Focus: Patents & Trade Marks – September 2006
Business method patents – pondering the intangibles
In brief: AAR Patent & Trade Marks Attorneys Partner Chris Bird(view CV) reports on the potential impact of the Full Federal Court's decision in Grant on patent law in Australia and draws comparisons with the corresponding regimes in Europe and the United States.
- Background
- The judgment
- Physical effect
- Practical implications
- Comparison with European and United States law
- Information v reality
Background
AAR reported in Focus: Patents - July 2006 on the recent Australian Full Federal Court decision regarding the patentability of so-called 'business methods' (Grant v Commissioner of Patents [2006] FCAFC 120).
The question of whether – and in what circumstances – business methods can be validly protected by patent is one which has, over recent years, occupied practitioners, patent offices and courts in many jurisdictions around the world, and which has received extensive media coverage.
The Grant case seemed to make clear that an abstract method relating to a business, commercial or financial scheme cannot satisfy the definition of a 'manner of manufacture', which is a requirement for all inventions sought to be patented under the Patents Act 1990 (Cth). While many may agree with the ultimate outcome in this particular case, denying protection to an invention defined by no more than a series of financial and legal steps to be taken to protect an asset, the decision may well have broader repercussions on validity and patentability of inventions in other areas of business and industry. In particular, before the Grant decision, it was somewhat unclear in Australia whether or not a business method (or indeed any method) had to be embodied in software in order to be considered proper subject matter for a patent.
The judgment
First, a few key points from the Grant judgment.
Importantly, the court made clear that 'the fact that a method may be called a business method does not prevent it being properly the subject of letters patent; see Catuity at [125]-[126]'.1
Moreover, the court expressed reservations about a view expressed in a recent decision by the Deputy Commissioner of Patents,2 that the concept of 'an artificially created state of affairs' discussed by the High Court in NRDC3 requires 'the application of science or technology in some material manner '. After all, the High Court in NRDC emphasised the unpredictability of advances in human ingenuity, and the Full Court made clear that 'we think that to erect a requirement that an alleged invention be within the area of science and technology would be to risk the very kind of rigidity which the High Court warned against'.
The Full Court pointed out that 'it has long been accepted that "intellectual information", a mathematical algorithm, mere working directions and a scheme without effect are not patentable', holding the claim at issue to be 'intellectual information', mere working directions and a scheme.
Finally, the court said that:
It is necessary that there be some 'useful product', some physical phenomenon or effect resulting from the working of a method for it to be properly the subject of letters patent. This is missing in this case.
Importantly, in discussing the scope of this 'physical effect', the court stated that 'a concrete effect or phenomenon or manifestation or transformation is required ... In Catuity and CCOM4 as in State Street5 and AT&T,6 there was a component that was physically affected or a change in state or information in a part of a machine.'
Physical effect
In rejecting Mr Grant's contentions on manner of manufacture, the court held that 'the method of his patent does not produce any artificial state of affairs, in the sense of a concrete, tangible, physical, or observable effect'. When we think about this in the context of inventions that embody software, is the court telling us that computer algorithms are to be rejected because they are essentially no more than instructions or intellectual information, as was the case under old authorities before decisions such as that in CCOM? Apparently not, in light of the comments regarding 'changes of state or information' in a machine. However, as Mr Grant (who represented himself before the court) argued, if the documents constituting the trust, making the gift, detailing the loan or recording the mortgage are produced by computer (and it is hard to imagine any printing process nowadays not involving a computer), the requirement for a physical effect should be satisfied.
The question, then, is whether the decision would have been different if (a) some, or all, of the set of method steps were defined in the claim as being implemented in a computer environment, or (b) the set of steps included the output or production of one or more documents detailing part, or all, of the transactions or the consequence thereof. It would appear from the court's comments that the answers must be (a) yes, and (b) possibly, yes. Implementing the steps on a computer system would provide the 'change in state or information in a part of a machine', while printing a document as an essential part of the process (eg a document recording a mortgage) may be seen as providing a physical manifestation or effect.
So far, all well and good. But surely this is nothing more than playing tricks with claim wording? After all, inclusion of such features would neither change in any way the essence of the invention nor impact on the inventive contribution to the state of the art. Can it really be the case that merely executing on a computer system a method otherwise unpatentable renders that method potentially patentable?
So we still seem to be left with the question of what really is a 'physical effect'. Whilst carefully and sensibly avoiding the need to define the boundaries of science and technology, the case law seems to instead have erected an artificial barrier between the physical and the non-physical, for reasons that are not clearly justified. It may still be that a case will need to go to Australia's highest court, the High Court, before this question is properly addressed.
Practical implications
In many ways, the Grant decision is good news for inventors and applicants. The Full Court has sensibly refused to impose limits based on definitions of science of technology, given the unpredictability of advances in human achievement. In respect of the method of Grant's application, the court held that the result of applying the asset protection process was no more than an abstract situation, in that an unsecured creditor or recovered judgment against an asset owner may not be able to levy against that asset. If this is the only effect or outcome, it is not sufficient to base a patent right. Those seeking protection for new business methods accordingly need to ensure that the claims of the patent specification include features or steps that involve or enable the creation of a physical effect or phenomenon.
It should be noted that the Grant case involved an innovation patent, but there seems little doubt that the decision would apply equally to standard Australian patents and patent applications.
