01 November 2011

Another Computer-Implemented Invention Struck Down

Jumbo Interactive Ltd & New South Wales Lotteries Corp v Elot, Inc. [2011] APO 82 (28 October 2011)

Opposition – claims to a computer-implemented system for use in operating a lottery – whether claims novel – whether claims inventive – whether claims useful – whether claims satisfy requirements of section 40 of the Patents Act 1990whether claims relate to a ‘manner of manufacture’

That tears it!Once again, a hearing officer (Delegate Greg Powell) in the Australian Patent Office has wiped out patent claims directed to a computer-implemented invention in one fell swoop, on the basis that they do not define a ‘manner of manufacture’ – the threshold test for patent-eligibility under Australian law.

Thanks to the strict approach adopted recently by the Patent Office, manner of manufacture could become the thermonuclear warhead in the arsenal of opponents to patents relating to software-based technologies.  As in the earlier opposition decision Myall Australia Pty Ltd v RPL Central Pty Ltd [2011] APO 48, the present case – in which two parties opposed a patent relating to a lottery system by Elot, Inc (‘Elot’) – involves the invalidation of all claims previously approved by a Patent Office examiner, and which were found to be otherwise valid (i.e. satisfying all other requirements of the Patents Act 1990, including novelty and inventive step).

The primary basis for all the rejections in this case was (as is becoming the pattern) a series of the Patent Office's own earlier, but relatively recent, decisions, particularly Invention Pathways Pty Ltd [2010] APO 10, Iowa Lottery [2010] APO 25, Research Affiliates, LLC [2010] APO 31 and Network Solutions, LLC [2011] APO 65.  The real authorities on manner of manufacture – the High Court in National Research and Development Corporation v Commissioner of Patents (‘NRDC’) [1959] HCA 67, and the Full Federal Court decisions in CCOM Pty Ltd v Jiejing [1994] FCA 1168 and Grant v Commissioner of Patents [2006] FCAFC 120 – are now viewed principally through the lens of these non-binding Office decisions.

In our view, however, the approach now taken by the Patent Office in relation to this subject matter has drifted a long way from the authorities.  This is resulting in harsh, confusing and inconsistent decisions, and creating great uncertainty for applicants and their advisors.  In this case, we consider that a return to the basic principles set down by the courts results not only in a more straightforward and pragmatic analysis, but also in a different result from that reached by the Delegate in the present decision.

This is one of our lengthiest articles to date, however we trust that interested readers will bear with us.  It is our objective in the latter portion to, in effect, take on the role of the decision-maker and demonstrate how we believe the law should – and should not – be applied

THE INVENTION

The Delegate described the invention generally (at [5]-[6]) as providing:

...a system in which a number of player terminals are connected to what is termed an agent server. Lottery ticket information and player information is sent from the player terminals to the agent server. The agent server then transmits the ticket information to a government lottery administrator. The government lottery administrator issues serial numbers associated with each lottery ticket and transmits them back to the agent server which stores the player, ticket and serial number information.

Part of the player information that is given to the agent server is information that is termed “subscription play information”. This information is supplied by the player to allow the same ticket information to be played for a specified number of lotteries. As an example, for a game such as Oz Lotto, Powerball or Tattslotto, the subscription play information could stipulate that the same numbers chosen by the player be played for 5 weeks of draws. To accommodate this information and to monitor the progress, the invention includes a subscription play unit which monitors the playing of the same lottery numbers for a specified number of draws.

The invention is broadly defined in claim 1 as follows:

1. A system for facilitating governmental lottery play over an electronic network comprising:
  1. an agent server connected via said electronic network for receiving player and ticket information, including subscription play information, transmitted from a plurality of player terminals, for transmitting said ticket information to a governmental lottery administrator, and for receiving serial numbers issued by said governmental lottery administrator in association with each lottery ticket;
  2. a database in said agent server for storing said player and ticket information and said serial numbers associated with each lottery ticket; and
  3. a subscription play unit for monitoring subscription play of the same lottery numbers for a specified number of draws.

OTHER GROUNDS OF OPPOSITION

As noted above, the Elot patent claims survived attacks by the two opponents, Jumbo Interactive Ltd (‘Jumbo’) and the New South Wales Lotteries Corp (‘NSWLC’), on a range of grounds including lack of entitlement, lack of novelty, lack of inventive step, lack of utility, and the section 40 grounds of failure to provide full description, lack of fair basis, and lack of clarity.
Entitlement
The basis for the allegation that Elot is not entitled to the patent (i.e. does not properly derive ownership from the original inventor) was a ‘vagueness’ in the Notice of Entitlement.

