The Supreme Court’s 2007 decision in Microsoft Corp. v. AT&T Corp. exposed a gap in the extraterritorial reach of United States patent law. Section 271(f) of the Patent Act was drafted in 1984 to close a different gap, the one identified by the Court’s decision in Deepsouth Packing Co. v. Laitram Corp., in which a domestic manufacturer escaped infringement by shipping the unassembled components of a patented machine to foreign buyers who then completed the assembly abroad. Congress responded by extending the patent owner’s remedy to anyone who supplied or caused to be supplied from the United States “all or a substantial portion of the components of a patented invention” in a manner that would induce infringement if performed within the country. The provision was, on its face, technology-neutral. As applied to software, it has proven anything but.
The Microsoft v. AT&T Problem
AT&T held a patent on a computer that incorporated a particular speech-encoding capability. Microsoft’s Windows operating system, when installed on a computer, allegedly performed the patented function. Microsoft shipped a master version of Windows from the United States to foreign computer manufacturers, who then made copies of the operating system and installed those copies on computers sold to overseas customers. AT&T sued under § 271(f), arguing that Microsoft had supplied a component of the patented invention from the United States.
The Supreme Court disagreed. Justice Ginsburg, writing for the majority, held that the master disks themselves were not the components combined into the infringing devices. The components were the foreign-made copies, and § 271(f) does not cover components manufactured abroad. The result was that Microsoft escaped infringement liability for sales of Windows-equipped computers outside the United States, even though the design work and the master disk had originated in the country.
The Doctrinal Mismatch
The opinion treats the difference between a tangible component and an intangible one as decisive. A bolt or a microprocessor shipped from a U.S. factory remains the same physical object when it reaches the foreign assembly line. A piece of software shipped from a U.S. server is duplicated on arrival, and the Court treated the duplicates as a different thing from the original. As a matter of physical chemistry, this is correct. As a matter of patent policy, it produces a result the 1984 Congress almost certainly did not intend. The whole point of § 271(f) was to deny domestic manufacturers a loophole based on the place where final assembly occurred. Microsoft reopened that loophole for software.
Why the Gap Matters
Software has become the primary medium for the technologies that § 271(f) was meant to protect. The encoding scheme at issue in Microsoft would, in an earlier era, have been implemented as dedicated hardware, and the dispute would have looked exactly like Deepsouth. Instead the implementation lived in code, and the doctrinal protection vanished. The result is that U.S. patent law gives weaker extraterritorial protection to software inventions than to mechanical inventions performing the same function. There is no policy reason for that asymmetry.
The economic consequences are not theoretical. The major U.S. software firms generate the bulk of their revenue outside the United States. A patent doctrine that exempts the cross-border supply of software components from infringement liability denies U.S. patent holders any meaningful remedy against foreign sales of products built around their inventions. As we noted in our analysis of indirect IP enforcement strategies, sophisticated patent owners have found workarounds — foreign filings, parallel trade secret claims, contractual restrictions on the master copies they distribute — but these are partial substitutes for the direct remedy that § 271(f) was designed to provide.
The Case for Legislative Action
The Court in Microsoft was explicit that any expansion of § 271(f) to reach intangible components was a matter for Congress. The opinion repeatedly invoked the principle that patent law operates territorially and that the presumption against extraterritorial application is strong. Both points are sound. They also cut in favor of, not against, legislative action. If § 271(f) reflects a deliberate congressional judgment that the United States may regulate the supply of components for foreign assembly, that judgment should apply to software components on the same terms it applies to tangible ones. Congress can make that equivalence explicit by amending the statute.
A clean fix would substitute “component, including a copy of a software component made or transmitted from the United States” for the existing language. The amendment would resolve Microsoft without disturbing the broader principle of territoriality. It would also align the patent statute with the practical reality of how modern technology is manufactured and distributed.
Counterarguments
Two objections deserve attention. The first is that any expansion of § 271(f) invites international friction by extending U.S. patent law into foreign markets that have their own patent regimes. The objection has force, but it applies equally to the existing version of § 271(f), which has not produced the friction its critics predicted. The second objection is that an amendment would benefit large patent holders disproportionately. That may be true. It is not a reason to leave intact a doctrinal gap that distorts the choice between hardware and software implementations of the same invention. The right response to concerns about patent assertion is targeted reform, not the preservation of an arbitrary loophole.
Conclusion
Section 271(f) was a sensible response to the problem identified in Deepsouth. Its application to software, as constrained by Microsoft v. AT&T, is incoherent. Congress should restore the original symmetry by clarifying that the cross-border supply of software components from the United States falls within the same rule that has governed tangible components for nearly four decades. The cost of doing so is modest. The cost of leaving the doctrine as it stands is a patent system that systematically undervalues the inventions it most needs to protect.
Frequently Asked Questions
What did Microsoft v. AT&T decide?
In Microsoft Corp. v. AT&T Corp., 550 U.S. 437 (2007), the Supreme Court held that § 271(f) does not reach the supply of master copies of software from the United States to foreign manufacturers who then install copies on computers sold abroad. The Court reasoned that the master disks themselves were not the components combined into the infringing devices; rather, copies generated abroad were combined, and § 271(f) does not cover foreign-made copies.
Why does the tangible/intangible distinction matter?
Section 271(f) was enacted in 1984 to close a loophole identified in Deepsouth Packing v. Laitram, where a U.S. manufacturer avoided infringement by shipping unassembled components abroad for foreign assembly. The provision speaks in terms of ‘components’ that are ‘supplied or caused to be supplied.’ When applied to software, courts have struggled to identify what counts as a component.
What change does this Article propose?
This Article argues that Congress should amend § 271 to reach the cross-border supply of software components on terms parallel to its treatment of tangible components, eliminating the gap that Microsoft v. AT&T preserved.
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