Court rules in Microsoft's favour on patents

…the ability to record, store and play back speech in a way that violated AT&T's patent. Rather, the high court case centred on whether Microsoft should be forced to pay damages not only on software code installed on US machines but also on foreign ones.

AT&T had argued before the judges in February that the discs are far more than a simple set of instructions. It argued that the information on the discs constitutes a critical component of the product — and that software is so easily encoded into a tangible copy that the extra step undertaken by foreign manufacturers to duplicate the master disc and then install it onto a machine should make little difference.

The majority of the judges disagreed with that logic. "The extra step is what renders the software a usable, combinable part of a computer; easy or not, the copy-producing step is essential," they wrote. "Moreover, many tools may be used easily and inexpensively."

AT&T also argued that the way the law is written provides a loophole for companies to avert patent infringement damages by arranging for copies to be made abroad from US-supplied master discs. The Federal Circuit appeals court sympathised with that concern, but the Supreme Court said any perceived "loophole" would be best addressed by Congress.

Justice John Paul Stevens said he would have chosen to uphold the Federal Circuit's findings. In his dissent, he said he disagreed that abstract software code is analogous to a blueprint.

"Unlike a blueprint that merely instructs a user how to do something, software actually causes infringing conduct to occur," he wrote. "It is more like a roller that causes a player piano to produce sound than sheet music that tells a pianist what to do."

The US software industry, including the open-source community, and the US Department of Justice's Solicitor General had filed briefs on behalf of Microsoft in the case. They contended that a ruling against the Windows maker could expand its vulnerability in patent infringement suits compared with global rivals and make it more attractive to locate its research operations abroad. AT&T countered that software companies need only worry if they're committing infringement in the first place.

Emery Simon, counsellor to the Business Software Alliance, which counts Microsoft among its members and backed its Supreme Court position with briefs, hailed the decision as an important step in "rebalancing patent law", which he said has been skewed too far in favour of inventors.

The trade association had been pressuring Congress to scale back the section of the law governing the international exports as part of broader changes it has vowed to enact. Simon told reporters in a conference call that such changes are no longer necessary "because we think the court got it right".

Notably, the high court also did not declare that software is unpatentable — a move that Microsoft, for one, embraced. "It is important for patent laws to continue to provide an incentive to innovate for software, just as it does throughout the rest of the economy," Smith said in the company's statement about the ruling.

In an unlikely alliance, developers of free and open-source software had filed briefs with the high court in support of Microsoft with the hope that the judges would proclaim once and for all that software is not patentable.

Instead, the court attempted to draw a line: it ruled that "software in the abstract" is not patentable when it is simply a set of instructions detached from any medium — an "idea without physical embodiment". But the ruling suggests that copies of code that can be, for example, downloaded from the internet or inserted in a CD-ROM drive and installed on a computer do qualify as patentable.

Ed Black, president of the Computer & Communications Industry Association, which counts Microsoft and Red Hat among its members, said that although his organisation supported the Supreme Court's overall conclusion about the application of patent damages abroad, "some of the discussion relating to software patents and to software and what they are and how they should operate within the patent system need further study to understand the implications".

He added: "It points up some of the inherent problems when you apply patents into the software world."

CNET News.com's Ina Fried contributed to this report.