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Focus: Legal transactions are not patentable inventions

31 July 2006

In brief: A recent Full Federal Court decision has clarified the issue of what kinds of business methods can be patented. Patent Attorney Anthony Selleck reviews the decision.

This question of whether so-called business methods are patentable inventions is one which, in recent years, has occupied the patent offices and courts of many jurisdictions and has also received widespread coverage in the media.

On 18 July 2006, the Full Federal Court of Australia handed down its decision in Grant v Commissioner of Patents [2006] FCAFC 120, which unanimously held that a legal structure was not a patentable invention under the Patents Act 1990 (Cth) (the Act).

While the decision itself was not particularly surprising in light of earlier decisions by the Australian Patent Office and Federal Court (with both reaching the same conclusion as the Full Court), it is nevertheless welcomed as a commonsense application of established principles to the topical area of patenting business methods.

The Grant case

The question at issue in Grant was whether a method of asset protection, consisting solely of steps taken in the financial and legal realms, could be patented under the Act. In particular, the claim of the patentee's innovation patent sought the exclusive right to exploit an alleged invention comprising the following steps:

  • establishing a trust having a trustee;
  • the owner making a gift of a sum of money to the trust;
  • the trustee making a loan of said sum of money from the trust to the owner; and
  • the trustee securing the loan by taking a charge for said sum of money over the asset.

Although based on differing reasons, both the Australian Patent Office and Federal Court held that the claim was unpatentable because it was not directed to a 'manner of manufacture', which is a requirement for all inventions sought to be patented under the Act. Whether an alleged invention is a manner of manufacture is determined by applying principles developed by the courts since the passing of the Statute of Monopolies (Imp) in 1623.

In applying these principles to reach the conclusion that the claimed asset protection method was not a manner of manufacture, the Full Court made a number of salient observations on the patentability of developments and discoveries made in the financial and legal arenas.

Business methods and systems

The patentee argued that the asset protection method was a manner of manufacture because it was a 'business system' which is subject matter that is well understood as being patentable in Australia. The Full Court rejected this contention. The question to be determined was not whether a business system, in the sense of a system for use in a business, is or is not patentable, but whether the invention as claimed complied with the requirements of the Act, including being a manner of manufacture.

Abstract idea or practical application?

One of the principles applied by the Full Court when considering the question of manner of manufacture is that business, commercial and financial schemes which are 'intellectual information' are not patentable inventions. In contrast, business systems that involve a concrete, tangible, physical, or observable effect are patentable manners of manufacture.

The Full Court held that the claimed invention was an example of the former. At best, it was a method that resulted in the abstract and intangible situation of a hypothetical unsecured creditor being unable to recover what they are owed from a user of the method.

This result fell well short of the required tangible effect. In appropriate cases, such an effect would include both a physical alteration of a substance or thing, and, in the case of software-related inventions, a change in state or information in a part of a machine. By contrast, the alleged invention was a mere scheme or abstract idea having no physical consequence.

Legal structures and advice

The Full Court also dealt with the question of whether legal structures or strategies are 'inventions' which can be patented under the Act.

In this regard, the Full Court noted that although the interpretation and application of the law is an area of economic importance – as are other fields of endeavor that do not give rise to patentable inventions, such as the fine arts – such activities cannot be considered as having the necessary 'industrial or commercial or trading character' required to constitute a manner of manufacture.

Therefore, according to the Full Court, while the practice of the law requires, among other things, ingenuity and imagination that may produce new kinds of transactions or litigation arguments which could well warrant the description of discoveries, they are not patentable inventions.

Science and technology

Another issue considered in the course of the judgment was whether the concept of a 'manner of manufacture' imposes a requirement that alleged inventions must be within the area of 'science and technology' to be patentable. Recent decisions emanating from the Australian Patent Office are to the effect that such a requirement is indeed contemplated by the Act.

The Full Court doubted the existence of such a requirement, which may establish an unworkable and unduly restrictive test for determining whether an invention is patentable under the Act. Previous case law had emphasised the unpredictability of advances in human ingenuity. Consequently, the notions of what is patentable should be kept equally flexible and should not be restricted by considerations of what is 'scientific' or 'technical' - concepts which are notoriously difficult to define.

Public interest

Finally, the Full Court addressed the issue of invalidity that was advanced for the first time in the Federal Court at first instance, namely, that the asset protection method was not a manner of manufacture because it would not add to the economic wealth of the country, benefit Australian society as a whole, or advance the public interest.

This basis for the Federal Court decision was somewhat controversial in that it appeared to involve patent offices and courts in considerations of what is in the public interest, when deciding whether an alleged invention is patentable.

The Full Court appears to have relieved these bodies from the burden of weighing up such factors. According to the Full Court, the patent office and courts are not suitable forums in which to consider issues of whether a method or product will advance the public interest. Of course, once a product or process has been patented, its actual use is always subject to the laws of the land, including those concerned with environmental protection, pharmaceutical product approval and occupational health and safety.

What next?

The Full Court has recognised that, notwithstanding the necessity of a flexible approach when deciding what is patentable, there are still restrictions on what is properly patentable. Moreover, attempting to define 'science' or 'technology', or considering the overall social benefits of an alleged invention is improper and an exercise in futility when seeking to determine cases at the boundaries of patentability.

What can be taken from Grant is that despite the requirement of a 'tangible, physical, or observable effect' not being met by the asset protection method at issue, many business systems, including some implemented in software and through computer networks, include such an effect and therefore continue to be patentable in Australia.

Business method patents will continue to impact on many industries not accustomed to dealing with patent issues, thus reinforcing the necessity of devising strategies to deal with such patents.

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