01 June 2014

Will the Federal Court Resolve Patent-Eligibility of Business Methods?

Questioning stick figureIt has now been over six months since a Full Bench of the Federal Court of Australia heard Research Affiliates’ appeal against the rejection of its patent applications relating to the construction and use of passive portfolios and indexes for securities trading.  The rejections were made on the basis that the claims of the applications were not directed to a ‘manner of manufacture’ – the test under the Australian law for whether a claimed invention comprises patent-eligible subject matter.

While we await a decision in the appeal – as well as a decision from the US Supreme Court in Alice Corporation v CLS Bank, heard back in March – I thought it might be a good opportunity to review the current unsatisfactory state of affairs in relation to so-called ‘business method’ patents.

The patent-eligibility of ‘business methods’ – including, but not limited to, processes implemented with the aid of computer software – is a contentious issue in many jurisdictions.

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.  In the US, for example, the Court of Appeals for the Federal Circuit (CAFC) seems 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.  In the Research Affiliates  case, the Full Federal Court in Australia is grappling with the same issue.

Computer-Implemented Inventions and Australian Patent Law

Following a number of key decisions during the 1990’s and early 2000’s [3], the availability of patents in Australia for inventions implemented by computer software, across most fields of endeavour, was considered largely settled (e.g. IBM Corporation v Commissioner of Patents [1991] FCA 625; CCOM Pty Ltd v Jiejing Pty Ltd [1994] FCA 1168; Welcome Real-Time SA v Catuity Inc [2001] FCA 445.

The 2006 ruling of a Full Bench of the Federal Court of Australia in the case of Grant v Commissioner of Patents [2006] FCAFC 120, refusing a patent to a scheme for asset protection via specified legal and financial transactions, confirmed that ‘pure’ business methods which involve only manipulations of the artificial constructs organising human affairs are ineligible for patent protection.  However, this was not initially considered to have any impact on inventions implemented in software, even when applied in the financial services sector, or more generally directed to improving the efficiency of organisational processes in any sector.

Changing Approach in the Australian Patent Office

This understanding changed in 2010, when IP Australia (the authority incorporating the Patent, Trade Marks and Designs offices) issued a decision, in Invention Pathways Pty Ltd [2010] APO 10, rejecting a patent application claiming a method for the commercialisation of inventions.  The claimed invention defined a scheme for completing specified commercialisation steps within 30 months of the earliest priority date (i.e. the PCT National Phase Entry deadline), using a computer for record-keeping purposes. (Most IP professionals would be unsurprised to learn that the claims were also rejected for obviousness.) 

The Invention Pathways claims were found ineligible for patent protection under Australia’s ‘manner of manufacture’ subject matter test on the basis that the use of the computer was incidental to the claimed method, and did not perform any processing which resulted in the creation or transformation of information, or any other synergistic effects.

The Invention Pathways decision was not, in itself, particularly controversial. However, it proved to be the first in a line of decisions issued by IP Australia rejecting applications directed to inventions which it regarded – rightly or wrongly – as computer-implemented ‘business methods’.  In the course of these decisions, IP Australia came to apply a requirement that a patentable method must involve some physical effect which is significant both in that it is concrete but also that it is central to the purpose or operation of the claimed process or otherwise arises from the combination of steps of the method in a substantial way.  No such principle had ever previously been articulated by the Australian courts.

Federal Court Appeals

Eventually, two of the Patent Office decisions were taken on appeal to the Federal Court of Australia. The claims in the first of these cases, Research Affiliates LLC v Commissioner of Patents [2013] FCA 71, are directed to computer-implemented methods of generating an index defining a portfolio of financial securities.  In the second case, RPL Central Pty Ltd v Commissioner of Patents [2013] FCA 871, the invention is of a different character, involving the gathering of information relating to recognised competency standards over the internet, which is then processed and used to present a more user-friendly questionnaire for evidence gathering and skills assessment.

In February 2013, Research Affiliates’ appeal was rejected, while in August RPL Central’s was upheld.  Both decisions have been appealed to a Full Bench of three judges of the Federal Court of Australia, by Research Affiliates and the Commissioner of Patents respectively.

The hearing before the Full Court in the Research Affiliates appeal was held on 18 November 2013.  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 the question: is the use of technological means, such as a programmed computer, in the implementation of a claimed invention 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.

It seems that the three judges making up the Full Bench of the court may be struggling with this problem, considering the time that has passed without a decision having been issued.


Hopefully, the Australian Federal Court 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 ‘business methods’, and other software-based inventions, this will provide patent applicants in Australia with a degree of certainty, whatever the outcome for Research Affiliates itself.


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