The National Cloud Computing Strategy - clear skies ahead?

Posted by Harry Aitken, Rosie Johnson and Paul Kallenbach

In late May of this year, Senator Stephen Conroy, Minister for Broadband, Communications and the Digital Economy (as he then was) announced The National Cloud Computing Strategy (Strategy) at the Cloud @ CeBIT Conference held in Sydney.  Unfortunately the conference was not held on SKYWALK at the Sydney Tower, which somewhat limits the number of 'sky' and 'cloud' puns we could have otherwise used in this paragraph.  But we digress ...      

cloud computing

noun the provision of services over the internet to allow users to remotely store, process and share electronic information.

Cloud computing is not, as the name might otherwise suggest, using technology to compute the structure, pattern and formation of clouds.  (We apologise in advance to any nephologists who may have stumbled across this blog post.)  Cloud computing, rather, is the use of computer platforms to deliver services over the internet.  Whenever you use your Gmail account, online banking service, Amazon or iTunes, you're engaging with the brave new(ish) world of cloud computing.

Returning to the Strategy, the Government's aim is to address three goals:

• for the Australian Government to be a leader in the use of cloud technology, creating efficiencies and generating value and to deliver better services and create more agility in the public service;
• for Australian small business, not-for-profit organisations and consumers to have the protection and tools they need to acquire cloud services with confidence; and
• for Australia to have a vibrant cloud sector supported by a skilled and cloud-aware information and communication technologies (ICT) workforce, able to create and adopt cloud services, effective competition in cloud services, and regulatory settings that support growth, foster innovation and protect users.

The Strategy goes on to detail steps which the Government considers might be taken in order to achieve these goals.

What is the Government proposing to do?

The Government plans to lead by example and adopt cloud computing in its own enterprise.   It also plans to assist other government agencies and non-government organisations to do the same by identifying training and skill development opportunities to facilitate the adoption of cloud computing and encourage lines of communication between Government agencies about what works and what doesn't.

The Strategy identifies that smaller businesses are likely to obtain the most benefit from the adoption of cloud computing mechanisms.   Consequently, in order to empower small businesses and not-for-profit organisations to utilise cloud computing, the Government will strive to enhance the information in the market in relation to cloud computing and the likely benefits to smaller businesses which might not otherwise take up the opportunity or be able to obtain sufficient information in order to make and informed decision.   The Government identifies that there is a lot of information about cloud computing but that is not easy to understand, and aims to release publications and information in a more digestible format.  The Government also plans to open the lines of communication between cloud service providers and consumers in order to better consider issues which may arise.

In relation to its aim of encouraging a vibrant cloud services sector, reliable internet access is central, and the Government not surprisingly touts the the National Broadband Network as a key aspect in providing the infrastructure necessary to facilitate the expanding use of cloud computing.  Using the tertiary education sector is another way identified by the Government to increase the knowledge and skills of cloud computing, hence a proposal to incorporate cloud computing into the ICT curriculum and encourage further research and development activities in this area.

Impact?

So how might the Strategy impact consumers and business owners?

The Strategy posits that cloud computing can enhance functionality, mobility, scalability and security for businesses, enable them to scale their processing up and down as their capacity changes, and employ a range of diverse services for each task.  The Strategy also suggests that everyday consumers may benefit – 33% of 1,000 sampled small and medium Enterprises (SMEs) who were surveyed in 2012 'indicated they would be quite likely to pass on cost savings achieved through the adoption of cloud services to their consumers'.   For business owners, greater efficiencies may lead to increased profits, which can be invested in things which will assist the growth of the business, including providing consumers with a greater range of goods and services. 

For cloud computing service providers, the Strategy aims to expand their market reach.  Ensuring appropriate measures are taken to protect users will be an area of government and media scrutiny going forward; however there are opportunities for providers with strong data protection mechanisms in place to make a big splash in the Australian market.  IDC predicts that the cloud computing market sector will be valued at $2,030 million by 2015, and by 2020, almost 40% of digital information will be affected by cloud computing in some manner.[1]

The regulatory setting

Presently, there is a complex mix of international, domestic and industry-specific regulations and standards which apply to cloud computing practices. 

