26 November 2017

Continuing Hostility to Computer Implemented Inventions Lands the Commissioner of Patents in Court. Again. Twice.

NoIf anyone thought that the decisions of the Full Federal Court of Australia in Research Affiliates LLC v Commissioner of Patents [2014] FCAFC 150 and Commissioner of Patents v RPL Central Pty Ltd [2015] FCAFC 177 would clarify the law relating to patent-eligibility of computer-implemented inventions (CIIs), resulting in greater certainty for patent applicants, then the evidence suggests that those people should be sorely disappointed.  On the contrary, 2017 has seen the continuation of a series of Patent Office decisions that show a persistent gap between applicants’ expectations of what is patentable, and what IP Australia is willing to accept.  Two of these decisions, Todd Martin [2017] APO 33 and Rokt Pte Ltd [2017] APO 34 have now resulted in appeals to the Federal Court of Australia: Todd Martin v The Commissioner of Patents, QUD374/2017; and Rokt Pte Ltd v The Commissioner of Patents, NSD1292/2017.

Furthermore, in the most recent twist of fate for bemused patent applicants, the Patent Office appears to have adopted a version of the England and Wales Court of Appeals’ four-step test for patentable subject matter, as set out in Aerotel Ltd v Telco Holdings Ltd; Macrossan’s Application, [2006] EWCA Civ 1371 (Aerotel/Macrossan).  This approach has been applied in four of the decisions published so far this year rejecting CIIs.  Additionally, on 1 August 2017 the Patent Manual of Practice and Procedure (‘Examiners Manual’) was updated to make a variation of the Aerotel/Macrossan test the primary approach to examination practice in relation to patentable subject matter. 

It appears that IP Australia is continuing to ‘develop’ the law in this area, rather than following the ratio decidendi of the courts’ opinions, as it is bound to do.  It should come as no surprise, then, that this strategy has resulted in appeals to the Federal Court, which is the only way to establish whether the direction being taken by the Patent Office is ‘correct’ under the law.  And with 13 decisions – so far, in 2017 – rejecting claims to CIIs, there has been no shortage of opportunities for applicants to appeal!

IP Australia’s Novel Take on Aerotel/Macrossan

As of the update on 1 August 2017, Section (‘Principles for Examination’) of the Examiners Manual states that:

In general, the principles set out in D'Arcy v Myriad Genetics Inc [2015] HCA 35 (Myriad), Commissioner of Patents v RPL Central Pty Ltd [2015] FCAFC 177 (RPL) and other cases suggest that examiners can approach the examination of manner of manufacture in a way similar to that formulated by UK authority in [Aerotel/Macrossan]…

This strikes me as a rather unusual assertion, considering that the High Court did not cite Aerotel in its decision in D’Arcy, and the Full Federal Court referred to Aerotel only in passing while discussing its earlier decision in Research Affiliates LLC v Commissioner of Patents [2014] FCAFC 150.  Certainly, the Full Court referred to Aerotel at greater length in its Research Affiliates decision, in the context of a wider discussion of the position in Europe, the UK, and the United States.  However, it never rose to the level of endorsing the full four-step Aerotel/Macrossan test as a valid approach under Australian law.  What the Full Court in fact said, in summary, of the relevance of Aerotel/Macrossan was (at [36]):

It must of course be remembered that these decisions were made in the context of a statutory exclusion and that what is excluded from patentability is, relevantly, a business method “as such”. However, it is apparent that applying a test of a “technical contribution” has similar flexibility and, in this area of technology can be useful in an analysis of an “artificial effect”.

At most, then, the Full Court – in obiter dicta – has cautioned that the statutory scheme in Australia is different to that of Europe and the UK, but nonetheless suggested that one aspect of the Aerotel/Macrossan approach, a ‘technical contribution’ test, may be useful in analysing whether or not there is a relevant ‘artificial effect’ in the specific area of technology of computer-implemented business methods.  This makes it all the more concerning that IP Australia has adopted Aerotel/Macrossan as a general approach to assessing patentable subject matter, and that it recently applied the test to claims directed to a pre-painted steel strip with partially removed layer constituting branding and to a method of manufacturing such a pre-painted steel strip (Bluescope Steel Limited [2017] APO 59).

