06 July 2014

Will US Alice Decision Influence the Australian Federal Court?

Alice in Oz - A Musical Comedy in Two ActsA Full Bench of the Australian Federal Court heard oral arguments in the Research Affiliates appeal (on patent-eligibility of a computer-implemented business method) all the way back on 18 November 2013.  More than seven months later, we are still waiting for a decision.

It is possible that the court was waiting for the US Supreme Court to rule in Alice v CLS Bank before finalising its opinion(s) in Research Affiliates.  Whether or not that is the reason for this long delay, the fact is that Alice has been decided, and it is therefore almost inconceivable that the judges in the Australian case would not review the US decision and assess whether there is any aspect of the reasoning that may be applicable in Australia.

So, is there?

I am sure that some will disagree with me, but I think that maybe there is – despite significant differences between the US law on patent-eligibility (based on 35 USC §101) and that of Australia (based upon the venerable test of ‘manner of manufacture’).  While the legal criteria may be different, you would have to postulate that the purpose of the patent systems in the two countries was manifestly dissimilar for the actual outcomes of applying the criteria to produce significantly different results.

The Full Court has itself said as much, in Grant v Commissioner of Patents [2006] FCAFC 120, at [24]:

While the development of US patent law is derived from the Constitution of the United States rather than the Statute of Monopolies … the policy behind the two provisions is the same. In both jurisdictions, the courts have confirmed that a broad approach to subject matter should be taken in order to adapt to new technologies and inventions but that does not mean that there are no restrictions on what is properly patentable.

So what might the Full Court take from Alice, and how might it apply the US reasoning under the Australian ‘manner of manufacture’ test?

The US Framework

As I have previously explained, the ‘framework’ for assessing patent-eligibility that was confirmed by the Supreme Court in Alice involves a two-step test:
  1. determine whether the claims at issue are directed to a patent-ineligible concept (i.e. a law of nature, natural phenomenon or abstract idea); and
  2. if so, inquire as to whether there is something else in the claims, considering the elements of each claim both individually and as an ordered combination, sufficient to ‘transform the nature of the claim’ into a patent-eligible application of the ineligible concept.
In the case of most, if not all, computer-implemented inventions, the relevant consideration will be whether the claims are directed to an excluded ‘abstract idea’.  In Alice the Court determined that the claims were ‘drawn to the abstract idea of intermediated settlement.’  Furthermore, the court considered that the only further content of the claims was a ‘mere instruction’ to apply the abstract concept using a computer, which was insufficient to confer patent-eligibility.  (Of course, it is arguable that the Supreme Court overlooked specific limitations of the Alice claims that might have led to a different conclusion, but it is the principle rather than the facts of the particular case that is important here.)

Research Affiliates Under the US Framework

A key claim at issue in the Research Affiliates case recites the following:

A computer-implemented method for generating an index, the method including steps of:
(a) accessing data relating to a plurality of assets;
(b) processing the data thereby to identify a selection of the assets for inclusion in the index based on an objective measure of scale other than share price, market capitalization and any combination thereof;
(c) accessing a weighting function configured to weight the selected assets;
(d) applying the weighting function, thereby to assign to each of the selected assets a respective weighting, wherein the weighting:
(i) is based on an objective measure of scale other than share price, market capitalization and any combination thereof; and
(ii) is not based on market capitalization weighting, equal weighting, share price weighting and any combination thereof,
thereby to generate the index.

If a US court were considering this claim, it would apply the framework set down by the Supreme Court.  The claim as fairly clearly drawn to something that the Supreme Court would regard as the ‘abstract concept’ of creating an index, i.e. a selection of assets, each of which has an associated weighting (the point being that, if the selected assets are purchased in proportion to the weighting values, the result will be a portfolio whose value will be tracked by the index).  The novelty-conferring feature of the claim is that the assets are selected and weighted according to unconventional criteria.

It is also fairly certain that, faced with this claim, the US Supreme Court would have found, as in Alice, no more than an instruction to apply the idea of generating the index via a ‘generic computer implementation [which] fails to transform that abstract idea into a patent-eligible invention.’

