined in the patent. 93 AT & T's patent, though, was infringed only when Windows was installed on a computer. 94 Microsoft
sold Windows to foreign computer manufacturers for installation on
computers for sale exclusively outside of the U.S.95 Microsoft sent the
manufacturers the code on golden master disks or in encrypted elec84.
85.
86.
87.
88.
89.
90.
91.
92.
93.
94.
95.
Id. at 1328.
Id.
Id.
Id. at 1329.
Id. at 1340.
Id. at 1339. The Federal Circuit held in Pellegrini v. Analog Devices, Inc., 375
F.3d 1113 (Fed. Cir. 2004), that, under section 271(f), instructions, templates,
plans, and designs used to create infringing products in foreign countries were
not components.
Eolas Technologies Inc., 399 F.3d at 1339 (quoting Imagexpo, L.L.C. v. Microsoft
Corp., 288 F. Supp. 2d 550, 553 (E.D. Va. 2003)).
414 F.3d 1366 (Fed. Cir. 2005), rev'd, 127 S. Ct. 1746 (2007).
Microsoft Corp. v. AT & T Corp., 127 S. Ct. 1746, 1750 (2007).
Id.
Id.
Id. at 1752-53.
[Vol. 87:301
vided by Microsoft was a component used to make the patented invention outside of the U.S., Microsoft supplied components from the U.S.
and, therefore, was liable under section 271(f).108
96.
97.
98.
99.
100.
101.
102.
103.
104.
105.
106.
107.
108.
Microsoft re-
Id. at 1753.
Id.
Id.
AT & T Corp. v. Microsoft Corp., 414 F.3d 1366, 1369 (Fed. Cir. 2005), rev'd, 127
S. Ct. 1746 (2007).
Id.
Id. at 1370.
Id. at 1369-70.
Microsoft Corp., 127 S. Ct. 1746.
Id.
Id. at 1753.
Id. at 1754.
Id.
Id. at 1753. AT & T brought suit under section 271(f), but did not clearly indicate
whether the infringement arose under section 271(f)(1) or (2). Because the par-
2008]
sponded that the Windows code was not a component of the patented
invention.' 0 9 It contended that the foreign-made copies of the code
that allowed the code to be installed on the foreign computers were the
components and that it was not liable because it did not supply the
foreign-made copies from the U.S.110 The Court agreed with Microsoft
and reversed the Federal Circuit's decision."' The Court found that
the foreign-made copies of Windows, not the code itself, were components under section 271(f) and that Microsoft was not liable because it
did not "suppl[y] . .. from the United States" these foreign-made
1 12
copies.
The Supreme Court began its analysis by determining that a copy
of Windows in a computer-readable format, not the Windows code itself, was a component. 113 The Court defined software as the "set of
instructions, known as code, that directs a computer to perform specified functions or operations."114 Using this definition, the Court
stressed that software can be conceptualized either "in the abstract" or
as "a tangible copy."11 5 Software in the abstract is "the instructions
themselves detached from any medium" that would render it computer readable.11 6 Additionally, tangible software is "the instructions
encoded on a [computer-readable] medium."11 7 The Court found this
distinction to be central to the determination of the case and held that
only the tangible foreign-made copies of the Windows code, not the
software on the master disks or in the electronic transmissions, were
components of the patented invention. 118
In reaching the conclusion that only the tangible copies of Windows
were components, the Court focused on the language of section 271(f)
and reasoned that liability attaches only when components supplied
from the U.S. can be combined to create the patented invention.119
Because Windows software in the abstract "cannot be inserted into a
109.
110.
111.
112.
113.
114.
115.
116.
117.
118.
119.
ties did "not suggest that [the] differences are outcome determinative," the Court
chose to analyze the issue under section 271(f)(1). Id. at 1754 n.7.
Id. Microsoft did not argue that software could never be a component under section 271(f). Id. at 1754.
Id. at 1753.
Id.
Id. at 1757.
Id. at 1756.
