23 August 2011

Australian Patent Office Shoots Down Another ‘Business Method’

Network Solutions, LLC [2011] APO 65 (19 August 2011)

Hearing in relation to examiner's rejection of a patent application - whether the claimed invention a manner of manufacture – whether claims directed to ‘a medium storing instructions adapted to be executed by a processor’ a manner of manufacture

The truly astonishing thing about this most recent decision by Hearing Officer Phil Spann is not that the claimed method was found not to be patent ineligible – this outcome is not at all surprising considering the subject matter, and the recent direction taken in a number of Patent Office decisions.  The real surprise is that the decision, issued on 19 August 2011, quotes extensively from the US Court of Appeals for the Federal Circuit (CAFC) decision in CyberSource Corporation v Retail Decisions, Inc (Fed. Cir. 2011, No. 2009-1358), which was itself only issued on 16 August 2011 (already 17 August in Australia), and reported on this blog on 18 August 2011 (see ‘Computer Readable Medium’ Claims – Substance Trumps Form).

The message could not be more clear, in case anybody has missed it so far.  The Patent Office has so-called ‘business method’ patents in its sights, and has no compunction in using whatever ammunition it may be able to find to shoot down ‘wayward’ claims.  Never mind that a decision was issued in another jurisdiction with a markedly different patent statute – the Federal Court of Australia has indicated approval of certain US decisions previously, so logically this approval can be extended to all US decisions.  And never mind that the foreign decision in question was issued weeks after the applicant’s submissions were received in Australia – there is always a right of reply by way of appeal to the Federal Court, assuming the applicant has a lazy few tens of thousands of dollars tucked away for the purpose.

Now, we are not saying that this decision is necessarily wrong.  But what we are saying is that the law regarding patent-eligibility in Australia is what the Australian legislature, and the prescribed Australian courts, determine it to be.  It is not what the US courts decide.  Nor is it some creeping incremental advance on prior Patent Office decisions, which move the principles being applied ever further from the true sources of the law – the Australian parliament, and the Australian courts.


The Patent Office has issued a remarkable number of adverse decisions on patent-eligibility (‘manner of manufacture’) over a period of little more than a year.  These are:
  1. Invention Pathways Pty Ltd [2010] APO 10 (21 July 2010);
  2. Iowa Lottery [2010] APO 25 (21 October 2010);
  3. Research Affiliates, LLC [2010] APO 31 (17 December 2010);
  4. First Principles, Inc [2011] APO 1 (5 January 2011);
  5. Myall Australia Pty Ltd v RPL Central Pty Ltd [2011] APO 48 (12 July 2011);
  6. Discovery Holdings Limited [2011] APO 56 (9 August 2011); and now
  7. Network Solutions, LLC [2011] APO 65 (19 August 2011).
In some of these cases, the decisions were directly precipitated by the Patent Office, either by the proactive setting down of a hearing once examination appeared to have reached an impasse, or (in the particular case of Myall v RPL Central) by raising ‘lack of manner of manufacture’ as an additional ground of opposition not relied upon by the opponent.

In every case, the claims were found not to be patent-eligible.  While this does not mean, in itself, that the decisions are incorrect, two points are notable:
  1. historically speaking, decisions on manner of manufacture have come along only occasionally – one every few years on average – so this number in such a short period is certainly unusual; and
  2. with the exception of the Full Federal Court decision in Grant v Commissioner of Patents [2006] FCAFC 120, the precedential court decisions on manner of manufacture have tended to produce a different result, confirming the broad scope of patentable subject matter under the Australian law.
The overall impression, therefore, is of a Patent Office which has adopted an extremely proactive role in this particular area of the law, issuing a series of decisions which have generally expanded on the Full Court’s reasoning in Grant, as well as ‘importing’ US jurisprudence.  We note that the Hearing Officer in this case, Phil Spann, was also the first Australian decision-maker to cite the US Supreme Court’s Bilski decision, only three weeks after it issued, in the Invention Pathways case (see Method for Commercialising Patentable Inventions Found Neither Patentable nor an Invention).


The specification of Australian patent application 2005250809 describes an online method and system for domain name registration.  The process of registering an internet domain name is, nowadays, typically automated.  The prospective registrant visits the web site of a selected registrar, and enters the desired domain name (e.g. patentology.com.au) into a search box.  If the domain name is not yet registered to another party, the registration process may then proceed in accordance with the rules of the relevant authority.

However, if the desired name is already taken, the prospective registrant will either have to choose different domain name, or attempt to acquire the name from the existing registrant.  Domain names can generally be transferred by agreement, usually involving an exchange of funds between the parties.  Or, to put it plainly, the prospective registrant can pay the existing registrant to acquire the domain name.

The disclosed method and system implements an automated ‘brokerage’ service.  In particular, it applies one or more rules or heuristics to determine a fair price (an ‘appraisal amount’) for the domain name, e.g. based on intrinsic qualities of the name (such as in which top-level domain it resides), or on empirical data, such as the amount of traffic presently attracted by the domain name.  The appraisal amount is presented as guidance to the prospective registrant, who then enters an offer, which may be the same as, or different from, the appraisal amount.  The system takes responsibility for confirming (‘certifying’) the user’s capacity to pay the offer amount, e.g. by performing a credit card authorisation.  The offer is then presented to the existing registrant, who may accept the offer, reject the offer, or make a counter-offer.

A particular advantage of this automated system would seem to be its ability to mediate between a prospective ‘buyer’ of a domain name and a ‘seller’, without revealing to the seller the identity of the buyer.