Can The Alice Principles Be Applied in Australia?

On the face of it, however, it might be argued that the Supreme Court’s framework is not applicable under the Australian law of ‘manner of manufacture’. 

The leading decision on the ‘manner of manufacture’ test remains that of the High Court in National Research Development Corporation v Commissioner of Patents [1959] HCA 67 (‘NRDC’), in which the court stated (at [8]) that:

There may indeed be a discovery without invention - either because the discovery is of some piece of abstract information without any suggestion of a practical application of it to a useful end, or because its application lies outside the realm of "manufacture". But where a person finds out that a useful result may be produced by doing something which has not been done by that procedure before, his claim for a patent is not validly answered by telling him that although there was ingenuity in his discovery that the materials used in the process would produce the useful result no ingenuity was involved in showing how the discovery, once it had been made, might be applied. The fallacy lies in dividing up the process that he puts forward as his invention. It is the whole process that must be considered…

So if the Supreme Court is understood to be dividing the claim into patent-eligible and patent-ineligible parts, and then assessing the ‘contribution’ of the eligible parts alone, in order to arrive at a final determination of eligibility, then this would seem to be inconsistent with Australian law.

There are, however, two important points to be made about the Supreme Court’s approach.  First, it has not ruled for such a simple division  of content – as noted above, the second step of the framework requires consideration of the claim elements ‘both individually and as an ordered combination’.

Second, the Supreme Court has articulated a broader principle underlying its eligibility framework:

We have described the concern that drives this exclusionary principle as one of pre-emption. See, e.g., [Bilski v Kappos], at 611–612 (upholding the patent “would pre-empt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea”). Laws of nature, natural phenomena, and abstract ideas are “ ‘ “the basic tools of scientific and technological work.” ’ ” [Association for Molecular Pathology v Myriad Genetics, Inc] (slip op., at 11). “[M]onopolization of those tools through the grant of a patent might tend to impede innovation more than it would tend to promote it,” thereby thwarting the primary object of the patent laws. [Mayo Collaborative Services v Prometheus Laboratories, Inc]

The Australian Court could take from this a principle that is not so clearly inconsistent with NRDC, i.e. that a claim for nothing more than ineligible subject matter that has merely been clad in a veneer of eligibility but which, as a practical matter, nonetheless effectively monopolises the underlying idea, should not, as a mater of policy, be carried over the ‘manner of manufacture’ threshold.

A balancing principle is also to be found in Alice: ‘…we tread carefully in construing this exclusionary principle lest it swallow all of patent law’; ‘[a]t some level, “all inventions … embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas”. … an invention is not rendered ineligible for patent simply because it involves an abstract concept’; ‘we must distinguish between patents that claim the [building blocks] of human ingenuity and those that integrate the building blocks into something more’.

Conclusion – How Might the Australian Court Decide?

If the Full Court can find a way to apply a principle of ‘pre-emption’ without allowing it to ‘swallow all of patent law’, in a manner that is not obviously inconsistent with NRDC, then it could quite conceivably align the Australian law of patent-eligibility quite closely with that of the US, despite the quite different sources of law in the two countries.

I have previously stated (quite strongly) that IP Australia was wrong to have rejected the Research Affiliates applications in the first place.  My reasoning was based upon the Full Federal Court’s approval (in the Grant case) of the US Court of Appeal for the Federal Circuit (CAFC) decision in State Street Bank & Trust Co. v Signature Financial Group 149 F. 3d 1368.  I still think that is correct – IP Australia was bound to follow the guidance of the highest relevant authority at the time, and on this basis I believe it reached an incorrect conclusion in view of Grant.

However, the Full Court is not so strictly bound by its own previous decision, particularly given that its approval of State Street was not part of the ratio decidendi in Grant (that is legal-speak for the core legal principle upon which the decision was based).  Since the Grant judgment in 2006, the US Supreme Court (in Bilski) expressly declined to endorse the reasoning applied by the CAFC in the State Street case, and has since issued further decisions on patent-eligibility in Mayo, Myriad and Alice.  The Full Court would be perfectly entitled to revise its earlier views on State Street in light of these developments.