A Notice of Entitlement must be filed with each Australian patent application before it can be accepted.  The Notice is simply a statement of the applicant’s entitlement to become the owner of the granted patent.  There is no requirement, beyond this, that proof of title be provided.  Of course, proof may be required if ownership becomes an issue in other proceedings.

In this case, the fact that the Notice did not provide details of the basis for entitlement was insufficient to establish any ground of opposition.  The Delegate found (at [14]) that Elot’s Notice of Entitlement established ‘a prima facie case of entitlement which has not been rebutted by either NSWLC or Jumbo.’
Novelty and Inventive Step
Jumbo and NSWLC identified 11 prior art documents, a web site, and three alleged examples of prior use as potential prior art.  Not all of these were pressed at the hearing.  None were found to deprive the claims of either novelty or inventive step.
Utility
NSWLC (but not Jumbo) argued that the claims lacked utility because ‘they defined an invention that couldn’t function’, and more particularly because they ‘defined discrete components that did not appear to communicate with each other to produce a useful result’ (at [96]).

The Delegate disagreed, stating that ‘[t]he claims clearly connect the agent server to the player terminals and the governmental lottery administrator. While the subscription play unit is not stated explicitly to be connected to the agent server, given the requirement to pass subscription play information to the agent server, it is clear that a connection exists here’ (at [97]).

In other words, the Delegate found that there was a working interrelationship between the elements of the claims.
Fair Basis
Only NSWLC pursued the ground of lack of fair basis at the hearing.  Its case was, essentially, that the claims were overly broad, in that they were not limited to computerised implementation in a networked environment, and that an essential feature of the invention – a payment step – was missing from the claims.

The Delegate rejected both of these propositions, stating (at [21]-[22]):

While NSWLC submitted that the claims can “reasonably be read broadly to include other aspects of operating a Government lottery”, to my mind, NSWLC has been unreasonable. It is well established that, while the claims define the invention, they are not read in the abstract. The claims are construed in the context of the specification as a whole….  When this is done, terms like “subscription play unit” do not admit the meaning [encompassing a physical unit staffed by human operators] that NSWLC wish to force on them.

… As noted by Elot, NSWLC appears to have picked out a feature that they believe to be “essential” and noted its absence in the claims. I do not think this is correct. The test is one of consistency [between the description and claims], and I do not see an inconsistency.

It seems notable, in view of the decision on ‘manner of manufacture’, that the Delegate does not appear to have considered the claims to be excessively broad or abstract, but rather that they are specifically limited to a networked computer implementation, as broadly described in the specification.
Clarity
Despite submissions by Jumbo and NSWLC that various terms in the claims were vague and unclear, the Delegate noted that none of the expert witnesses had any difficulty in comprehending the claims, and that he found there to be no lack of clarity (at [27]).

MANNER OF MANUFACTURE

The sole ground on which the claims were ultimately found invalid was that they:

… were directed to a non-patentable method and the implementation via a computer did not make it a manner of manufacture as the computer was incidental to the method (“no physical effect or transformation”).

On the face of it, the independent claim recited above appears to define a specific article of manufacture.  There must be an ‘agent server’ connected to an ‘electronic network’.  The server must also contain ‘a database’.  Finally, it incorporates ‘a subscription play unit’.

As a bare minimum, therefore, the claim requires sufficient hardware to embody at least this functionality.  There must be some electronics (presumably a microprocessor and associated memory containing program code, although an implementation entirely in hardware circuitry is also within the scope of the claim). Clearly there is also a network interface – one imagines a wired network connector and/or an antenna for wireless connectivity, along with the associated electronics and firmware.  And the ‘database’ implies adequate storage, such as a hard drive or suitable solid-state memory.

So where the claim has been found to be novel and inventive, adequately supported by the description in the patent specification, not lacking in utility, and not so unduly broad and abstract as to encompass embodiments that are not implemented via a computer system in a networked environment, it is not at all clear to us why it should not be patentable.   There does not appear to be any question that the claimed system has a valuable commercial application in the field of gaming. If it did not, then it would hardly be necessary for two parties to oppose the application, nor would it seem sensible for the opponents to raise several pre-existing lottery ticketing systems as potentially anticipatory prior art.