Moreover, IP Australia has taken it upon itself to ‘adapt’ Aerotel/Macrossan to Australian circumstances, despite the absence of any judicial authority for it to do so.  The original UK approach, in the context of legislation that provides an explicit statutory exclusions for subject matter including ‘a scheme, rule or method for performing a mental act, playing a game or doing business, or a program for a computer … as such’, comprises four steps (see, e.g., Research Affiliates FCAFC at [29]):
  1. properly construe the claim;
  2. identify the actual contribution;
  3. ask whether it falls solely within the excluded subject matter; and
  4. check whether the actual or alleged contribution is actually technical in nature.
The third and fourth steps have no place in Australian law, because (a) the Australian legislation does not contain European-style statutory exclusions, and (b) the courts have expressly declined to declare that ‘the realm of human endeavour in which patents may be granted can be defined positively as that of science and technology’ (Grant v Commissioner of Patents [2006] FCAFC 120, [35]-[38]).

IP Australia’s answer to this is to rewrite the final two steps in terms of the distinction drawn by the High Court, in D’Arcy v Myriad, between an invention that ‘falls within the existing concept of manner of manufacture, as it has been developed through cases’ and one that ‘involves a significant new application or extension of the concept of “manner of manufacture”’ (D’Arcy at [28]).  The resulting ‘Australianised’ test set out in the Examiners Manual is:
  1. construe the claim;
  2. identify the substance of the claim (i.e. the alleged or actual contribution);
  3. ask whether the substance of the claim lies within established principles of what does not constitute a patentable invention (e.g. a scheme, plan, rules of gameplay, intellectual or genetic information)
  4. if not, consider whether the substance otherwise lies outside of existing concepts of manner of manufacture and is to be treated as a “new class” of subject matter.
This strikes me as a novel synthesis of UK law with two disparate elements of Australian law.  As I have pointed out above, the Full Federal Court in Research Afilliates quarantined its limited endorsement of an Aerotel ‘technical contribution’ analysis to the field of computer-implemented business methods.  The High Court in D’Arcy was abundantly clear that its concern in that case was with nothing more general than whether the invention defined by Myriad’s three challenged claims directed to isolated naturally-occurring genes fell ‘within established applications of the concept of manner of manufacture’, noting that if it did not ‘then the question is one of inclusion not exclusion’ (D’Arcy at [37]).  Yet from these elements, IP Australia has derived general ‘principles for examination’ of patentable subject matter, notwithstanding that this also involves a reversal of the High Court’s approach in the third and fourth steps.

The ‘Unlucky 13’

