Posted by Dennis Schubauer and John Fairbairn
On 13 February 2013, the Federal Court of Australia issued a decision relating to the patentability of business methods in Australia (Research Affiliates, LLC v Commissioner of Patents [2013] FCA 71). Emmett J held that the claimed inventions were business methods that were not eligible for patent protection. The patentability of business methods remains a vexed area of law in Australia (and many other countries). While this decision provides some guidance, it seems unlikely to resolve conclusively the uncertainty in this area of the law.
Background
Under the Patents Act 1990 (Patents Act) there is no express prohibition on patents covering business methods. Section 18(1)(a) of the Patents Act requires that, in order to be patentable, an invention must be 'a manner of manufacture within the meaning of section 6 of the Statute of Monopolies'. Historically, claims regarded as 'mere working directions' or 'mere schemes' have been regarded as unpatentable, and recent decisions have also interpreted the 'manner of manufacture' requirement in a way that rendered business methods unpatentable.
For example, in Grant v Commissioner of Patents [2006] FCAFC 120, the Full Court of the Federal Court of Australia held that, in order for there to be a patentable invention '[it] is necessary that there be some 'useful product', some physical phenomenon or effect resulting from the working of a method'. In that case, a patent directed to a method of asset protection was held not to be patentable. The Full Court applied the relevant principles as enunciated by the High Court in National Research Development Corporation v Commissioner of Patents (1959) 102 CLR 252, including that, in order to be patent eligible, the Court must be satisfied that the 'process belongs to a useful art as distinct from a fine art' and that the effect produced by a claimed invention exhibits the qualities of being an artificially created state of affairs that is of economic significance.
The patent office has not regarded the position to be any different where the claimed method involved a computer. In Invention Pathways Pty Ltd [2010] APO 10 the delegate reasoned that the patentability of a business scheme cannot 'arise solely from the fact that, in a general sense, [the method] is implemented in or with the assistance of a computer or utilises some part of a computer or other physical device in an incidental way'.
In the present case, Research Affiliates, LLC (Research Affiliates) owned two patent applications relating to methods for constructing and using passive portfolios and indexes in securities trading. Consistent with the approach in Invention Pathways, the patent office rejected both of the patent applications on the basis that they were not a 'manner of manufacture'. Research Affiliates appealed those decisions to the Federal Court of Australia.
The decision
Emmett J, in seeking to apply the NRDC test, stated the 'method of a claimed invention will not be patentable if it does not produce an artificial state of affairs, in the sense of a concrete, tangible, physical or observable effect. Even if there is not a physically observable end result, in the sense of a tangible product, a claimed invention that is a method may nevertheless be patentable if it applies the method in a physical device. In such a case, an artificial state of affairs is produced in the physical device by the claimed method. Thus, a physical effect, in the sense of a concrete effect or phenomenon or manifestation or transformation, is required. It is sufficient if there is a component that was physically affected or a change in state or information in part of a machine. They can be regarded as physical effects. However, if the claimed invention is a mere scheme, an abstract idea or mere information, it will not be patentable as there is no physical consequence...'
In refusing the appeal, his Honour held that:
(a) the only physical result generated by the method of the claimed invention is a computer file containing an index. 'However, the index generated is nothing more that a set of data. The index is simply information: it is a set of numbers. It is no more a manner of manufacture than a bank balance';
(b) '[while] the Specification appears to be intended to create the impression of detailed computer implementation, the Specification says almost nothing about how that is to be done';
(c) 'the claimed invention does not involve a specific effect being generated by the computer... The effect of the implementation is not to improve the operation of or effect of the use of the computer'; and
(d) the implementation of the claimed invention 'is no more that the modern equivalent of writing down the index on pieces of paper... The Specification asserts a patentable invention, not in the use of the computer, but in the particular series of steps that give rise to the generation of the index. Those steps could easily have been carried out manually. The aspect of computer implementation is nothing more than the use of a computer for a purpose for which it is suitable. That does not confer patentability.' (emphasis added)
Comment
The decision is timely given that over 7 years have passed since the last judicial consideration of the patentability of 'business methods' (ie. in the Grant case) and, in the intervening time, the uncertainty in this area of law has increased.
The decision does provide some practical guidance for patentees. In particular, his Honour made it clear that a specification must do more than merely recite the implementation of a method using a computer. It must describe how that invention is to be implemented by the computer. Further, there must be a specific effect on or generated by the computer that goes beyond its standard operation.
Emmett J's reasoning may be open to criticism. First, his Honour's distinction between a computer generated output of a 'curve, or a presentation of Chinese characters, or the writing of particular information on a smart card' as being patentable on the one hand but an 'unspecified index' as being unpatentable on the other, may prove to be illusory. It seems his Honour was drawing a distinction between an invention relating to application software and one that merely uses pre-existing software for a purpose for which it is suited. However, if the focus is on the physical consequence of such inventions, at a number of levels, they are indistinguishable.
Second, the reasoning appears to conflate issues of fair basis (ie. whether the specification discloses how to implement the method using a computer) and inventive step (ie. whether the invention was obvious) on the one hand and whether the invention is a 'manner of manufacture' for the purposes of section 18(1)(a) on the other. In Lockwood Security v Doric Products [2004] HCA 58, the High Court made it very clear that such grounds of invalidity should be treated separately. While threshold requirement of 'newness' and 'inventiveness' are relevant to an assessment of section 18(1) (per the High Court's reasoning in NV Philips Gloeilampenfabrieken v Mirabella International Pty Ltd (1995) 183 CLR 655), in the present case his Honour did not expressly adopt such an assessment in his reasons for judgment. They seem to have formed part of the assessment as to whether there was an 'artificial state of affairs, in the sense of a concrete, tangible, physical or observable effect.'
Business methods are potentially very valuable, particularly in the financial services sector. In the present case his Honour noted that Research Affiliates received a 'significant licence fee' for the use of its technology. Therefore companies wishing to protect business methods will need to consider carefully what strategies to use to protect their inventions (eg. confidentiality obligations and/or patent protection) and the extent to which they meet the requirements highlighted by Emmett J in this case.
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