13 August 2011

Computer-Implementation No Insurance Against Rejection

Discovery Holdings Limited [2011] APO 56 (9 August 2011)

Hearing in relation to examiner's rejection of a patent application - whether the claimed invention a manner of manufacture - whether the claimed invention involves an inventive step

In this Patent Office decision, claims directed to a computer-implemented method and system for managing a life insurance plan were considered by Hearing Officer Ed Knock.  At issue was whether the claims were directed to patent-eligible subject matter (i.e. were for a ‘manner of manufacture’), and additionally whether they involved an inventive step.

The Hearing Officer found against the claims on both counts, rejecting the application outright and declaring that there was nothing disclosed in the specification that would be capable of meeting the requirements for patentability.

The claims of application no. 2007257547 relate to a life insurance product which differs from pre-existing products in that in addition to covering the insured party for the usual events of disability, dread disease and death, it also offers a payout in the case of certain events attending the parents of the insured party.  Such a policy is intended to assist the insured in case of financial burden imposed as a result of the effects of aging upon their parents.

To our mind, this is actually quite an innovative concept.  Contrary to the findings of the Hearing Officer, in considering inventive step, the idea that a single policy primarily insuring the life of a person might also offer a payout in case of events occurring to another person, not directly a party to the policy, seems highly unusual.  Interestingly, in our own practice we received an enquiry from someone (not the applicant in this case, which is based in South Africa) with a very similar idea.  Our advice was that while it sounded like a great product, we did not consider that it would be patentable under the ‘manner of manufacture’ test for eligibility in Australia.

We therefore agree with the decision of the Hearing Officer on manner of manufacture.  However, while it is of no consequence in view of the claims’ failure to meet this threshold requirement, we do not consider that he provided a sufficient case for a finding of lack of inventive step.


The claims rejected by the examiner may be divided into two groups – ‘method’ claims, represented by independent claim 1, and ‘system’ claims, represented by independent claim 5:

1. A computer implemented method of managing a life insurance plan, the method including:
  1. receiving a premium from an insured life;
  2. on occurrence of an insured event to the insured life, paying out a predetermined amount to the insured life; and
  3. on occurrence of an insured event to a parent of the insured life, paying out a predetermined amount to the insured life.
5. An electronic system for managing a life insurance plan includes:
  1. a memory for storing: 

        information relating to premiums received from an insured life; and
        information relating to parents of the insured life;

  2. a processor disposed in communication with the memory, the processor being adapted to:

        receive data indicating the occurrence of an insured event to the insured
            life, and in response thereto to effect the paying out of a predetermined
            amount to the insured life; and

        receive data indicating the occurrence of an insured event to a parent of
            the insured life, and in response thereto to effect the paying out of a
            predetermined amount to the insured life.
These claims were submitted in response to the examiner’s first report.  Three further reports ensued, with no progress being made by the applicant, Discovery Holdings Limited.  In the third report, the examiner invited the applicant to consider requesting a hearing.  However, when it did not do so, the Commissioner took matters into her own hands, the fourth report stating:

Because of the nature of the objections, the commissioner has decided to set this matter for a hearing. You will be notified by this office with further details regarding the hearing dates.

The decision includes a full summary of the examination process (at [14]-[29]), and all four reports, and the applicant’s responses, can be read in the eDossier records for the application.


Method Claims
In considering the method claims, the Hearing Officer relied on the decisions of the Full Federal Court in Grant v Commissioner of Patents [2006] FCAFC 120 and Welcome Real-Time v Catuity Inc [2001] FCA 445, along with the Patent Office decision in Iowa Lottery [2010] APO 25

In particular Grant established a requirement for the claimed method to produce an ‘artificial state of affairs, in the sense of a concrete, tangible, physical, or observable effect’, and (at [35]) the Hearing Officer in this case noted that, in Iowa Lottery :

The Hearing Officer subsequently rejected the proposition that the requirement … for a “concrete, tangible, physical or observable effect” is met by the payment of prizes, and … said he failed to see how this is in any way different to the situation in Grant where the method involved a number of legal and financial transactions. He concluded that a financial transaction or other legal transfer of an asset, is not the sort of physical or observable effect that the Court was referring to as meeting the requirement for a manner of manufacture.

He thus concluded (at [36]):

In my view an insurance payout is no more a physical effect than paying a lottery prize (as in Iowa Lottery) or taking a charge over an asset (the final step of the method in Grant). In each case the process has not led to the creation of anything physical, but rather has resulted in a transfer of legal rights of ownership or entitlement. Clearly the notion of a “right” is abstract in nature. In the case of Grant, the entitlement is in the form of a charge over an asset; in the present case and in Iowa Lottery the entitlement is to a portion of an insurance pool and a prize pool, respectively. Just as in Grant it is a mistake to see the “asset” as being the outcome of the method – the asset exists before the method is carried out- in the present case it is not the “predetermined amount” which is created as a result of the method, merely the entitlement to it.

As the examiner stated in the second examination report (rightly, in our view), the three steps set out in the method claim ‘are receiving a payment, making a payment and making a payment.’  The applicant argued in response that ‘[t]aking a plain English interpretation of the terms, it is difficult to conceptualise how the making of a payment could be considered as anything other than concrete, tangible, physical and observable’.  However, the examiner was unmoved, considering that ‘making a payment is just an agreement between the parties involved and as such there is no physical effect involved in this process.’