Id. at 1754 (quoting Fantasy Sports Properties, Inc. v. Sportsline.com, Inc., 287
F.3d 1108, 1118 (Fed. Cir. 2002)).
Id.
Id.
Id. This assumes that the code embedded on the computer-readable medium is
object code. Object code is machine readable code. Source code is the code as
written by humans, which is used to generate object code. Id. at 1754 n.8.
Id. at 1755.
Id.
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122.
123.
124.
125.
126.
127.
128.
1981)).
Id. at 1756.
Id. at 1754 n.10
Id. at 1756 n.13.
Id. at 1755.
375 F.3d 1113 (Fed. Cir. 2004).
Microsoft Corp., 127 S. Ct. at 1755.
Id. at 1756.
2008]
ies were "'supplie[d]' from places outside the United States."129 Additionally, the Court rejected the Federal Circuit's position that "for
software 'components' the act of copying is subsumed in the act of 'supplying.'"130 The Court stressed that copying is separate and apart
from supplying, regardless of how easy something is to reproduce.131
The Court next noted the importance of the presumption against
extraterritoriality.13 2 Because of the application of the presumption,
there generally is no liability for manufacturing or selling a patented
product outside the U.S.133 Congress, however, expressly made section 271(f) an exception to this presumption, overcoming the presumption in most cases. 134 Despite this exception, the Court underscored
that the presumption against extraterritoriality still "remains instructive in determining the extent of the statutory exception."135 Additionally, the Court considered a related rule of statutory construction that
"assume [s] that legislators take account of the legitimate sovereign interests of other nations when they write American laws."136 One such
legitimate sovereign interest noted by the Court is that "foreign law
'may embody different policy judgments about the relative rights of
inventors, competitors, and the public in patented inventions."'1 37
This rule of construction combined with the presumption against extraterritoriality encouraged the Court to find that a narrow interpre129. Id. (second alteration in original).
130. Id. (citing AT & T Corp. v. Microsoft Corp., 414 F.3d 1366, 1370 (Fed. Cir. 2005)
rev'd, 127 S. Ct. 1746 (2007)); see AT & T Corp., 414 F.3d at 1373-74 (Rader, J.,
dissenting) (noting that the Federal Circuit's holding was technology dependent,
in violation of precedent in Eolas requiring that all technology be treated the
same under section 271(f)); Eolas Technologies, Inc. v. Microsoft Corp., 399 F.3d
1325, 1339 (Fed. Cir. 2005) ("Patents shall be available and patent rights enjoyable without discrimination as to the place of invention [or] the field of technology
... .") (quoting TRIPS Agreement, supra note 33, Part II, 5).
131. The Court explained:
But the extra step is what renders the software a usable, combinable
part of a computer; easy or not, the copy-producing step is essential.
Moreover, many tools may be used easily and inexpensively to generate
the parts of a device. A machine for making sprockets might be used by a
manufacturer to produce tens of thousands of sprockets an hour. That
does not make the machine a 'component' of the tens of thousands of
devices in which the sprockets are incorporated, at least not under any
ordinary understanding of the term 'component'.
Microsoft Corp., 127 S. Ct. at 1756.
132. Id. at 1758.
133. Id. at 1750.
134. Id.
135. Id. at 1758 (emphasis in original).
136. Id.
137. Id. (quoting Brief for the United States as Amicus Curiae Supporting Petitioner,
Microsoft Corp. v. AT & T Corp., 127 S. Ct. 1746 (2007) (No. 05-1056), 2006 WL
3693464).
[Vol. 87:301
ANALYSIS
2008]
144.
145.
146.
147.
148.
149.
... [to] a superior foreign interest.'" Paul Margulies, What's All the Fuss? The
'Paradeof Horribles' When Applying 35 U.S.C. 271(0 to Software Patents, 14
CARDOZO J. INT'L & COMP. L. 481, 496 (2006) (quoting Curtis A. Bradley, Territorial Intellectual Property Rights in an Age of Globalism, VA. J. INT'L L. 505, 515
(1997)).