One would hope that reading the decision might clarify the reasons for this claim's lack of patent-eligibility, and provide applicants and their advisors with some useful guidance in identifying the distinction between patentable and unpatentable subject matter. Regrettably, we cannot say that we have found this to be so.

In our view, the Delegate’s decision relies disproportionately upon other recent Patent Office decisions, in particular Invention Pathways and Network Solutions.  Prior Patent Office decisions may provide useful guidance in analogous cases, but they are not the law.  It is incumbent upon each decision-maker to apply the relevant court authorities to the facts of the case before them, undistorted by the lens of some other fact situation. 

To make matters worse, the Delegate has here relied in part upon a US decision, CyberSource Corporation v Retail Decisions, Inc, based upon the application of this case to the earlier Network Solutions decision.  Acknowledging that US decisions in relation to this aspect of the law have been found by the Australian courts to be instructive, by actually returning to the source, it is difficult to see how the reasoning applies to the present case.

In the following, we present our analysis of the patentability of the claim, and compare and contrast with the approach taken by the Delegate.  Disturbingly, by returning to the original sources of legal authority, we reach the contrary conclusion.
Application of NRDC and CCOM v Jiejing
In NRDC the High Court found a method of chemically-treating crops to be a manner of manufacture (at [25]):

It is a "product" because it consists in an artificially created state of affairs, discernible by observing over a period the growth of weeds and crops respectively on sown land on which the method has been put into practice. And the significance of the product is economic; for it provides a remarkable advantage, indeed to the lay mind a sensational advantage, for one of the most elemental activities by which man has served his material needs, the cultivation of the soil for the production of its fruits.

In CCOM v Jiejing the Full Federal Court considered the application of the reasoning in NRDC to claims directed to a computer-implemented invention, stating the requirement to be ‘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’ (at [128]).  In that case, the relevant field of economic endeavour was:

… the use of word processing to assemble text in Chinese language characters. The end result achieved is the retrieval of graphic representations of desired characters, for assembly of text. The mode or manner of obtaining this, which provides particular utility in achieving the end result, is the storage of data as to Chinese characters analysed by stroke-type categories, for search including "flagging" (and "unflagging") and selection by reference thereto.

Applying this authoritative approach to the claims in the present case, it is difficult to see how they fail the ‘manner of manufacture’ test:
  1. the field of economic endeavour is gaming (notably a legal, though highly-regulated, business activity in Australia) – more particularly the efficient operation of a lottery game amongst large numbers of geographically-distributed players; and
  2. the mode or manner of performance is the provision of a network-connected server, which is configured to retrieve information regarding player selections from remote terminals, obtain required serial numbers from a lottery administrator, to store this information in a database, and to then facilitate repeat play of the player selections using the stored information.
The Delegate’s suggestion (at [111]) that the invention can be reduced to ‘the collection and storage of the particular information mentioned in the claim [which is] simply information which is characterised solely by its content’ is clearly inconsistent with CCOM.  In that case it might equally have been said that the invention resided in the storage and retrieval of  information characterised solely by its content – namely, Chinese characters organised according to stroke-type categories.

As the Delegate rightly pointed out (also at [111]) ‘[i]nformation has never been considered sufficient for patentability unless its presentation provides some material advantage.’  And in CCOM, there is a material advantage in organising the stored Chinese character information by stroke-type categories, in order to facilitate retrieval in response to a logical sequence of key-presses carried out by a user of a computer keyboard.

However, by precisely the same token, the specific information collected and stored by the Elot system provides the material advantage of facilitating repeat play of the same numbers in a lottery game according to subscription play selections of a player.  The lottery game provider makes money from this (as does the government, through taxes).  The player acquires the benefit (hopefully) of the ‘thrill’ of the game – a perfectly legitimate leisure activity in Australia – and possibly even wins from time-to-time.

To our mind, the NRDC and CCOM requirements are plainly satisfied.  Notably this is all that the Australian law requires in order to establish a claim as a manner of manufacture.  Everything else is gloss.
Inapplicability of Grant
In our view, the decision of the Full Federal Court in Grant was also wrongly-applied in this case.  The main claim in the Grant patent was directed to an asset protection method involving 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 reasoning of the Full Court is summarised in the passage cited by the Delegate at paragraph [108] of the present decision:

It has long been accepted that "intellectual information", a mathematical algorithm, mere working directions and a scheme without effect are not patentable. This claim is "intellectual information", mere working directions and a scheme. It is necessary that there be some "useful product", some physical phenomenon or effect resulting from the working of a method for it to be properly the subject of letters patent. That is missing in this case.