Australian consumers and businesses have general contractual, consumer and privacy protection under the law of contract; the Privacy Act 1988 (most relevantly, the new APP 8, which comes into effect in March 2014, and will impose new obligations on government agencies and private sector organisations in relation to the the overseas disclosure of personal information ); the Competition and Consumer Act 2011 and the Australian Consumer Law; the Telecommunications (Interception and Access) Act 1979 and other statutes besides.  On the industry front, the Telecommunications Act 1997 seeks to promote competition and facilitate access to telecommunication infrastructure, while the Australian Prudential Regulatory Authority (APRA) regulates the outsourcing and offshoring activities of banks and other financial institutions through prudential standards, including, most relevantly, Prudential Standards CPS 231 and SPS 231.   

However, none of these instruments have been designed with the cloud in mind, and the emergence of cloud-based providers - who may fall outside existing legislative categorisations and standards - potentially weakens the efficacy of the regulatory framework.  Moreover, the cross-border nature of cloud services raises difficult issues of jurisdiction and enforcement, since national laws may not extend to the conduct of service providers who are based in other countries.

As a consequence, the Australian Communications and Media Authority (ACMA), in a recent paper,[2] has proposed that while the National Cloud Computing Strategy aims to stocktake the current regulatory framework, a 'single coherent framework' should still be sought. 

The Australian Computer Society's Cloud Consumer Protocol discussion paper may be a useful first step in this regard.  The paper aims to elicit feedback from cloud service providers and customers on the tools and protections that they require in order to acquire and deploy cloud services with confidence and trust. 

Submissions on the Cloud Consumer Protocol paper are open until 5 September 2013.  

[1] IDC EMC, The Digital Universe in 2020: Big Data, Bigger Digital Shadows and Biggest Growth in the Far East, cited in Australian Communications and Media Authority, The cloud – services, computing and digital data: Emerging issues in media and communications (Occasional paper 3, June 2013).

[2] Australian Communications and Media Authority, The cloud – services, computing and digital data: Emerging issues in media and communications (Occasional paper 3, June 2013). 

The importance of social media monitoring

Posted by Nicole Reid and Paul Kallenbach

The use and monitoring by companies and organisations of social media continues to be a fraught issue. Earlier this year, the ASX imposed additional obligations on listed companies to monitor social media for what is being said about them (see our blog post here). But there are potential risks, both legal and non-legal, for other companies too that do not pay sufficient attention to what is being posted on social media sites.

A range of companies have faced criticism for the way in which they have dealt with negative content posted to social media (for example, you might recall a Twitter campaign backfiring on McDonalds earlier this year, and a memorable response by the proprietors of a US restaurant to criticism directed at them). There can be serious reputational repercussions for organisations that are seen as not properly managing online dialogue with their customers and other stakeholders.

From a legal perspective, the biggest risks for organisations arise from content that third parties post to their social media sites. So far, there is limited guidance from Australian courts about when a company may have legal responsibility for such content. One exception to this is the Federal Court's decision in Australian Competition and Consumer Commission v Allergy Pathway Pty Ltd (No 2) [2011] FCA 74. In this case, Allergy Pathway was found guilty of contempt of court for breaching undertakings it had given to the ACCC not to make or publish representations similar to those which had earlier been found to be misleading or deceptive. The conduct that amounted to contempt of court was the posting to Twitter and Facebook by third parties of testimonials containing such representations. Although Allergy Pathway did not post the content itself, it became aware of the testimonials but failed to remove them, and the court agreed with the ACCC's argument that this was sufficient to render it liable for the content.

A similar position to that adopted by the Federal Court in the Allergy Pathway case was also taken by the Advertising Standards Bureau (ASB) in its decision that content posted to the official Victoria Bitter Facebook page breached the Advertiser Code of Ethics, even though the offending content was posted by users (albeit in response to questions posed by the company) rather than by the company itself.