See discussion supra subsection II.A.1. Although the Paris Convention and
TRIPS Agreement encourage member nations to develop their own intellectual
property law systems, they also provide a set of guidelines that member nations
must follow to reduce the possibility of conflict among the various intellectual
property law systems. See TRIPS Agreement, supra note 33; Paris Convention,
supra note 33.
E.E.O.C. v. Arabian Am. Oil Co., 499 U.S. 244, 248 (1991), superseded by statute
on other grounds, Civil Rights Act of 1991, 42 U.S.C. 2000e(f) (2006), as recognized in Fray v. Omaha World Herald Co., 960 F.2d 1370 (8th Cir. 1992); see also
Margulies, supra note 142, at 499-500 ("Overall, the presumption may help improve international cooperation on intellectual property issues.").
See Margulies, supra note 143, at 484 ("The application of 271(f) to software, an
easily transported and duplicated invention, presents interesting questions of
territoriality. The United States seemingly allows patent holders to seek damages for actions that completely occur abroad, outside of the reach of traditional
applications of domestic law.").
See Wilson, supra note 71, at 452; see also Brief for the United States as Amicus
Curiae Supporting Petitioner at 29, Microsoft Corp. v. AT & T Corp., 127 S. Ct.
1746 (2007) (No. 05-1056), 2006 WL 3693464 ("When [section 271(f)] is read correctly to regulate only the supply of components from the United States for assembly abroad, it has no direct extraterritorial application."); Donald S. Chisum,
Normative and Empirical Territoriality in Intellectual Property: Lessons from
PatentLaw, 37 VA. J. INT'L L. 603, 607 (1997) (suggesting that in section 271(f)
"Congress did not extend patent rights to acts outside the United States, but
rather relied on some domestic act as a hook to reach foreign-based economic
activity that harms a patent owner's interest in deriving full economic advantage
from the U.S. market").
See Microsoft Corp. v. AT & T Corp., 127 S. Ct. 1746, 1753 & nn.5, 6 (2007) (noting that Microsoft stipulated that it was liable under section 271(a) and section
271(b) for domestic infringement).
See 35 U.S.C. 271 (2000).
[Vol. 87:301
copying, installing, and selling that ultimately give rise to the infringement would take place entirely in a foreign country.
By enacting a law directed at wholly foreign actions, Congress
would reach too far into the affairs of other nations in light of the purposes of the presumption against extraterritoriality to respect the legal systems of other nations and avoid international conflict.150 The
U.S. law would dangerously ignore the interests of the foreign country
where the activities occur 15 1 by conspicuously intruding on the rights
52
of that country to regulate its own intellectual property law system. 1
While U.S. patent laws that are limited to the territorial jurisdiction
of the U.S. will affect a foreign country's patent law power to some
extent, U.S. laws should not directly regulate activities that are
wholly foreign because that would usurp some of the foreign country's
power, and possibly lead to discord between the U.S. and the foreign
country. 1 53 Consequently, even though Congress has the power to enact a statute directed at software exports, 154 the policy concerns underlying the presumption against extraterritoriality caution against
the passage of such a law.
2. Patent Infringement Liability Would Be Excessive
Furthermore, Congress should not enact legislation directed at
software exports because the potential patent infringement liability
would be too great for U.S. companies. The excessive liability would
150. See supra subsection II.A.1; see also Brief for the United States at Amicus Curiae
Supporting Petitioner at 29, Microsoft Corp. v. AT & T Corp., 127 S. Ct. 1746
(2007) (No. 05-1056), 2006 WL 3693464 ("Imposing liability for conduct that occurs in foreign countries and is directed toward foreign markets fully implicates
the comity concerns underlying the presumption against extraterritoriality.").
151. See Wilson, supra note 71, at 434 (suggesting that a law directed as software
exports would "show[ I] an inappropriate lack of respect for foreign patent laws").
