Patentability of Business Methods in Australia, Europe and the United States

The Patent Manual of Practice & Procedures outlines the current Patent Office practice regarding business methods¹⁾, however the manual has not been updated since the latest decision in this matter was handed down in July 2006 and may be amended when this type of patent is next before the Commissioner.

Patent Office practice centres around the principles laid down in the principles set out in the High Court decision in National Research Development Corporation v Commissioner of Patents²⁾ ( “NRDC” ). These principles include, amongst others:

1. In discussing the concept of “manner of manufacture”, the relevant inquiry was into breadth of the concept rather than the meaning of particular words³⁾;
2. Products and processes had long been regarded as comprehended within the term “manufacture” as used in s6 of the Statute of Monopolies 1624 (Imp) ⁴⁾;
3. There should be some industrial or commercial or trading character about the process (as derived from Morton J’s rules⁵⁾ that a process or method is patentable if it leads to the production, improvement or preservation of a vendible product⁶⁾ )⁷⁾ ; and
4. A process is a manner of manufacture if it results in an artificially created state of affairs offering some advantage which is material, in the sense that the process belongs to a useful art as distinct from a fine art with value to the country in the field of economic endeavour and produces any physical phenomenon in which effect, be it creation or alteration, may be observed⁸⁾.

In addition, the Patent Office refers to the following matters in their summary of the law in this area:

1. Welcome Real-Time SA v Catuity Inc⁹⁾ (“Welcome”);
2. Re Innovation Patent by Steven John Grant¹⁰⁾ (“Grant – APO decision”);
3. Re Cooper’s Application for a Patent¹¹⁾ (“Cooper”); and
4. Re Innovation Patent by Peter Szabo and Associates Pty Ltd¹²⁾ (“Szabo”).

In Welcome, their Honours considered that business methods should be subject to the same legal requirements for patentability as applied to any other process or method. The patent being considered in Welcome was for a process of operating smart cards in connection with traders' loyalty schemes and the Patent Office highlights Heerey J’s guidance as to what is meant by “business method”:

“What is disclosed by the Patent is not a business method, in the sense of a particular method or scheme for carrying on a business - for example a manufacturer appointing wholesalers to deal with particular categories of retailers rather than all retailers in particular geographical areas, or Henry Ford's idea of stipulating that suppliers deliver goods in packing cases with timbers of particular dimensions which could then be used for floorboards in the Model T. Rather, the Patent is for a method and a device, involving components such as smart cards and POS terminals, in a business…”

The Patent Office continues by stating that “Business methods that claim a technical solution or technical advantage, for example, computerised accounting, monitoring, reporting or analysis systems generally satisfy the criteria of a manner of manufacture, as do business methods involving electronic commerce systems. The artificially created state of affairs resides in the technological implementation”.

The Patent Office decision in Grant – APO decision, which was upheld on appeal by the Full Federal Court, was that an invention that related to a legal structure to be used for protection of assets from potential creditors did not relate to an artificially created state of affairs but was merely a business scheme taking advantage of Australian laws. It was noted that “the alleged invention did not involve the application of a newly discovered law of nature, nor the application of any technology to implement the scheme”.

Grant – APO decision affirmed the decision in Cooper that although the concept of a mere scheme or plan for doing business may be a convenient way of indicating subject matter that may not be a manner of manufacture, is not an additional exclusion from patentability over the principles set out in the NRDC decision.

In Szabo the hearing officer considered that the subject matter of an application concerning a method for providing an appropriate rebate for a mortgagee in the event of an early death under a ‘reverse mortgage’ was not for a manner of manufacture and the method did not have any material application of science or technology. He noted¹³⁾ that although the scope of patentable subject matter has historically extended in relation to ‘new areas of application of science and technology,’ the continued expansion of those areas did not mean that the scope extended to ‘all endeavours of mankind’.

The prevailing law in this area in Australia has been recently summarised and clarified in the Full Federal Court decision of Grant v The Commissioner of Patents¹⁴⁾ (“Grant – FFC”).