The importance of the issue of responsibility for third party content is highlighted by the fact that two advertising industry bodies in Australia have recently released guidelines on monitoring social media. The best practice guideline issued in 2012 by the Australian Association of National Advertisers (AANA), the body that develops the Advertiser Code of Ethics applied by the ASB, advocates regular monitoring of social media against the standards in the Code and sets out specific timing for such monitoring to take place.

On the other hand, the guidelines issued in June by the Interactive Advertising Bureau Australia (IAB) take a more robust approach. The IAB states in the guidelines that user comments 'do not constitute advertising' unless they are endorsed by the organisation, and that organisations should not be too conservative in moderating social media as this may 'adversely impact their presence on social platforms'. The IAB does, however, note that there may be a need to remove illegal posts, and recommends that companies follow the recommendations published by the ACCC in relation to avoiding liability for misleading or deceptive content on social media (which are reproduced in the guidelines).

So what should an organisation do about moderating its own social media sites, especially in light of the competing views of these two industry bodies?

We agree with the IAB that a company should tailor its approach to social media monitoring taking into account the areas of risk for the company (both legal and non-legal), and the social media landscape in which it operates, as well as the resources available to monitor social media, rather than attempting to adopt a one-size-fits-all approach. However, in doing so, it is important that the full range of potential risks be considered. These risks include not only the risks of an adverse decision by the ASB or an action for misleading or deceptive conduct (by either the ACCC or a third party, such as a customer or a competitor), but also:

• legal liability for defamatory content if the organisation has published that content and does not have a defence available to it, such as innocent dissemination (see our earlier blog post considering this issue in the context of user generated reviews);
• legal liability for authorising copyright infringement (particularly where the organisation has solicited users to post content such as videos or photographs that may contain third party copyright content used without permission);
• legal liability for offensive material, including under legislation prohibiting racial or religious vilification; and
• other reputational risks from hosting content that may not breach any laws or advertising standards but that may offend customers or other members of the public (and may also breach the rules of Twitter, Facebook or other social media platforms).

We recommend that organisations develop their own views about the level of social media monitoring that is required, taking into account the guidance of both the AANA and the IAB, as well as factors specific to the organisation and the industry in which it operates.

It is also important to ensure that the individuals who carry out any such monitoring are aware of the various types of content that may be problematic, including the range of legal issues associated with user generated content, and the ways in which this can be dealt with.  Finally, as part of the organisation's preparation for effective social media monitoring, it should ensure that the terms of the organisation's social media sites clearly set out the organisation's expectations about what content may be posted, and what action it may take in relation to content that falls short of the required standards.

Greens Senator proposes fair use amendment to the Copyright Act

Posted by Ella Biggs and Paul Kallenbach

Image courtesy of renjith krishnan

On Thursday 27 June 2013, Greens Senator, Scott Ludlam delivered the Second Reading Speech for the Copyright Legislation Amendment (Fair Go For Fair Use) Bill 2013.  The proposed amendments address four aspects of the Copyright Act 1968 (Cth) (the Act). They are:

• removing digital locks and technical protection measures that restrict the ability of the visually impaired and the disabled to access copyright protected content (for example, allowing the reproduction of a text work as an audio work or the conversion of text to Braille);
• extending the scope of the current safe harbour provisions.  This change is aimed at ensuring that service providers, including internet service providers, search engines and public or not for profit institutions are not liable for the copyright infringement of their users (in certain circumstances);
• removing the ability for geocode mechanisms to affect the price of copyright protected content in Australia; and
• introducing a broad and technology neutral fair use provision into the Act.  This would change the approach to determining whether the use of a copyright protected work constitutes copyright infringement.

Of these proposed changes, the introduction of a broad fair use defence in the Act is the most far reaching, with the potential to significantly reshape the copyright law landscape in Australia. The fair use provision proposed by the Bill directly mirrors the equivalent provision in the United States,[1] where fair use plays a significant part in the analysis of copyright infringement.  It is unclear from the proposed Bill whether the current fair dealing defences would be repealed or how these would interact with the proposed fair use defence.