But even if the Full Court adopts a ‘pre-emption’ principle in Research Affiliates, that would not necessarily determine the outcome.  While it seems likely that the US Supreme Court would consider Research Affiliates’ generation of an index to be an unpatentable ‘abstract concept’, it is less clear that this underlying invention is itself ineligible for patent protection in Australia.  If the court considers the index generation method to be a patentable ‘manner of manufacture’, then it will not cease to be so just because it is implemented via computer software.

Hopefully we will not have to wait too much longer to find out.


Unknown said...

I admire optimism, however the problem we have experienced with IPA was politics not law. Unless we have the conspirators removed from their jobs, your client and many applicants will continue to waste money and time on issues that have been resolved long ago, but still appeares to be unresolved in the eyes of corrupt and incompetent examiners.

Unknown said...

Good post, Mark. I'm looking forward to this decision as well!

One thing that strikes me about the Alice decision is how similar the reasoning is to Emmett J's reasoning in the first Research Affiliates decision. They both address (with differing levels of emphasis) the same set of policy considerations: the ubiquity and familiarity of computers, the generic involvement of the computer in the claimed process, the extremely vague description of what the computer is actually doing, the pre-emption hazard and the importance of not allowing patentability to be determined by clever drafting. The only real difference is that the SCOTUS has a line of its own previous decisions to point to as precedent.

It would be great if the Federal Court finds a way to affirm Emmett's decision (or, even better, if it follows the three judges in the Alice concurrence who would have gone much further than Emmett). Either way I'd be surprised if the case doesn't end up in the High Court, where anything could happen.

Unknown said...

Thanks Robert. However, the lack of a line of relevant authority in Australia is a pretty major difference!

As last year's decision in the Myriad Genetics case demonstrated, the requirement for an 'artificially created state of affairs' under the manner of manufacture test can produce significantly different outcomes compared with the application of judicial exclusions under 35 USC 101. It is difficult to dispute the logic that removing DNA from its natural environment within the cell, and isolating a portion of the molecule, results in an artificially created state of affairs. There is also logic in the US Supreme Court's conclusion that the molecule itself is a product of nature that is not (in some relevant sense) significantly altered by isolation.

The size of the gulf that may emerge between US and Australian law on patent-eligibility is apparent if you compare the passage from NRDC that I have quoted above with the following passage from Funk Brothers Seed Co. v Kalo Inoculant Co/i> 333 US 127 which was decided just 11 years earlier:

The application of this newly discovered natural principle to the problem of packaging of inoculants may well have been an important commercial advance. But once nature's secret of the noninhibitive quality of certain strains of the species of Rhizobium was discovered, the state of the art made the production of a mixed inoculant a simple step. Even though it may have been the product of skill, it certainly was not the product of invention. There is no way in which we could call it such unless we borrowed invention from the discovery of the natural principle itself. That is to say, there is no invention here unless the discovery that certain strains of the several species of these bacteria are noninhibitive, and may thus be safely mixed, is invention. But we cannot so hold without allowing a patent to issue on one of the ancient secrets of nature now disclosed. All that remains, therefore, are advantages of the mixed inoculants themselves. They are not enough.

The line of previous decisions on which the Supreme Court relies in Alice (Flook, Benson, Bilski, Myriad, Mayo) owes much to Funk Brothers. There is no guarantee that the Australian and US law will align here.

As for the court going further, and proclaiming 'business methods' unpatentable, per the concurrence in Alice, I do not think that there is any prospect of that. The Full Court (including Justice Bennett, also sitting on Research Affiliates) clearly stated in Grant:

We do not consider that the question here is whether a business system, in the sense of a system for use in a business, is or is not patentable. Patent protection is afforded to an invention that complies with the requirements of the Act, including manner of manufacture. The fact that a method may be called a business method does not prevent it being properly the subject of letters patent...