In that case, Grant was appealing the Federal Court’s first instance decision to uphold the Deputy Commissioner of Patents’ revocation of an Innovation Patent on the basis that the invention claimed did not involve a manner of manufacture within the meaning of s 6 of the Statute of Monopolies 1624 (Imp).

Grant’s patent had a claim 1 that read as follows:

An asset protection method for protecting an asset owned by an owner, the method comprising the steps of:
(a) establishing a trust having a trustee,
(b) the owner making a gift of a sum of money to the trust,
(c) the trustee making a loan of said sum of money from the trust to the owner, and
(d) the trustee securing the loan by taking a charge for said sum of money over the asset.

The Court stated that the issue to be decided was whether a method of asset protection consisting of actions of financial and legal consequence is properly the subject of letters patent.

The Deputy Commissioner had revoked the patent under s 101F¹⁵⁾ on the ground in s 101B(2)(b)¹⁶⁾ based on the finding that the invention did not involve any discovery of a law of nature nor involve the application of technology in some form or other to perform the process claimed; it did not result in an ‘artificially created state of affairs’ and was not a manner of manufacture.

The Court reaffirmed that:
Business, commercial and financial schemes as such have never been considered patentable (J Lahore, “Computers and the Law: The Protection of Intellectual Property” (1978) 9 Federal Law Review 15 at 22–3, approved in CCOM Pty Ltd v Jiejing Pty Ltd (1994) 51 FCR 260 at 292) in the same way that the discovery of a law or principle of nature is not patentable. Sir Robert Finlay A-G observed in Re Cooper’s Application for a Patent (1901) 19 RPC 53 at 54, ‘[y]ou cannot have a Patent for a mere scheme or plan – a plan for becoming rich; a plan for the better government of a State; a plan for the efficient conduct of business’. A law of nature becomes patentable when applied to produce a particular practical and useful result (Welcome Real-Time SA v Catuity Inc (2001) 113 FCR 110 at [117]¹⁷⁾).

The Court approved of, Heerey J’s statement in Catuity¹⁸⁾ “the courts have confirmed that a broad approach to subject matter should be taken in order to adapt to new technologies and inventions but that does not mean that there are no restrictions on what is properly patentable¹⁹⁾.

The Court stated that the question in Grant – FFC was not whether a business system, in the sense of a system for use in a business, is or is not patentable. Patent protection is afforded to inventions that comply with the requirements of the Act, including manner of manufacture, therefore business methods are not excluded from being properly the subject of letters patent if they meet the requirements of the Act²⁰⁾. In this matter, the business method lacked the presence of a “physical effect” which is required in order to be patentable.

In summary, the Patent Office and the law both recognise that business methods are patentable and Grant – FFC supports the conclusion that the reasoning put forward by the Patents Office in accordance with the Court’s interpretation of patent law in Australia at the present time. However, the Court did not introduce a European style “technical character” requirement, and rejected the requirement proposed by the Australian Patent Office that an invention must be within the area of science or technology.

Further, it will be interesting to see how, in Australia, the Patent Office and the Court will consider the patentability of the application of new technologies which are applied to what once may have been considered an un-patentable scheme which produces a particular practical and useful result. By applying Grant – FFC this seems to be possible.

In general, methods for doing business²¹⁾, are as such explicitly excluded from patentability. However, a business method which has a technical character may be patentable.

In a matter involving a computer program²²⁾, which are similarly explicitly excluded from patentability it was noted that:

“a computer program is considered to have a technical character, if it causes, when run on a computer, a technical effect which may be known in the art but which goes beyond the “normal” physical interactions between program and computer. Such effect may, for example, be found in the control of an industrial process or in the internal functioning of the computer itself”.