Given the potential significance of the introduction of a fair use defence, the Australian Law Reform Commission (ALRC) was commissioned to look into the issue in its report on 'Copyright and the Digital Economy'.  In its Discussion Paper, released in June 2013, the ALRC proposed a broad and flexible fair use standard that is informed by the current fair dealing defences (and some additional illustrative purposes) as well as general 'fairness' factors.[2]  The ALRC's final report is due in November 2013.

While the Bill is indicative of a movement within copyright circles to revise copyright law in Australia to make it more flexible in digital environment, it is unlikely that the Bill's proposed amendments to the Act will be passed by Parliament.  However, given the potentially wide reaching significance of the introduction of a fair use defence to Australia's copyright law, it is most unlikely that the Bill will receive any attention before the ALRC's final report on this issue is released.

[1] 17 USC § 107.
[2] Australian Law Reform Commission, 'Copyright and the Digital Economy' Discussion Paper 79 (May 2013) 90–8.

Trade mark infringement in online advertising

Posted by Ella Biggs and Kylie Diwell

Companies advertising using Google's Adwords service need to consider whether they might be infringing the registered trade marks of their competitors.

Google's Adwords service allows advertisers to purchase 'keywords' which, when entered into the Google search bar by an internet user, direct the types of search results that are returned (for example, the 'sponsored links' that appear on a Google Results page).

In Australia, the use of a trade marked term as a keyword in the context of online advertising may constitute trade mark infringement where the use is combined with a clear representation of the common origin of the goods or services. A recent decision in the United Kingdom goes further than this, finding that the use of a registered trade mark as a keyword is itself sufficient for trade mark infringement. This may have an effect on the development of the law in Australia, and this issue should be treated with caution by advertisers.

Google's Adwords policy and trade marks

On 23 April 2013, Google changed its Adwords policy in Australia relating to the ability to purchase keywords that are the subject of a registered trade mark.[1] This change also affected China, Hong Kong, Macau, Taiwan, New Zealand, South Korea and Brazil. The same change in Google's Adwords policy was announced in the UK and Ireland in May 2008.

Before this change, Google's Adwords service allowed trade mark owners to lodge a complaint with Google where their registered trade mark had been used by a competitor, which triggered an internal review process by Google. In cases where trade marked terms had been used as keywords, the infringing advertisement was removed by Google. Following the change in its policy, Google will no longer prevent advertisers from purchasing and using trade marked terms as a keyword. Without Google restricting and monitoring the use of trade mark terms in this way, a claim of trade mark infringement against the advertiser is the avenue through which trade mark owners can now stop the use of their trade marks as keywords.

Establishing trade mark infringement in online advertising

In Australia, it does not appear that purchasing and using a keyword that is the subject of a registered trade mark would fall within 'use as a trade mark' for the purposes of establishing infringement under section 120 of the Trade Marks Act 1995 (Cth) (the Act). In Complete Technology Integrations Pty Ltd v Green Energy Management Solutions Pty Ltd it was found that the use of a trade marked term as a meta tag was not sufficient, on its own, to constitute 'use' for the purposes of establishing trade mark infringement.[2] However, it appears that the use of trade marked terms as keywords, when combined with clear representations of similar origin of the goods or services (for example, as a banner on a website), will be sufficient for establishing infringement under the Act.[3] With Google no longer monitoring the use of trade marked terms in online advertising, the courts will have greater scope to hear disputes and influence the development of the law in this area.

A recent decision in the United Kingdom relates to an action brought against an advertiser following Google changing its Adwords policy there in 2008. In Marks & Spencer v Interflora [2013] EWHC 1291 (Ch), the High Court found that Marks & Spencer's (M&S) use of Interflora's trade mark as a Google keyword was an infringement of Interflora's trade mark. This case marks a significant development of the law in this area and, given that Google has just changed its policy regarding the use of trade marked terms as keywords in Australia, this case may have repercussions for advertising practices here.