152. See TRIPS Agreement, supra note 33 (providing for a basic common intellectual
property law system where member nations define the rest of their system based
on their own policies); Paris Convention, supra note 33 (setting basic intellectual
property law guidelines for all member nations, but otherwise allowing member
nations to define their own intellectual property law systems); see also RESTATEMENT (THIRD) OF FOREIGN RELATIONS LAw 206 & cmt.b (1987) (providing that a
state has "sovereignty over its territory" where sovereignty "implies a state's lawful control over its territory generally to the exclusion of other states, authority to
govern in that territory, and authority to apply law there"); Margulies, supra note
143, at 496-97 (noting that because intellectual property is important to domestic
economies "jurisdiction sometimes should not exist over issues 'so closely tied to
foreign sovereignty interests.'") (quoting Graeme W. Austin, The Role of National
Courts:Valuing "DomesticSelf-Determination"in InternationalIntellectual Property Jurisprudence, 77 CHI.-KENT L. REV. 1155, 1179 (2002)).
153. See Margulies, supra note 143, at 501 ("[Ihfthe U.S. government reaches so far to
protect domestic industry, it may find other nations respond in kind. U.S. patent
holders could find themselves liable in foreign courts for infringing domestic conduct and international negotiations could break down.").
154. See supra subsection II.A.1.
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2008]
cerned with reducing the loss of jobs to foreign countries, the new legislation aimed at software exports would be contrary to this objective,
especially because U.S. software companies sell a large amount of
software outside of the U.S.166
U.S. software companies would also likely consider relocating so
they could avoid the strategic disadvantage created by the potential
excessive liability. While U.S.-based companies competing in foreign
markets with foreign-based competitors would be subject to this additional liability for actions outside the U.S., their foreign competitors
would not. This would clearly put the U.S. companies at a disadvantage in the foreign market. 16 7 The patent infringement damages rules
make it very likely that software companies would face potentially unlimited liability under legislation aimed at software exported on
golden master disks. The excessive liability combined with reduced
competitiveness in foreign markets would likely prompt U.S.-based
software companies to consider moving their production operations
outside of the U.S.
3.
PATENT QUALITY IMPROVEMENT 144 (Comm. Print 2005), available at http://judiciary.house.gov/media/pdfs/printers/109th/20709.pdf (statement of Nathan P.
Myhrvold, Chief Executive Officer, Intellectual Ventures) (telling the subcommittee that "[miost software companies have the majority of their revenue come from
outside the US .... ").
167. See AT & T Corp. v. Microsoft Corp., 414 F.3d 1366, 1376 (Fed. Cir. 2005) (Rader,
J., dissenting) (finding that 271(f), as interpreted by the Federal Circuit, not
only "protects foreign markets from domestic competitors," but also protect[s] foreign markets from foreign competitors); see generally Farrand, supra note 163, at
1266 (discussing the "paradox of significant added risks without any significant
protection [that] results from Section 271(f)'s applicability only against U.S. producers" because it "leaves all actual and potential foreign producers free to compete with the patent holder in foreign markets" but "does not, however, reduce
the monetary or injunctive burdens Section 271(f) can impose on companies that
do produce components in the U.S. and export their products to other countries").
168. The prevailing justification of patent law is that a patent is a "discretionary act of
the sovereign, acting on behalf of the public." 1 R. CARL MOY, MOY'S WALKER ON
PATENTS 1:26 (4th ed. 2006). Under this view, "[wlhere it seems that the public
would suffer net losses ... the patent is denied." Id. The "grant of patent rights
is a discretionary act" by the sovereign that "exercises this discretion according to
[Vol. 87:301
ative effects include the possible encroachment on rights of other nations, which could affect international relations,16 9 and the potential
excessive liability imposed on software exporters, which could persuade software companies to move operations outside of the U.S.170
On the other hand, such a law would likely increase the incentive to
inventl 7 l because it would provide an additional layer of protection for
72
U.S. patents.1
U.S. patent holders, however, can generally secure protection
under foreign patent systems. 173 This is an approach endorsed by international intellectual property treaties signed by the U.S.17 4 that
allow U.S. citizens to seek protection through foreign patent law systems. 175 Although it is more expensive to apply for and protect pat-
169.