Comparison with European and United States law
Under the European Patent Convention (the EPC) an invention is considered to be excluded from protection if it has no technical character. Recent case law has shown that appropriate claim terminology can be used to avoid the specific EPC exclusions to inventions embodying business methods and computer software, and, in fact, the real test is whether the inventive contribution made by the claimed subject matter does itself fall within a field of scientific or technical endeavour (meaning the application of physical or natural laws). Thus, business methods carried out in computer environments that do not produce a different observable output (be it a physical output or some unexpected change in the working of the computer or computer system, going beyond the usual workings of a programmable machine) are not patentable. Inventions of significant commercial merit, embodying techniques that are novel and far from obvious, can thus be denied patent protection in Europe.
Interestingly, an Australian resident is also involved in making waves in the United Kingdom regarding protection of computer-based systems. Neal Macrossan, whose application to patent a computer-based system (a web-based system for the automatic generation of documents necessary for incorporating a company in the UK) was turned down by the UK Patent Office on the grounds that it was excluded from patentability by the EPC and the UK Patents Act 1977, recently received approval to proceed to the Court of Appeal and argue his case. Mr Macrossan first took the matter to the UK High Court, but in April 2006 Justice Mann decided against him,7 rejecting his arguments about the technical contribution provided by the invention on the basis that 'the heart of its effect is an automation process, but what it automates is a mental act'.
In allowing the appeal, Lord Justice Jacob stated that the exclusions to patentability are 'a public interest, sufficiently uncertain and thus worthy of consideration by the Court of Appeal'. Tantalisingly, he also said that Mr Macrossan's arguments 'have a real prospect of success'.
Mr Macrossan is a qualified solicitor who, like Mr Grant, has so far represented himself in court. It will be interesting to hear how this UK case is decided, and whether the outcome may have any effect on considerations in other countries subject to the EPC. The appeal was heard in August 2006 and judgment is now pending.
With regard to the situation in the United States, the Full Court in Grant went to some length to cite with approval a line of decisions from US courts. In State Street, the Court of Appeals for the Federal Circuit emphasised that, although a mathematical algorithm, formula or calculation is not patentable, the transformation of data by a machine that produces a 'useful, concrete and tangible result' is patentable. This is a standard that has been applied by the courts and business methods are treated in the same manner as other subject matter. It seems that both in law and practice, the US courts are careful to avoid the specific requirement of any physical manifestation of the invention.
On the question of patentable subject matter, the Full Court in Grant reaffirmed broad commonality between the policy intents of the US Constitution and the Statute of Monopolies (IMP) 1623 , from which the relevant considerations of 'manner of manufacture' derive. Thus, some guidance as to the meaning of physical effect might well be found by reference to US authorities discussing the scope and meaning of the 'useful, concrete and tangible result'. Inevitably, one may wonder whether a 'tangible result' is quite the same as a 'physical effect', and whether the US courts are veering perhaps towards the same artificial distinction.
Information v reality
So where does that leave us? At least in Australia and the United States, patent law seems to be grappling with the limit of terms like 'tangible' and 'physical'. Nowadays, however, it seems clear that the broader scientific community recognises that the distinction between information (ie knowledge) and reality (ie the physical) is a meaningless one. Information appears to determine the physical structure of the cosmos, and to be at the very heart of the mysteries of relativity and quantum mechanics. In attempting to define the limits of patent protection with reference to the physical, is jurisprudence actually moving further and further away from the reality of science in the 21st century?
Ultimately, these are perhaps questions of philosophy, rather than of patent law, and there are obvious dangers when the law steps into the domain of philosophical, moral or similar issues. Lawmakers constantly grapple with the difficulties of selecting the right line between pragmatism and reality. Pondering the question in respect of patents for software and business methods is unlikely to lead to any easy answers, but if it may help reduce the widening gulf between different leading jurisdictions, then ponder we must.
Footnotes
- Welcome Real-Time SA v Catuity Inc (2001) 113 FCR 110.
- Re Peter Szabo and Associates Pty Ltd (2006) 66 IPR 370.
- National Research Development Corporation v Commissioner of Patents (1959) 102 CLR 252.
- CCOM Pty Ltd v Jiejing Pty Ltd (1994) 51 FCR 260.
- State Street Bank & Trust Co v Signature Financial Group Inc 149 F 3d 1368; 47 USPQ 2d 1596 (Fed Cir 1998).
- AT&T Corp v Excell Communications, Inc 172F 3d 1352; 50 USPQ 2d 1447 (Fed Cir 1999).
- Re Neal William Macrossan [2006] EWHC 705 (Ch).
For further information, please contact:
- Dr Trevor DaviesPartner, Allens Arthur Robinson Patent & Trade Marks Attorneys,
Sydney
Ph: +61 2 9230 4007
Trevor.Davies@aar.com.au - Chris BirdPartner, Allens Arthur Robinson Patent & Trade Marks Attorneys,
Melbourne
Ph: +61 3 9613 8259
Chris.Bird@aar.com.au - Peter JamesPartner,
Brisbane
Ph: +61 7 3334 3360
Peter.James@aar.com.au - Ted MarrPractice Manager - Greater China Intellectual Property,
Beijing
Ph: +86 10 8518 8128
Hong Kong
Ph: +852 2903 6210
Ted.Marr@aar.com.au