Significant development in the UK: Marks & Spencer v Interflora

Following the announcement of change to Google's policy regarding keywords in the UK, M&S made a considered commercial decision to purchase Interflora-related keywords on Google for the purpose of diverting internet users to its own website. Interflora argued that this conduct infringed its registered trade marks.

In finding that the conduct of M&S had infringed Interflora's trade mark, Justice Arnold of the High Court (heavily influenced by statements from the European Court of Justice, where the case had been referred following its initial hearing in the UK), repeatedly stated that the use of a trade marked term as a keyword in online advertising was not conduct that was inevitably and inherently objectionable from a trade mark perspective. However, certain factors were relevant to the finding that M&S's conduct had infringed Interflora's trade marks. In particular, the following factors were significant:

• the nature of Interflora's business model. Justice Arnold discussed the uniqueness of Interflora's business model as being a significant factor in his decision. In particular, that Interflora's brand and business model is based around providing a network for florists in geographically dispersed areas made it more likely that consumers would be confused as to whether the advertised goods originated from Interflora or M&S. That an internet user would be likely to assume a connection or affiliation between Interflora and M&S Spencer by having an M&S advertisement appear as a Google search result for 'Interflora' was a determinative factor in this regard.
• the relevant consumer. In determining the effect of M&S's advertising, the relevant perspective was that of 'the reasonably well-informed and reasonably observant internet user', initially as at 6 May 2008. This user was considered not to understand the difference between organic and advertised search results, largely because of the relative lack of internet literacy in 2008. It was found that, even in 2013, a 'significant proportion' of internet users in the UK would not appreciate the difference between a natural search result and a paid advertisement. The onus was then placed on M&S to establish that the use of the Interflora's trademarks would not confuse the consumer (with the characteristics described by the Court). M&S was unable to do this, resulting in a finding of infringement.

Implications for Australia

Although certain factors that were significant to Justice Arnold's decision in Marks & Spencer v Interflora (as described above) may limit the ability of the decision to be applied more generally, the outcome in this case illustrates an important development in trade mark law. It is of particular importance as it is the first case to hear a dispute following the change in Google's Adwords policy internationally. Now that this change has been effected by Google in Australia, the approach of this case may be persuasive to courts here when hearing similar disputes, especially where online advertisers are seeking to take advantage of the change to Google's Adwords policy.

Companies still need to be careful that they don't mislead and deceive consumers in breach of the Competition and Consumer Act 2010 (Cth) by purchasing and using Adwords, irrespective of whether their conduct would amount to trade mark infringement under Australian law. See our analysis here of the High Court's decision in Google Inc v Australian Competition and Consumer Commission [2013] HCA 1, which included a discussion of the obligations on advertisers not to mislead consumers when using Google's Adwords service.

[1] See <https://support.google.com/adwordspolicy/answer/177578?hl=en&rd+1#>.

[2] [2011] FCA 1319 [57]-[62]. 

[3] See, eg, Mantra Group Pty Ltd v Tailly Pty Ltd (No 2) (2010) 183 FCR 450 [13]-[69].

The Centre for International Economics finds that patents involved in gene based technologies are increasingly not isolated human gene sequence patents

Posted by Benita McLennan and Peter Kearney

We are probably all familiar with the opposing arguments in the 'Gene Wars' debate:

• those in favour of gene patenting argue that patents are essential to support high risk and high cost medical discovery and development;
• those against gene patenting claim that gene patents limit the accessibility and inflate the price of medical services.

A number of reports on gene patenting have made reference to the lack of economic analysis and data around gene patents, including:

• the 2004 Australian Law Reform Commission's report, Genes and Ingenuity: Gene patenting and human health; 
• the 2010 Senate Community Affairs References Committee report on Gene Patents; and
• the 2011 report by the Senate Legal and Constitutional Affairs Legislation Committee, Patent Amendment (Human Genes and Biological Materials) Bill 2010.

To address this information gap, IP Australia commissioned The Centre for International Economics (the Centre) to investigate the economics of isolated human gene patents in Australia.  The Centre recently released its final report 'Economic Analysis of the Impact of Isolated Human Gene Patents' (the Report).  A copy of the Report can be accessed here.

