23 November 2013

Australian Appeals Court Hears ‘Business Method’ Patent Case

Yes, this is literally a 'stock photo'!Last Monday, 18 November 2013, I attended the Full Federal Court hearing of Research Affiliates’ appeal against the decision of a single judge of the court earlier this year to uphold the Australian Patent Office’s rejection of its patent applications relating to the construction and use of passive portfolios and indexes for securities trading.

The parties to the hearing were (of course) Research Affiliates, LLC and the Commissioner of Patents.  The three judges on the Full Bench were Justices Bennett (best known for presiding over the Australia Apple v Samsung litigation), Kenny and Nicholas.

The sole issue in the appeal is whether or not Research Affiliates’ patent claims, directed variously to computer-implemented methods and computer systems for ‘generating an index’, define patent-eligible subject matter (i.e. a ‘manner of manufacture’ under Australian law).  It has not been contended by the Commissioner of Patents that the claims lack novelty or an inventive step, or that the patent specification is deficient in any other way.

The patent-eligibility of so-called ‘business methods’ – including, but not limited to, processes implemented with the aid of computer software – is a contentious issue in many jurisdictions, including Australia.  There is arguably an emerging consensus that methods of organising human affairs which involve only the manipulation of legal or financial instruments, without technological assistance, are not generally eligible for patent protection, even in those countries with a liberal approach to patentable subject matter.  However, when technical means are employed, typically in the form of a programmed computer, in the implementation of an otherwise unpatentable process, the position remains unresolved. 

The Full Court will need to tackle this issue head-on in the Research Affiliates case.

Business Methods and Computer-Implementation

There does not appear to be any dispute between the parties over the fact that the innovation made by Research Affiliates does not lie in the computer implementation itself.  The invention disclosed in the patent specification is a new approach to building an index of securities.  Such an index comprises a specific listing of securities (such as stocks or shares), along with a weighting value for each.  The index value is normally recomputed by adding all of the current security values multiplied by their respective weighting values.  Once the new method has been devised, automating it on a computer is both straightforward, and self-evidently a good idea in order to reduce the work involved and the opportunities for error.

The nature of the claimed invention in the Research Affiliates application raises two potential questions of patent-eligibility:
  1. Is a method such as the ‘index generation’ described in the specification patentable in itself, independently of whether it is implemented via technical means?
  2. If the method is not patentable in its own right, is a computer-implementation of the method nonetheless patentable?

Lessons from the US

Similar questions have recently troubled the US Court of Appeals for the Federal Circuit (CAFC) which, sitting en banc, proved itself to be irreconcilably split over the issue of whether technical implementation of a method is sufficient, in itself, to satisfy the patent-eligibility requirements of 35 USC § 101: see CLS Bank v Alice Corporation, No. 2011-1301 (Fed. Cir. 10 May 2013) [PDF 744kB].  Indeed, the judges of the CAFC cannot even agree on whether ‘method’ and ‘computer-readable medium’ claims should be treated in the same manner as ‘system’ or ‘apparatus’ claims for eligibility purposes.

In the CLS Bank case, the invention claimed in Alice Corporation’s patents related to methods and systems for facilitating exchanges of financial obligations between parties using ‘shadow records’ maintained by a third-party ‘supervisory institution’.  With the exception of Judge Newman, the CAFC judges were in broad agreement that the financial service, in itself, was not patent-eligible, which is consistent with the finding of the US Supreme Court in Bilski v Kappos (2010) 545 F.3d 943 that a hedging method was not patentable, and indeed also with the finding of the Full Court of the Federal Court of Australia in Grant v Commissioner of Patents [2006] FCAFC 120 that a method of protecting an asset via purely legal and financial arrangements was not patentable.

Technology and Patent-Eligibility

At the hearing before the Full Court, however, Research Affiliates did not concede that its index-generation method would not be patentable absent the use of a computer.  Nor, in my opinion, should it have done so, considering that the court in the Grant case had expressly rejected that patent-eligibility in Australia invokes a blanket requirement for the application of ‘science or technology’ (Grant at [38]: ‘What is or is not to be described as science or technology may present difficult questions now, let alone in a future which is as excitingly unpredictable now as it was in 1623 or 1959, if not more so.  We think that to erect a requirement that an alleged invention be within the area of science and technology would be to risk the very kind of rigidity which the High Court warned against.’)

Nonetheless, there are no claims at issue in the Research Affiliates case that do not expressly recite some limitation to computer-implementation.  The broadest method claims, however, recite the use of a computer in the most generic terms possible, referring in the preamble to a ‘computer-implemented method’, and in the body of the claim to ‘data’ and ‘functions’ that are manipulated by steps of ‘accessing’, ‘processing’ and ‘applying’ which are computer-implemented by implication rather than by express necessity. 

Indeed, Counsel for the Commissioner of Patents, David Catterns (who, like Justice Bennett, will be known to followers of the Australian Apple/Samsung litigation, in which he is Counsel for Samsung) made the point, which had been confirmed by expert opinion at the original trial, that he had been able to generate a very simple index, according to the Research Affiliates method, with the aid of only a pen and paper.  His argument here was that, but for the (allegedly) incidental requirement to perform the method using a computer, the claim would read onto a purely mental process.  And ‘mental processes’ are established to be ineligible for patent protection under the ‘manner of manufacture’ test in Australia.