A brief summary of the 13 decisions of 2017 (so far) relating to patent-eligibility of CIIs is set out below.  In every case, the application was rejected.  In only two cases (Aristocrat Technologies and Bio-Rad Laboratories) was the applicant afforded any opportunity to amend in an effort to overcome subject-matter objections – in all other cases, the Hearing Officer determined that the specification did not disclose any potentially patentable subject matter.
  1. Aristocrat Technologies Australia Pty Limited [2017] APO 1 (Hearing Officer Dr V Z Kolev), where the invention was a touch-screen gaming machine providing multiple playable games with several bet denominations associated with each game, and having a specific arrangement of playable games of a particular type and the corresponding associated sets of bet denominations.
  2. Accenture Global Services Limited [2017] APO 9 (Hearing Officer Dr S D Barker), where the invention related to adaptive marketing using insights obtained by analysis of data in a customer database.
  3. Swiss Reinsurance Company Limited [2017] APO 12 (Hearing Officer P M Spann), where the invention was directed to a computer implemented method for conducting a safety assessment in a processing plant.
  4. Trading Technologies International, Inc [2017] APO 13 (Hearing Officer Isaac Tan), where the invention was a method of calculating and displaying data associated with a spread trading strategy in an electronic commodities trading system.
  5. Bally Technologies ANZ Pty Ltd [2017] APO 14 (Hearing Officer M G Kraefft), where the invention related to electronic gaming machines, and in particular to  selection of game play options, the presentation of subset of game symbols corresponding with the selected game play option, and to associated winning combinations.  Notably, the application in this case was originally accepted.  However, it was subsequently opposed, and a subject matter objection was only raised in the course of routine re-examination following withdrawal of the opposition.  This is also the first of the 2017 decisions to apply the Aerotel/Macrossan approach.
  6. Novomatic AG [2017] APO 24 (Hearing Officer Dr S D Barker), where the invention related to electronic lottery gaming system in which tickets are purchased from storage on game server without the need to complete and scan a written document, and in which winnings are held separately from credit.
  7. Todd Martin [2017] APO 33 (Hearing Officer M G Kraefft), where the invention related to a system and method for tracking usage of athletic equipment of an athlete using a GPS-enabled device and a computer server.  This decision has been appealed to the Federal Court, and was the second of the 2017 decisions to apply the Aerotel/Macrossan approach.
  8. Rokt Pte Ltd [2017] APO 34 (Hearing Officer Dr N R Madsen), where the invention related to a computer implemented method for linking a computer user to an advertising message by way of an intermediate engagement offer.
  9. Discovery Life Limited [2017] APO 36 (Hearing Officer R Subbarayan), where the invention was a computer implemented method for managing a life insurance policy with a related medical scheme.
  10. Bio-Rad Laboratories, Inc. [2017] APO 38 (Hearing Officer Ed Knock), where the invention was directed to a method of establishing a statistically valid assay mean and assay range for a particular lot of a quality control material.  In this case, the applicant has been provided with an opportunity to amend its claims to try to overcome the objection, but has not yet successfully done so.  For further details see Principles of Patent-Eligibility Continue to Trouble Applicants and Examiners in Australia.
  11. BGC Partners, Inc. et al [2017] APO 43 (Hearing Officer Isaac Tan), where the invention was directed to an automated system of executing ‘first on the follow’ trades within an electronic securities trading system.
  12. BGC Partners, Inc. [2017] APO 49 (Hearing Officer M G Kraefft), where the invention related to the display of market data in an electronic securities trading system, and the user of a game controller for the selection of trading options.  This was the third 2017 decision to apply the Aerotel/Macrossan approach.
  13. Elot, Inc. [2017] APO 55 (Hearing Officer Dr V Z Kolev), where the invention related to government-operated lottery play over an electronic network, and in particular to a system including an agent server for interacting with lottery players and lottery administrators of states to manage and facilitate state lottery games.  This was the fourth of the 2017 decisions to apply Aerotel/Macrossan.
My point is not to suggest that any of these decisions is necessarily wrong – I have not reviewed the patent specifications in the detail that would be required to form a considered view on the matter.  What is apparent, however, is that in each of these cases there was substantive disagreement between the applicant and the Patent Office as to how the ‘manner of manufacture’ eligibility test should be applied to the subject matter of the patent application.  This remains so, despite the fact that the Research Affiliates and RPL Central decisions were supposed to have brought greater clarity to the law.  And these published decisions may be just the tip of the iceberg, since most examination objections do not result in a hearing – in the majority of cases, the application merely lapses without fanfare.

The Squeeze Continues on CIIs

Nowadays, of course, the use of computers is commonplace in all industries.  They are particularly indispensable in service industries, such as finance, insurance, and marketing, where efficiencies, productivity enhancements, and new service offerings frequently stem from the automation of existing and new activities that would otherwise rely heavily on human operators.  Enterprises such as gaming and commodity trading are now almost entirely computerised.  However, as the decisions listed above demonstrate, these are all fields of endeavour in which obtaining patent protection for innovative developments is increasingly challenging. 

Indeed, through changes in examination practice, and its published decisions, IP Australia appears keen to continue development of the law – beyond what it achieved through the Research Affiliates and RPL Central test cases – in a direction that further limits the availability of patents in fields in which computers and software are the dominant source of technological advancement.  This creates a situation in which industries that are most dependent upon software innovation – and in which significant research and development investments are made in software-based technologies – are also the industries that will have the least effective access to patent protection.