 

Key findings

 

The Report focuses primarily on isolated human gene sequence patents, which it defines to mean patents that include at least one claim to an isolated human gene sequence or a fragment of an isolated human gene sequence (as opposed to patents that claim modified gene sequences or only methods for using a gene sequence).

 

One of the key findings of the Report is that isolated human gene patents have, particularly since the completion of the Human Genome Project in 2003, been playing a less significant role in the patent landscape, with more and more patents focusing instead on:

• methods of using isolated gene sequences; and
• not naturally occurring DNA and genetic sequences (ie, sequences created in the laboratory).

In fact, the vast majority of full-length isolated human gene sequence patent applications were filed prior to the completion of the Human Genome Project in 2003.   This is despite the fact that gross business expenditure on research and development in the medical and health sciences sector has tripled over the past ten years, and National Health and Medical Research Council funding for research on human genetics and genomics for large public entities has increased by two and a half times.

 

Other findings of the Report include that:

• approximately $795 million was invested in gene technologies related to human health during 2011-12 (a number that has been increasing over time);
• most of that $795 million is funded by governments (specifically, 79 percent or approximately $628 million);
• analysis suggests that price premiums are paid for patent-related genetic tests;
• quantifiable monetary impacts attributable to isolated human gene sequence patents are small in terms of royalty and fee income related to the patent (specifically, $1.1 million to $2.6 million per annum is estimated to be earned by publicly funded research institutions).

The Report concludes that the real value in patents is their role in incentivising innovation and the public-private partnerships that are needed to bring new human gene based therapeutics and diagnostics to market, and that, reflecting changes in patent activity, increasingly the patents involved are those that are not isolated human gene sequence patents.

 

Comment

 

The Supreme Court of the United Stated recently held in Association for Molecular Pathology v. Myriad Genetics, Inc. that isolated naturally occurring DNA sequences are not patent eligible (see our previous blog post here).

 

In light of the findings of the Report, it may be that this decision (and the outcome of the Full Federal Court appeal in the Australian Myriad Genetics proceedings – see our previous blog post here) will not have a large impact on the biotech industry in the future, as isolated naturally occurring DNA sequences appear to be playing a diminishing role in the patent landscape since the Human Genome Project was completed in 2003.

US Supreme Court finds naturally occurring DNA sequences are not patent eligible

Posted by Mellissa Lai and John Fairbairn

The Supreme Court of the United States today held in Association for Molecular Pathology v. Myriad Genetics, Inc. 569 U.S. (2013) that isolated naturally occurring DNA sequences are not patent eligible. This may have implications for analogous proceedings, which are on foot in Australia.

Australian litigation

The Federal Court of Australia held in February of this year that isolated naturally occurring DNA and RNA are patentable subject matter (see our previous blog post here).   That decision considered Myriad Genetics Inc's (Myriad) Australian patent no. 686004, which relates to a gene associated with human breast and ovarian cancer known as the 'BRCA1' gene.   The decision is the subject of an appeal to the Full Court of the Federal Court.

US Supreme Court decision

Myriad's US patents have also been the subject of litigation, which ultimately resulted in an appeal to the Supreme Court of the United States. In its unanimous decision delivered on 13 June 2013, the Court rejected the argument that isolating a DNA sequence from the rest of the chromosome is patent eligible. As the Court stated:

"To be sure, [Myriad] found an important and useful gene, but separating that gene from its surrounding genetic material is not an act of invention" at page 12.

However, the Court drew a distinction between naturally occurring DNA and complementary DNA (cDNA) sequences. The DNA of genes in the body contain 'coding' and 'non-coding' regions. The body reads the whole sequence and cuts out the 'non-coding' portions to make a related sequence known as mRNA that the body can then go on to read and make proteins. cDNA can be made in a lab by copying the mRNA back into DNA. Therefore the cDNA contains only the 'coding' regions, as the 'non-coding' portions were cut out earlier in the mRNA. In short, cDNA is something new, created with human effort and is not a 'product of nature'.