In the same response, the applicant had attempted to draw a distinction between the claims and the Australian decision in Grant along with the US Supreme Court decision in Bilski on the basis that in both of these cases there was no result corresponding with an actual payment, but rather merely a change in ‘status’, by which risk was managed.  The Hearing Officer was unimpressed with this argument, noting the irony (at [37]):

Putting aside the fact that the claims do not actually define the payment as being physical, the present application relates to life insurance, which, along with property insurance, is probably the most well-known form of hedging of risk known to man, and the present claims could, if it was so wished, have readily been drafted with that emphasis.
System Claims
With regard to the system claims, the applicant argued that ‘claim 5 defines an electronic system,’ and that this is ‘by its very nature a manner of manufacture.’  Superficially there is some force to this argument, and the applicant may well have been correct in arguing that there is no existing precedent in Australia, binding on the Patent Office, establishing that a physical apparatus or system might not be a manner of manufacture, or that there is any basis in Australian law for giving primacy to substance over form. 

However, there is also no binding precedent establishing that the form of a claim (i.e. ‘system’ versus ‘method’) can trump substance and so make otherwise ineligible subject matter patentable.  It stretches plausibility to believe that the court in Grant would have reached a different conclusion had the precise same subject matter been claimed, but in the form of an electronic system in which one or more of the steps of the unpatentable method had been conducted wholly or in-part using a computer.  Nor have the courts in the US or other countries allowed the principles of patent-eligibility to be circumvented merely by virtue of ‘clever drafting’.  Limitations imposed upon the claims by the introduction of technological means of implementation must make some essential contribution to the invention and not merely be, for example, a means of recording or reporting otherwise unpatentable sequences of events.

The Hearing Officer referred in particular to the earlier Patent Office decision in Invention Pathways Pty Ltd [2010] APO 10, finding (at [42]) that, as in the earlier case, ‘the physical effect identified was “peripheral and subordinate to the substance of the claimed method”’ and therefore  the system claims did not define a manner of manufacture.


With regard to inventive step, the prior art considered established essentially the existence of life insurance plans, and in particular the prior publication of a scheme by which a parent could be insured for the benefit of their offspring.  This clearly differs from the claimed scheme, in which it is the offspring who is insured, but who is then able to receive a benefit should any relevant event befall the parent.

The Hearing Officer reasoned (at [53]):

I think that it is an irrefutable fact that it is possible to insure any item or event against any eventuality, provided, of course, that the risk lends itself to actuarial calculation. Furthermore it is commonplace to take out life insurance on oneself and on close relatives generally, and obviously parents fall within that latter category of persons even if it is not actually commonplace to insure them. It is also well known to insure different entities (“house and contents” insurance comes immediately to mind) or events under the one policy. Given this common general knowledge, it would seem that, based on common general knowledge alone, there is no inventive step in exercising an obvious choice in who is included in an insurance plan, and parents of an insured life constitute one such an obvious choice, even if the commercial imperatives in any given case for such a choice are not present.

With all due respect, we do not think that this argument is valid.  Making a payout in respect of an event which occurs to somebody other than an insured party runs counter to the principles underlying all of the conventional forms of insurance identified in this passage.  An analogy with the claimed scheme would be a home insurance policy based solely upon the value of the home (house and land), but which would pay out a fixed percentage of this insured value in the event of any loss with regard to the contents, irrespective of the total value of the contents or of the value of the lost items.

While there might be further prior art, or evidence of common general knowledge, that may show the claimed scheme to be obvious, it does not appear that any such information was available to the Hearing Officer in this case.


It appears that the applicant filed a divisional application on the day after the hearing date, in order to maintain pending rights regardless of the decision.  The Hearing Officer was none too impressed with this strategy, stating (at [4]) that ‘the use of the divisional application provisions of the Patents Act in this way would appear contrary to the scheme of the Act, which sets up proceedings of the present type as being the decision of the Commissioner of Patents once and for all (subject, of course, to any court appeals) on whether to accept or refuse an application for a patent.’

In addition, the fourth examination report indicates that the applicant has three other pending applications facing similar objections.

Of course, it hardly comes as a surprise that an applicant claiming an insurance scheme has itself taken out insurance against rejection!  However, the divisional application will almost certainly fall foul of IP Australia’s ‘case management’ of divisional applications.


Notably, this is yet another case in a series of Patent Office decisions on ‘manner of manufacture’ in which a hearing has been precipitated (in this instance proactively) by the Commissioner.  While we agree with the outcome in this case, we remain concerned about the seemingly ‘activist’ approach being adopted by IP Australia on this issue, which has also resulted in less clearly defensible outcomes.  For example, the decision in Myall Australia Pty Ltd v RPL Central Pty Ltd (see Computer-Implemented Invention Found Unpatentable) has drawn some criticism from the patent profession, and we can now reveal (since it is, in any event, a matter of public record) that this decision is under appeal to the Federal Court.

The Hearing Officer’s reasoning on lack of inventive step might, slightly flippantly, be reduced to ‘since it is well-known that almost anything can be insured, almost any insurance scheme must therefore be obvious.’  This is plainly a failure of logic of the most fundamental kind, and it would be equally (in)valid to argue that the presence of a very large number of choices automatically renders any individual choice inherently non-obvious.  Neither freedom of choice, nor probability of choice, are coterminous with obviousness.  Specific basis in the prior art and/or the common knowledge is required for a finding of lack of inventive step, and we do not see that in this case.


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Such a position has been specifically rejected by the EPO in decisions.

Caravan Insurance Quotes said...

The Hearing Officer found against the claims on both counts, rejecting
the application outright and declaring that there was nothing disclosed
in the specification that would be capable of meeting the requirements
for patentability.

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