In 2001, the Guidelines for Examination were updated to bring the Guidelines into line with European Patent Office (“EPO”) Board of Appeal case law concerning the patentability of business methods and computer-related inventions and with current EPO practice on examining such subject-matter. The chapter²³⁾ on patentability provides:

2.3.5
Schemes, rules and methods for performing mental acts, playing games or doing business

These are further examples of items of an abstract or intellectual character. In particular, a scheme for learning a language, a method of solving crossword puzzles, a game (as an abstract entity defined by its rules) or a scheme for organising a commercial operation would not be patentable. However, if the claimed subject-matter specifies an apparatus or technical process for carrying out at least some part of the scheme, that scheme and the apparatus or process have to be examined as a whole.

The EPO does not provide a definition of “technical character” that can be used to determine the patentability of particular business methods. It appears that the Patent Office relies on a more general guide as to whether subject matter is patentable or not as provided by the EPO Guidelines for Examination.

The EPO Guidelines state in relation to methods for doing business, if the claimed subject-matter specifies an apparatus or technical process for carrying out at least some part of the scheme, that scheme and the apparatus or process have to be examined as a whole²⁴⁾. Accordingly, in practice the opportunity would appear to arise to use apparatus together with a method as a source of patentability.

According to Article 52(1) European Patent Convention (“EPC”), a European patent shall be granted for any inventions which are susceptible of industrial application, which are new and which involve an inventive step. Further, in accordance with Rules 27 and 29 EPC, in order to be patentable, an invention must be of a technical character to the extent that it must relate to a technical field, must be concerned with a technical problem and must have technical features in terms of which the matter for which protection is sought can be defined in the patent claim.

Article 52(2) of the EPC expressly states that methods for doing business are not inventions within the EPC²⁵⁾.

Article 52(3) states any exclusion from patentability under Art. 52(2) applies only to the extent to which the application relates to the excluded subject-matter as such²⁶⁾.

Since 2001, the United States Patent and Trademarks Office (“USPTO”) has required that business method inventions must apply, involve, use or advance the “technological arts”²⁷⁾. However in October 2005 a majority decision of the Board of Patent Appeals and Interferences in Ex Parte Lundgren²⁸⁾ (“Lundgren”) ruled that the “technological arts” requirement did not exist in law.

Following the decision in Lundgren, the USPTO issued guidelines for patent examiners stating that a process, including a process for doing business, must produce a concrete, useful and tangible result in order to be patentable which again leads to towards apparatus based additional claims which presumably produce such a result.

As stated by Heerey J, in Catuity, the development of US patent law is derived from the Constitution of the United States rather than the Statute of Monopolies, however, the policy behind the two provisions is the same. Both jurisdictions have a broad approach to subject matter, in order to adapt to new technologies and inventions but there are some restrictions on what is properly patentable²⁹⁾. The US Courts³⁰⁾ consider that the concept of patentability must be able to accommodate inventions not yet envisaged. This approach is in line with the view of the Australian Courts.

In Catuity³¹⁾, Heerey J. stated that the US Court of Appeals for the Federal Circuit decision in State Street Bank & Trust Co v Signature Financial Group³²⁾ was persuasive. In that matter, the court rejected the view that business methods were excluded from patentability in the US patent common law.

Despite the broad terms of the United States Code (35 USC s101), the United States courts have held that abstract ideas, laws of nature and natural phenomena are outside the categories of patentable invention until reduced to some type of practical application³³⁾. For example, in State Street and AT&T, there was a component that was physically affected or a change in state or information in a part of a machine. In essence, the same tests apply for patents for business methods as for any other claimed invention and again the opportunity applies here for additional apparatus claims to enhance the patentability of the business method patents.

In summary, the perceived differences, cross jurisdictional and between the respective Patent Office and the relevant prevailing national law, may not be as large as is reported.

STEVE WHITE
WHITE SW COMPUTER LAW
OCTOBER 2006

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© White SW Computer Law 2006

This article is a guide only and should not be used as a substitute for proper legal advice, readers should make their own enquiries and seek appropriate legal advice.