This is perfectly true, and wholly applicable to the Grant claims which comprise only steps resulting in changes in the abstract legal and financial affairs of a person.  It is, however, difficult to see how the reasoning can be extended to a case in which the claims are directed to a specific system for retrieval, storage and processing of particular information for use in the operation of a business, such as gaming.
Inapplicability of CyberSource
Reliance upon the decision of the US Court of Appeals for the Federal Circuit in CyberSource Corporation v Retail Decisions, Inc (Fed. Cir. 2011, No. 2009-1358) is also inappropriate in this case.

It must be understood firstly that the court in CyberSource commenced its analysis by looking at a method claim, which it evaluated against the patentability criteria laid down by the US Supreme Court.  In particular, the so-called ‘machine-or-transformation test’ may be ‘a useful and important clue’ to patent-eligibility, but it is not ‘the sole test’, and the only specific exceptions to patentability are ‘laws of nature, physical phenomena, and abstract ideas’ (CyberSource, slip op. at page 7).

The court determined that the method claim related only to an ‘abstract idea’, and was thus unpatentable.  The question it then had to address was whether a ‘Beauregard-style’ claim (i.e. a claim directed to a computer-readable medium, such as a magnetic disk or CDROM, containing a program which implements the method) was patent-eligible.

The US federal court determined that even though the Beauregard claim has the form of a physical article (e.g. a disk), it is not patentable if the only distinguishing feature is that it bears program instructions for performing an unpatentable method.  It was in this context that court cited its earlier reasoning that a machine ‘must impose meaningful limits on the claim’s scope’.  In other words, the ‘machine’ aspect of the claim must include a further limitation which removes the overall method from the realm of the abstract.

At paragraphs [113]-[115] of the decision, the Delegate applies the ‘meaningful limitation’ reasoning in the following manner (emphasis provided):

The agent server is said to be capable of collecting and storing particular pieces of information. However, whatever “effect” is generated by that collection and storage, it is incidental to the claimed invention. The agent server of the present invention is essentially characterised by the information content of the data it stores. It provides no material advantage to the agent server and, therefore, the agent server does not place a meaningful limit on the claim.

With regard to the subscription play unit, which is said to monitor subscription play of the same lottery numbers for a specified number of draws, I take this to be nothing more than facilitating the play.  … The utility of [the subscription play unit] lies in the information that it monitors (i.e. the “subscription play information”). The unit in and of itself does not place a meaningful limit on the claim.

In our view, this reasoning is flawed.  Of course the ‘agent server’ and the ‘subscription play unit’ place meaningful limits on the claim, in the sense in which the term is used in CyberSource.  They require the system to implement particular functional units which – as the Delegate has rightly noted – facilitate play.  But there is nothing ‘mere’, ‘immaterial’ or ‘meaningless’ in this function of facilitating play.  It is, in fact, the specific technical purpose of the claimed invention to provide an improved arrangement for facilitating play, i.e. the operation of a lottery.

CONCLUSION

We are at a complete loss to understand how the claims in this case fail to satisfy the established tests of the High Court of Australia and the Full Federal Court for identifying patent-eligible subject matter.  Certainly, the reasoning in this decision is unpersuasive.

We also note that in recent months decisions have been issued in relation to Amazon’s ‘1-click’ patent, and a patent application by CardinalCommerce Corporation (opposed by Visa) directed to a e-commerce authentication system, neither of which were invalidated on the basis of ineligible subject matter. 

It seems unreasonable that Amazon should obtain a patent covering the storage and retrieval of information for improving the efficiency of selling goods online, and that CardinalCommerce should obtain a patent covering the storage and retrieval of information for improving the authentication of online transactions, while Elot is denied a patent covering the storage and retrieval of information for improving the operation of a computerised lottery system.

With at least two of the recent Patent Office decisions (Research Affiliates and RPL Central) currently on appeal, we can only hope that the Federal Court will soon have an opportunity to put an end to this unsatisfactory situation by ‘clarifying’ the law (although, in our view, it is already perfectly clear from NRDC and CCOM).  However, it currently appears unlikely that either appeal will be heard until some time in 2012.  In the meantime, we imagine that the Patent Office will continue to reject claims based on its own body of recent decision-making.

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