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§ 271(f)(1) Permits Patentee to Include Microsoft’s Foreign Sales in Royalty Award

04-1234
March 02, 2005

Decision icon Decision

Last Month at the Federal Circuit - April 2005

Judges: Rader (author), Friedman, and Plager

In Eolas Technologies, Inc. v. Microsoft Corp., No. 04-1234 (Fed. Cir. Mar. 2, 2005), the Federal Circuit vacated a district court’s JMOL in Eolas Technologies, Inc.’s (“Eolas”) favor based on Microsoft Corporation’s (“Microsoft”) anticipation, obviousness, and inequitable-conduct defenses and remanded for a new trial on these issues. The Federal Circuit also affirmed certain claim constructions. Finally, the Court affirmed the district court’s holding that “components,” according to 35 U.S.C. § 271(f)(1), includes software code on golden master disks.

The jury had found that Microsoft infringed claims 1 and 6 of U.S. Patent No. 5,838,906 (“the ‘906 patent”) and actively induced U.S. users of Internet Explorer to infringe claim 1. The ‘906 patent allows a user to use a Web browser in a fully interactive environment and specifically calls for a browser located in a “distributed hypermedia environment.”

At trial, Microsoft presented evidence that the Viola Web browser (“Viola”) was in public use more than one year before Eolas’s invention. The Viola inventor, Pie-Yuan Wei, testified at trial that he had written code for Viola in May 1993 and demonstrated its capability to Sun Microsystem’s (“Sun”) engineers at that time. His testimony was corroborated with code dated from that time
period. The district court found that Wei had abandoned, suppressed, or concealed the code because he disclosed it only to Sun’s engineers and then changed it. The district court applied this ruling to the application of the Viola prior art under §§ 102(g) and 102(b).

Microsoft also argued that one of the inventors of the ‘906 patent, Michael Doyle, knew of Viola yet did not disclose it to the PTO. Because the district court determined that Viola was not prior art, it concluded that this knowledge was not material and, hence, there was no inequitable conduct.

Eolas claimed damages for both foreign and domestic sales of Windows with Internet Explorer. Microsoft moved in limine to prevent Eolas from seeking damages based on foreign sales under § 271(f). Microsoft exports a limited number of golden master disks containing software code for the Windows operating system to manufacturers abroad who use the disk to replicate the code onto computer hard drives for sales outside of the U.S. The district court determined that the code on the golden master disk constitutes “components” of an infringing product for combination outside of the U.S. under § 271(f).

On appeal, the Federal Circuit found that the district court had erred in finding that Wei had abandoned, suppressed, or concealed the Viola code such that it did not qualify as prior art. The record contains no evidence that Wei either intentionally withheld Viola from the public or unreasonably delayed a patent application or public disclosure. In contrast, the evidence shows that Wei demonstrated the code to Sun’s engineers without a confidentiality agreement and then posted an improved version of the code on a publicly accessible Internet site. Accordingly, the Court vacated this part of the district court’s judgment and remanded for further proceedings on consideration of the applicability of the Viola prior art with regard to the validity of the ‘906 patent. The Federal Circuit also ruled that the district court had erred in linking its § 102(g) abandonment finding to its § 102(b) public-use finding. Similarly, the Federal Circuit vacated the district court’s decision on equitable conduct based on its ruling that Viola could constitute prior art.

The Court then took on the question of whether software code made in the U.S. and exported abroad is a “component” of a patented invention under § 271(f). The Court observed that exact duplicates of the software code on the golden master disks are incorporated as an operating element of the ultimate device. Thus, according to the Court, the software code on the golden master disk is not only a component, it is probably the key part of the patented invention. The Court rejected Microsoft’s argument that § 271(f) “components” are limited to physical machines because neither the statute, the legislative history, nor precedent contains such a limitation. Accordingly, the Federal Circuit affirmed the district court’s ruling that “components,” according to § 271(f)(1), includes software code on golden master disks.