The Court held that the BRCA cDNA was patent eligible. The Court commented that in some instances, even cDNA molecules may not be patent eligible if it is indistinguishable from a naturally occurring sequence. This may occur if a DNA sequence is so short that it consists only of 'coding' regions, meaning that the mRNA did not have any work to do in cutting out the 'non-coding regions' resulting in a cDNA sequence that is identical to the naturally occurring DNA sequence.

The Court emphasised what its decision did not represent – that is, it does not consider the patentability of DNA which has been altered in other ways, such as by scientifically altering the naturally occurring nucleotides. It is also important to note that, like the Australian case, it does not consider any other aspect of patentability (eg. novelty, obviousness) and did not consider any methods of analysis of the human genome.

Comment

In relation to the Australian proceedings, with the appeal set to be heard on 7 August 2013, it will be interesting to see if the Federal Court takes a similar approach.

Given the narrow scope of the decision, its implications for the biotech industry is fairly limited.   For Myriad Genetics, while its claims over isolated, naturally occurring DNA sequences are now invalid under US law, it has maintained its exclusive rights over the cDNA sequences.   Consequently, competitors of Myriad may be able to offer genetic testing for the BRCA1 and BRCA2 genes provided the relevant cDNA molecule is not used.

Software patents: some recent international developments (and their repercussions for Australia)

Posted by Ella Biggs and Paul Kallenbach

Recent developments in New Zealand and the United States highlight some of the issues that arise in seeking patent protection for software and computer programs.

In Australia, software is a 'patentable invention' for the purposes of section 18 of the Patents Act 1990 (Cth), provided that it is:

• a manner of manufacture;
• novel and involves an inventive step when compared with the prior art base as it existed before the priority date of the claim;
• useful; and
• not the subject of 'secret use'.

Courts in Australia have found that software meets the requirements of section 18 if the invention has some practical or material effect, as recently reflected in the Federal Court's decision in Research Affiliates LLC v Commissioner of Patents [2013] FCA 71 (covered in a previous blog post).

However, impending changes to patent legislation in New Zealand, as well as uncertainties raised by recent US Federal Court judgments regarding how to approach the patentability of software, may have future implications for software patents in Australia.

Legislative developments in New Zealand

New Zealand is in the process of updating its patent regime by replacing the Patents Act 1953 (NZ) (NZ Patents Act) with new patent legislation (Patents Bill).

Under the current NZ Patents Act, computer programs are patentable.  A Report of the Commerce Select Committee in 2010 advised the Government to remove the ability for computer programs to be protected by patent law.  There has been uncertainty in New Zealand regarding whether the Government would accept this recommendation.  This uncertainty was seemingly addressed on 9 May 2013, when the Commerce Minister, Craig Foss, released a supplementary order paper clarifying this issue, following intense pressure from the IT industry.

The supplementary order paper inserts clause 10A into the NZ Patents Act, which provides that 'a computer program is not an invention and not a manner of manufacture for the purposes of this Act'. An invention will be a 'computer program' where 'the actual contribution made by the alleged invention lies solely in it being a computer program'.

A range of factors will be considered by the courts in identifying the 'actual contribution' of the invention. These factors include: the substance of the claim and the actual contribution it makes, what problem the invention solves or addresses and how it does so, the advantages of solving or addressing the problem in that manner, and any other matters the Commissioner or the court thinks relevant (clause 10A(4), Patents Bill).

The essence of this change relates to whether a computer program is capable of implementing a tangible effect, beyond its primary function as a computer program. The supplementary order paper compares two examples to illustrate this point: one is a computer program which contains a method for improving the performance of a washing machine.  In this circumstance, the actual contribution of the computer program is the new and improved way of operating the washing machine, and thus it is eligible for patent protection.  By contrast, a process for automatically completing legal documents, using conventional hardware (the novel aspect of the claim being the computer program itself) would be ineligible for patent protection.  In this instance, the actual contribution of the claim would lie solely in being a computer program, and the mere execution of a method within a computer does not allow the method to be patented.

