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High court hears AT&T-Microsoft dispute

WASHINGTON -- A lawyer for AT&T argued before a skeptical Supreme Court yesterday that Microsoft Corp. is violating one of its patents when it sends its Windows software overseas to be copied and placed on personal computers.

The case has implications beyond the technology sector and, depending on the outcome, could encourage US manufacturers to establish more research and development facilities abroad.

Microsoft acknowledged it violated AT&T Inc.'s patent on speech encoding technology when it sold Windows in the United States, but disputes that it should be held responsible for infringement when the software is copied by foreign computer makers.

Justice Stephen Breyer expressed sympathy for Microsoft Corp.'s argument, suggesting AT&T should pursue its infringement complaint in overseas markets where the copies are made.

"The whole question here is whether (the company) has to get a patent" abroad, Breyer said.

At issue in the dispute is a section of patent law that bars companies from shipping components of a patented invention overseas for assembly. The intent of the provision, which became law in 1984, was to prevent companies from circumventing patents by sending parts offshore to assemble them in a way that would infringe the patent in the United States.

Two lower federal courts ruled in favor of AT&T. The Supreme Court is expected to decide by July.

AT&T's lawyer, Seth P. Waxman, argued that the patent law "does not reach what anybody does overseas." Instead, Waxman said, Microsoft violated the law when it sent its software from the United States to other countries to be "installed and stored in foreign computers."

Microsoft's lawyer, Theodore B. Olson, countered that the company's software is not a component until it is placed on a computer's hard drive or optical disc and can actually be used by a computer.