170.
171.
172.
173.
174.
175.
its calculation of how best to increase society's welfare." Id. 1:29. Additionally,
society's welfare is measured in economic terms, "with the goal of the patent system said to be the maximization of society's aggregate wealth." Id. 1:29. Ultimately, the determination of whether there should be a patent right is based on a
balancing test. The benefits should be weighed against the drawbacks. Id. As
far as patent law is concerned, the desired benefit of conferring patent rights is
"the increased incentive to invent." Id. 1:36.
See discussion supra subsection III.A.1.
See discussion supra subsection III.A.2.
See discussion supra note 165.
See Wilson, supra note 71, at 454 ("The Federal Circuit's decision in AT & T v.
Microsoft . . .greatly enhances the value of American software patents by extending liability of U.S. software manufacturers to include activities conducted in
foreign countries.").
Countries offer varied levels of patent protection. See, e.g., European Patent Office, Frequently Asked Questions, http://www.epo.org/help/faq.html (last visited
Mar. 11, 2008); Japan Patent Office, Overview of Rights, http://www.jpo.go.jp/
seido e/index.htm (last visited Mar. 11, 2007). Also, foreign patent rights may be
weaker than U.S. rights. See Margulies, supra note 143, at 507.
See TRIPS Agreement, supra note 33, at 1197 ("Desiring to reduce distortions
and impediments to international trade, and taking into account the need to promote effective and adequate protection of intellectual property rights, and to ensure that measures and procedures to enforce intellectual property rights do not
themselves become barriers to legitimate trade[,]" the member nations agreed to
uniform recognition of intellectual property rights.); Paris Convention, supra note
33 (recognizing that citizens of signing countries shall enjoy the same patent
rights in another signing country as that country's own citizens). The Supreme
Court also encourages the use of foreign protection where domestic protection is
not available. See Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518, 531
(1972) ("To the degree that the inventor needs protection in markets other than
those of this country, the wording of 35 U.S.C. 154 and 271 reveals a congressional intent to have him seek it abroad through patents secured in countries
where his goods are being used."); Microsoft Corp. v. AT & T Corp., 127 S. Ct.
1746, 1759 (2007) ("In short, foreign law alone, not United States law, currently
governs the manufacture and sale of components of patented inventions in foreign countries. If AT & T desires to prevent copying in foreign countries, its remedy today lies in obtaining and enforcing foreign patents.").
See TRIPS Agreement, supra note 33; Paris Convention, supra note 33. In addition to filing in the country in which patent protection is desired, patent applicants who are citizens of nations that are signatories of the Paris Convention can
2008]
ents in multiple countries, 176 U.S. patent holders can choose to target
key markets where infringement is likely to occur and streamline the
process by filing an international patent application under the Patent
Cooperative Treaty. 17 7 Furthermore, U.S. patent holders would benefit from securing foreign protection because it would likely be more
expansive than the protection provided by a statute imposing liability
solely on U.S. software exporters. Foreign protection would give the
patent holder rights against foreign infringers with no connection to
the U.S. It would also allow U.S. patent holders to secure priority in
the foreign country, preventing foreign competitors from seeking such
protection and effectively shutting the U.S. patent holder out of competing in that market. 178 On balance, Congress should not implement
the law because the potentially excessive liability imposed on exporters and incentive for software companies to relocate outside the U.S.
would strongly outweigh the potential benefits of providing limited additional protection to U.S. patent holders for activities that occur
outside of the U.S.
B.
Even though the Supreme Court has limited the reach of section
271(f),179 the section should remain in effect.1so The reach of the sec-
176.
177.
178.
179.
180.
file one application to apply for a patent in all member nations. World Intellectual Property Organization, Paris Cooperation Treaty, http://www.wipo.intlpct/
enltreaty/about.htm (last visited Mar. 11, 2008). The international application
under the Patent Cooperation Treaty is simpler and less expensive than filing in
several different countries. An applicant can apply for a patent in some or all of
the 125 member countries. World Intellectual Property Org. [WIPO], Protecting
Your Inventions Abroad: Frequently Asked Questions About the Patent Cooperation Treaty, Publ'n No. 433(E) (2006), available at http://www.wipo.int/pct/en/
basic facts/faqs-about-thepct.pdf.