It seems, then, that what constitutes an eligible patent claim under these changes will be dependent on whether the actual contribution of the patent lies outside of the computer or, if it affects the operation of the computer, that the contribution is not dependent on the type of data being processed or the particular application being used.  There appears be a requirement for an external or tangible effect of the computer program in order to qualify for patent protection, to which clause 10A(4) of the Patents Bill specifically refers the Commissioner and the courts in determining whether an invention will be considered a computer program.

Judicial uncertainty in the US

In CLS Services Ltd v Alice Corporation Pty Ltd, the Federal Court of Appeals (District of Columbia) was expected to provide a clear determination on the circumstances in which computer software would be patentable in the United States. However, the Court in this case did the opposite: the 10 judges of the Court authored five different judgments, all coming to different conclusions on the circumstances in which software will be eligible for patent protection.

In the US, eligibility for patent protection is based on whether the claimed invention is a new and useful process, machine, manufacture or composition of matter, or an improvement of an existing invention.  The court must be satisfied that the invention does not make a claim to a law of nature, a natural phenomenon or an abstract idea.  In this case, Alice Corporation had developed a computerised trading platform used for conducting financial transactions in which a third party settles obligations between the contracting parties to reduce settlement risk.  Alice Corporation sought patent protection over the software's systems and methods.

The Court delivered a divided opinion on a range of different issues.  In particular, the Court was conflicted regarding whether the computer software was more than an 'abstract idea' and eligible for patent protection.  One judgment (the Lourie judgment) found that the software was ineligible for patent protection as the claim did not more than articulate an abstract idea into computer language. That the software did no more than enable a process to be carried out more efficiently, or by a machine rather than a human, was not enough to make the claim eligible for patent protection.  Without doing more than stating a method or a process, and adding nothing of practical significance to the underlying idea, the software was found ineligible for patent protection.

In a judgment that accepted parts of the Lourie judgment but dissented in parts, the Rader judgment found the system claims eligible for patent protection and the method claims ineligible.  The main distinction between the Rader judgment and the Lourie judgment appears to be in the way the interaction between the computer and the computer program is analysed.  The Rader judgment found that the combination of the computer program and the computer itself had the effect of creating a new machine or outcome.  The abstract idea of avoiding financial risk was found to be integrated into a system utilising machines by the operation of the computer program, creating a new and practical effect.

Although there were various other bases for disagreement between members of the Court, this distinction between the two main judgments regarding the way computer programs interact with computers, and how to categorise this interaction, illustrates a fundamental issue in the application of patent law to software.  The inability of the Court to come to agreement regarding the way that computer programs should be categorised, whether as an abstract idea or as having the effect of creating a new machine or outcome, creates uncertainty in the IT industry regarding what software will be eligible for patent protection.

Potential ramifications for Australia

In Australia, software is currently eligible for patent protection.  In IBM v Commissioner of Patents (1991) 33 FCR 218, the Federal Court found that a method and apparatus for producing a curve image was patentable.  This finding was based on the production of the curve being a new application of mathematical methods to computers. 

This reasoning was applied in Research Affiliates LLC v Commissioner of Patents, where using a computer to create a weighted index of assets was found to be ineligible for patent protection.  The facts in this case were distinguished from the IBM case on the grounds that the steps of the patent could have been done manually, and that the role of the computer in the process of creating the weighted index was no more than the use of a computer for a standard purpose. To be eligible for patent protection, it appears then the court will need evidence of a practical application or effect which improves the use of the computer, rather than a computer being used to more efficiently fulfil a task that could have been undertaken by a human.

How the role of computers in producing the 'practical effect' of the patent is categorised will be critical to a finding of patent protection in Australia.

The New Zealand legislature has tried to address the confusion that may arise in making this determination by trying to specify the circumstances in which patent protection will (and won't) be available for computer programs.  Conversely, the US decision of CLS v Alice Corp exemplifies the uncertainty that can arise when a court is unable to clearly determine and articulate the role that computers play in implementing particular computer software.

These US and New Zealand developments highlight an area of potential confusion and uncertainty in Australian law, which software developers should watch with caution.