Questions From the Courtroom

Observing the hearing, I formed the impression that Research Affiliates would have faced an extremely difficult challenge had it been arguing for the patentability of claims that were not limited to computer-implementation.  Much of the questioning from the Bench, and the resulting discussion, seemed to be predicated on a presumption if the Research Affiliates claims are patent-eligible, it will necessarily be as a result of their requirement for the use of a computer.  Some key questions which appeared to arise from the discussion were:
  1. Whether or not ‘merely’ implementing an otherwise unpatentable method in software was sufficient to bring it within the scope of patentable subject matter?
  2. Whether the ‘complexity’ of the algorithm (i.e. whether or not it could be performed without the aid of the computer) is relevant to the determination;
  3. Whether the product of the method in this case is ‘mere information’, and whether that precludes patentability?
On the last point, Justice Bennett canvassed a rather interesting view, namely that there might be a relevant difference between the product being ‘an index’ or being ‘a computer-generated index’.  This could be significant in the sense that Mr Catterns’ ‘index’, created with mental effort plus pen and paper, is not a ‘computer-generated index’, and is therefore distinguishable in principle from a product of the claimed method.  In practice, this same distinction is reflected in the fact that Mr Catterns would not have infringed the claim in the production of his index.

The judges also grappled with the issue of whether programming a general-purpose computer to perform a particular method is qualitatively different, for the purpose of assessing patent-eligibility, from configuring some sort of mechanical calculating device to perform the same task.  (This is perhaps the equivalent of asking whether program instructions are to the information age what gears and levers were to the industrial age, although the question was not put this way in court.)  Again, this challenges conventional ideas about patent-eligibility, because nobody would doubt that a mechanical device satisfies the ‘manner of manufacture’ requirement.

Software Patents Not Generally Contentious

It is worth noting that nothing raised during the hearing indicated that the court has any general antipathy towards software patents.  For example, Justice Bennett and Mr Catterns engaged in a number of exchanges comparing the Research Affiliates invention to one of Apple’s patents at issue in the Apple/Samsung litigation.  There was no objection voiced by any of the judges to the idea that a general-purpose computer could form the basis for a patentable invention when configured (by programming) to perform a specific function, such as responding to a finger swipe.  This is consistent with the position of the Federal Court since at least as early as the 1991 decision in IBM Corporation v Commissioner of Patents [1991] FCA 625.


Based on the way in which the case was argued by the parties, and the questions put to them by the judges, it appears likely that the court will be required to decide whether or not the use of technological means, such as a programmed computer, in the implementation of a claimed invention is sufficient, in itself, to ensure patent-eligibility.  While a positive answer to this question would result in a simple test, many people are uncomfortable with the notion that ‘mere’ use of a computer may be sufficient to render an otherwise unpatentable idea eligible for monopoly protection.  On the other hand, a negative answer would require the court to identify some workable principle which could be used to distinguish between eligible and ineligible computer-implemented inventions.

If the court takes the second path, then hopefully it will be able to avoid wading into the same morass as the US CAFC.  If the Full Court in the Research Affiliates case is able to articulate clear principles for assessing patent-eligibility of computer-implemented inventions, this will provide patent applicants in Australia with a degree of certainty, whatever the outcome for Research Affiliates itself.

A decision is expected in the first half of 2014.

Image Copyright (c) 123RF Stock Photos


Alex said...

"I cannot advise you simply not to bother arguing against such rejections, because every case is different."

This has to be the most confusing aspect of IP Australia's practices, where the same law gets applied differently to different applications. I was initially told that my disclosures were consistent with the requirements of the law but later i was told by another officer that the patent couldn't be granted because the law (the same law) did not apply to my particular application.

Mark Summerfield said...

Well, there is not necessarily anything untoward in the same law producing different outcomes in different applications. Each case is decided by applying the law to its particular facts. One key fact is the specific wording of the claims in question, which of course is different for every application.

However, when the same law is applied differently at different times to the same facts, as you describe, then that is certainly something to be concerned about.

It is a matter of public record that the RPL Central claims were originally examined and certified without any 'manner of manufacture' objection being raised. It was only when the patent was subsequently opposed (unsuccessfully, on grounds of lack of novelty) that the Patent Office raised 'manner of manufacture' as an issue. So I certainly can understand where you are coming from, and share your pain!

The fate of Research Affiliates, and many similar applications, is now in the hands of three Federal Court judges. Fingers crossed they are capable hands! All three were certainly very engaged and thoughtful during the hearing, which hopefully bodes well for a clear and sensible decision.


alex said...

did your clients find out who was/is behind the recent changes in practice? i think you hinted that it was Philip Noonan?

Mark Summerfield said...

No, I have no information regarding the internal decision-making process at IP Australia. Any suggestion that a particular person was responsible is pure speculation.

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