Claim 1 of the application, as considered in the decision, defines the invention as follows:

1. A computer-implemented method for purchasing a domain name registration, comprising:
  1. receiving from a user data indicative of an offer message indicating a domain name and an offer amount, wherein the domain name is registered to a registrant distinct from the user;
  2. certifying that the user has access to funds that are at least sufficient to pay the offer amount;
  3. generating certification data; and
  4. if the certification data indicates that the offer amount has been successfully certified, then processing the data relating to the offer message thereby to send to the registrant an offer to purchase the domain name registration from the registrant
Clearly (and unsurprisingly) this main claim is in broader terms than the particular embodiment described in the specification.  After considering the US ‘authorities’, the Hearing Officer found (at [21]) that:

… regardless of the mention of computer implementation, I consider what the applicant seeks to claim in this application is a commercial or financial scheme (as opposed to a patentable business method). The effect of what is claimed is not the same as the inventions considered in IBM (drawing a smooth curve on a computer screen), CCOM (computer processing apparatus for assembling text in Chinese language characters) or in Welcome Real-Time SA v Catuity Inc [2001] FCA 445 (process for operation of a smart card in a loyalty program). It results in the generation of a message characterised by intellectual information or, more generally, the transfer of ownership of a domain name. These, as I have indicated, are not useful effects of the type apparent from the authorities.

There is some force to this reasoning in relation to the broad terms of claim 1.  However, while the ‘transfer of ownership of a domain name’ might be a purely financial and legal transaction, the actual recording of the change in registration, including the updating of network information centre (NIC) and WHOIS records, and so forth, would arguably comprise useful, concrete and tangible physical effects.  Furthermore, there is a tangible output generated by computation and presentation of an appraisal amount.  Both of these further steps are clearly described in the specification, and were the subject of dependent claims in the originally-filed application (the complete claim set, as amended during examination, is not readily available).

Thus the Hearing Officer’s further finding (at [28]) that ‘I do not consider that patentable subject matter has been disclosed in the specification and that consequently the applicant [sic] should be refused’ seems somewhat more difficult to justify.


Claim 16 of the amended application is directed to ‘a medium storing instructions adapted to be executed by a processor to perform a method according to any preceding claim’, which is simply a convenient expression of a ‘Beauregard’-type claim (see ‘Computer Readable Medium’ Claims – Substance Trumps Form).

The decision with regard to this claim followed the same course as that of the CAFC in CyberSource. The applicant argued that ‘claim 16 defines a physical medium. A physical medium is by its very nature a manner of manufacture.’  The Hearing Officer concluded (at [25]):

In relation to claim 16, a “medium storing instructions” is not a manner of manufacture if only characterised by intellectual information. Rather, in the present context, it is patentable when the instructions stored on it are capable of causing a useful effect in the operation of a computer. It is in that way that it becomes "a mode or manner of achieving an end result which is an artificially created state of affairs of utility in the field of economic endeavour." (CCOM at [128]). Given what I have concluded about the scope and nature of the method claims to which claim 16 is appended, it also follows that claim 16 does not define a manner of manufacture.


It is difficult to view the recent series of decisions on ‘manner of manufacture’ dispassionately.  While each decision might have its individual merits, as a group they lack coherence and consistency.

It is difficult to see, for example, what the ‘invention specific commercialization system to facilitate success of inventions’ of Invention Pathways, which clearly does not require any greater automation than a simple spreadsheet for operation, has in common with the method claimed in the present case, which (in at least some embodiments) inherently involves the automated completion of online transactions and updating of domain name registry records.

It is also difficult to see how the ‘system for constructing a non-capitalization weighted portfolio of assets’ in Research Affiliates is clearly distinguishable from the US State Street case (discussed with approval by the Full Federal Court in Grant), in which a system producing a final share price relied upon in further transactions was considered to provide a patentably useful, concrete and tangible result.

To complicate matters further, there have been other decisions during this period, relating to similar ‘business methods’, in which ‘manner of manufacture’ was either not considered (Telstra Corporation Limited v Amazon.com, Inc. 2011 APO 28), or was found to be satisfied (Visa Inc. v CardinalCommerce Corporation [2011] APO 34 – ‘method claims clearly relate to supporting authentication processing of on-line commercial transactions involving several physical steps in a networked environment. The claims are not directed merely to a scheme.’)  It is difficult to reconcile either of these decisions with the rejection of the online data processing application claimed in the RPL Central case.

We are not sure that there is any clear and consistent dividing line between ‘patent-eligible’ and ‘patent-ineligible’ under the manner of manufacture test as it is being applied by the Australian Patent Office.  When experienced advisors cannot confidently advise prospective applicants on the availability of patent protection for their inventions, it would seem to be a very bad thing for applicants, and for the patent system generally.


Emma_dddk said...

could be corruption?

Patentology (Mark Summerfield) said...

I don't think so -- there are far simpler and less sinister explanations.
I have heard whispers that this is a deliberate strategy by the Patent Office to provoke an appeal to the Federal Court in order to obtain greater clarity in the law.

Emma_dddk said...

Mark, if clarity was the real problem why didn't these rejections occur earlier? If the law was unclear a week ago, could the same law have been clear for the last 5 or 10 years?

You have noted confusion and inconsistencies in the recent decisions. If the law was unclear to the examiners, the inconsistencies in the decisions would have been identical but we have seen DIFFERENT inconsistencies in the decisions which is extremely unusual.....

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Mark Summerfield said...

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