Although there are strong policy concerns that weigh against enacting legislation
aimed at software exports, the "individual patent holder" would likely prefer to
have a right granted under U.S. patent law because of "practical consideration[s]." Margulies, supra note 143, at 508. The practical considerations of relying on foreign countries to protect patent rights include the expense of litigating
in a foreign country, the strength of the foreign patent system in enforcing the
patent holder's rights, and the bias the foreign country may have against foreign
patent holders. Margulies, supra, note 143, at 507-08.
See Farrand, supra note 163, at 1264 ("Applying for patents in multiple countries
has been streamlined by the Patent Cooperation Treaty ("PCT"), sponsored by
the World Intellectual Property Organization ("WIPO"), which boasts the United
States and 132 other countries as parties."); see also sources cited supra note 174.
See sources cited supra note 173.
See Microsoft Corp. v. AT & T Corp., 127 S. Ct. 1746 (2007).
Some authorities have argued for repeal of 271(f) for economic reasons. See
Amendment in the Nature of a Substitute to H.R. 2795, the "PatentAct of 2005":
HearingBefore the Subcomm. on Courts, the Internet, and Intellectual Propertyof
the H. Comm. on the Judiciary,109th Cong. 8 (2005) (statement of Emery Simon,
Counsel, Business Software Alliance), available at http://judiciary.house.gov/
[Vol. 87:301
181.
182.
183.
184.
media/pdfs/printers/109th/23434.pdf ("[Section 271(f)] creates an unintended incentive to move valuable development activity outside the U.S., and should be
removed from the law."); Donald S. Chisum, Reforming Patent Law Reform, 4 J.
MARSHALL REV. INTELL. PROP. L. 336, 347 (2005) ("Section 271(f) is bad policy
because it punishes those who produce components domestically and exports [sic]
them and rewards those who move all production off shore.").
See, e.g., Moore U.S.A., Inc. v. Standard Register, 144 F. Supp. 2d 188, 195
(W.D.N.Y. 2001) (finding defendant infringed under section 271(f) on plaintiffs
patent for a type of two-way C-fold mailer "when they brought the necessary paper, glue, and blueprints with them from the United States"); W.R. Grace & Co. v.
Intercat, Inc., 60 F. Supp. 2d 316, 320 (D. Del. 1999) (finding that section 271(f)
applies to any patented invention, including chemical composition patents, and,
therefore, that the defendant was liable for international sales of its product that
was to be combined with the purchaser's product to create the patented chemical
composition); T.D. Williamson, Inc. v. Laymon, 723 F. Supp. 587, 593 (N.D. Okla.
1989) (finding the defendant liable for patent infringement under section 271(f)
for shipping "all components of [the defendant's] infringing pig, except the sensory fingers, from Tulsa to Venezuela" where they were to be combined with the
sensory fingers "for a caliper pig survey of a pipeline").
See Wilson, supra note 71, at 452 ("[T]he legislative history supports the proposition that 271(f) targets only activities within the United States and evidences
no congressional intent toward extraterritorial effect .... [Diomestic creation of
components with the intention that they be assembled abroad infringes the patent. The domestic actions, not the foreign actions, are the focus of the statute,
and the domestic actions trigger liability. This view of congressional purpose
comports well with the plain meaning of'supplies in or from the United States.'").
See RESTATEMENT (THIRD) OF FOREIGN RELATIONS LAW 206 (1987) ("Under international law, a state has ... sovereignty over its territory and general authority
over its nationals ....").
The determination of damages under the "lost profits" approach depends on how
many of the patented inventions, containing the "components" exported from the
U.S., were sold overseas. Accordingly, the amount of"lost profits" is closely tied
to the number of components exported. See W.R. Grace, 60 F. Supp. 2d at 322-26.
20081
CONCLUSION