It is not going to retreat from that position now.

Unknown said...

I lack your confidence, Mark.
First, on Myriad, I think it is an appealing proposition to say that merely isolating something from its natural environment does not make it an artificial state of affairs for the purposes of the manner of manufacture test. That is one reason why Myriad made headlines and has gone to appeal.

Second, for all the differences between US and AU law, the fact remains that (as Robert pointed out) Justice Emmett's reasoning in Research Affiliates was remarkably similar to the US Supreme Court decision in Alice - particularly in the conflation of patentable subject matter issues with obviousness. Australian law has previously conflated those issues, too (for good reason, pre-1952 Act). You will appreciate that IP Australia has also found this reasoning appealing, just over the last few years.

Unknown said...

At some point we're going to have to address the fundamental question of what types of things we want/need patents for. At the moment there seems to be a general consensus (though not well articulated) that the benefits from acquiring disclosures on scientific/technological inventions is roughly equal to or greater than the cost/inconvenience of the limited term monopolies granted for those inventions. There is not yet any concensus , let alone any discourse, on whether disclosures of nonscientific/nontechnical inventions are net beneficial when weighed against the cost/inconvenience of granting monopolies for those inventions. (I have identified the distinction of scientific/technological vs nonscientific/nontechnical as they key to this question; of course there are other distinctions: concrete vs abstract, discovery vs invention, etc. but I believe these are subordinate or auxiliary to the science/technology distinction).

The notion that this question can, or should, be answered only by deriving reasoning ultimately from a 400 year old sacred text (while also trying to reconcile this with the judgments from a completely independent jurisdiction) is, in my opinion, not a sensible approach to dealing with such an important and complex problem.

Of course, the courts are bound (required) to take this approach and it is instead the role of the government (parliament and executive) to do the analysis, determine the optimal common interest, and formulate policy and legislation promptly to address this issue that has been left unexamined for too long.

Unknown said...

I don't really think there's a serious chance the FFC will follow Sotomayor by ruling out business method patents entirely. I'd also be disappointed but not particularly surprised if they decline to follow the Emmett/Alice majority reasoning.

My more pessimistic expectation is that they'll disclaim a blanket rule that allows all claims of the "unpatentable process or idea + do it on a computer" type, then come up with a test that in most cases allows essentially the same result to be achieved by clever drafting.

It's also not impossible that they will go all in and just say that doing pretty much anything on a computer is patentable. Australian courts have a tendency, like the US Federal Circuit, to see patent law as a kind of self-justifying legal bubble that can be extended in any way that is consistent with its own internal principles, regardless of the practical effects of doing so or the kinds of public policy concerns that courts generally take into account when developing the law. It's that tendency that the US Supreme Court has slapped down repeatedly in cases like Mayo and Alice, but you may well be right that Australian courts will not be willing to make the same kinds of judgements here.

Unknown said...

The Full Federal Court specifically said in Grant that public policy considerations aren't the court's job - that should be done by parliament. It will be difficult for them to go back on this in Research Affiliates, although it is certainly possible they could just ignore the issue.

It is difficult to coming up with a test that excludes the "unpatentable process or idea + do it on a computer" type of invention, but still allows inventions (in other fields) to get through. As the Supreme Court recognised in Alice, any such test has the potential to swallow all of patent law, because all inventions are abstract at heart. Unfortunately, the "enough test" they proposed is a little vague.

My view is that these sorts of inventions should pass the patentable subject matter threshold, but potentially fail on other grounds (e.g. inventive step, or clarity for truly abstract ideas). Europe, for example, rejects these types of inventions through a combination of obviousness and legislative exclusions, which is a fairly sensible approach. We don't have the same legislative exclusions in Australia, though.

Unknown said...

There are recent court orders for submissions on the relevance of Alice.

Unknown said...

Thanks! You are one of a number of people to have pointed this out to me this week. Obviously quite a few people are following the case closely!

I have just published a new post covering this development.

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