Applicants Rebuked for Filing Divisionals

It is a common strategy for applicants facing a possible final refusal of a patent application to file a divisional application in order to keep alive whatever potential rights they may have.  It is no secret that IP Australia does not approve of this practice.  In Swiss Reinsurance Company, Hearing Office P M Spann (who was, at the time, Deputy Commissioner of Patents, but who has since retired) wrote (at [4]):

The applicant however did not request to be heard. It rather filed a further divisional application number 2017201643 pursuing a course of action that, although permitted under the Act, in my view does nothing for the reputation of the patent system and is likely to bring into question the generous availability of divisional applications to the detriment of other users of the system. While the applicant has the right to appeal my decision to the Federal Court, it appears that instead the divisional of this case will very soon be examined and referred to another delegate for determination. It is not clear what benefit the applicant derives from this but is the cause of considerable wastage of Patent Office resources and presumably significant inconvenience for any interested third parties.

This passage has since been quoted in other decisions, as well as in the course of examination of that divisional application.

In my opinion, it is inappropriate for officers of IP Australia to chastise applicants in this manner.  I am not sure what Deputy Commissioner Spann expected to achieve here, although there certainly appears to be a thinly-veiled implication that the ‘generous availability of divisional applications’ may be threatened by such behaviour.

Yet, despite the Deputy Commissioner’s rebuke, there is clearly a potential benefit that can be legitimately derived by an applicant in these circumstances.  Even prior to the recent developments discussed above, IP Australia had an established track record of ‘innovating’ in its approach to patentable subject matter, presumably with the objective of provoking test cases to enable the courts to develop the law in this area.  As the High Court stated in D’Arcy v Myriad (at [5]):

This Court in National Research Development Corporation v Commissioner of Patents (‘NRDC’) held that the terminology of ‘manner of manufacture’ taken from s 6 of the Statute of Monopolies was to be treated as a concept for case-by-case development. It thereby mandated a common law methodology for its application.

This is all very well, but most applicants have neither the funds nor the stomach for risking tens – or even hundreds – of thousands of dollars on a Federal Court appeal, and the potential appeals to higher courts that may flow from there, to assist in development of the law.  For such applicants, keeping their putative rights alive, by any means available, in the hope that someone else will take on the Patent Office in court, is an entirely reasonable course of action.  Indeed, where IP Australia contributes to applicants’ uncertainty about whether their applications are being treated in accordance with the law, by repeatedly revising practices even in the absence of any new judicial authority, it should expect them to take whatever steps are necessary to protect their positions.

With two appeals now pending before the Federal Court, the benefit in filing a divisional application in the face of a subject matter objection is therefore the possibility that a future judicial decision in one or both of these cases may provide a clarification of the law that assists the applicant in overcoming the objection.

Conclusion – Picking Patent ‘Winners’ and ‘Losers’

Some would argue that innovations in gambling machines, share trading systems, and personalised marketing are not among the most ‘worthy’ of human advances, and that a lack of patent protections in such fields is unlikely to result in any great loss to society.  But that is not the point.  The patent system should not be in the business of picking ‘winners’ and ‘losers’.  Either we believe that patents provide an incentive for individuals and companies to invest time and money in the risky enterprise of innovation, or we do not.  The shops are full of products that I would regard as being of dubious social value – novelty pet toys, selfie sticks, ‘miracle’ home exercise devices, to name but three – that are unquestionably eligible for patent protection, if they meet the requisite standards of inventiveness.  But it is (fortunately) not my place to judge the ‘worthiness’ of these products.  I would argue that the only legitimate forum for such policy-based decisions within our democratic system is the Parliament.

However, the Patent Office apparently does get to make judgments, and it seems that it has decided that a dollar of investment in developing an improved computerised trading system is less deserving of protection than a dollar of investment in developing a new rubber dog chew, phone accessory, or ab-cruncher.  This is good news for the makers of disposable impulse-purchase items, but not so great for businesses in the financial services sector.

I wish Rokt Pte Ltd and Todd Martin the very best of luck with their Federal Court appeals.  I have previously indicated, however, that I did not find the decisions in either of these cases especially surprising, and I am not at all optimistic that the court will take a significantly different view.  The Todd Martin matter has been set down for mediation on 8 February 2018, although given that the Hearing Officer found that the specification in that case did not disclose any patentable subject matter, it is difficult to see where there might be an opportunity for compromise.  It will be interesting to see what happens.


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