Business Method Patents:
A Review and Comparison of Approaches in Various Jurisdictions

• Introduction

  For each way of doing business there can typically be defined an associated ‘business method’. A business method can often be thought of as a ‘step by step’ guide to replicating a proven approach to doing business which is described to a particular level of generality.

  Whether business methods can be said to arise from our interaction with the Platonic world or they are truly the result of spontaneous human creativity, it is certainly true that new business methods are regularly appearing in a great variety of economic fields. This is not too surprising if one considers how advances in modern technology regularly provide new arenas in which the battle for commercial supremacy often turns on the relative ingenuity of the competitors.

  But what rights, if any, should a person who creates a new business method have to restrict the use of that method by others?

  The patent system provides one avenue by which a person could seek to gain monopoly rights in relation to the use and implementation of a new business method. As it turns out however, the current differences in international approaches to the issue of business method patentability show just how unsettled this topic is. At the very least, both current and potential business method patentees need to be aware that approaches between the various international jurisdictions remain polarized.

• The situation in Australia

  The Australian approach to business method patentability does not call for our courts to apply any special principles that are unique to business methods as a patent subject matter. Rather, courts apply a generalized principle in considering the basic question of whether or not a particular subject matter can be validly claimed in any patent.

  This approach has been developed through a long line of authority. As such, it would appear to be well entrenched and certainly not easily argued against within the current statutory regime.

  Importantly, the Australian experience – as will be seen later – is different from several overseas approaches which, in addition to a general threshold requirement for patentability, also deem a number of specific subject matters to be strictly nonpatentable.

  • 'Manner of manufacture' as the threshold requirement

    The threshold requirement by which a subject matter which is identified in a patent (including business methods) is judged has its underpinnings in the Statute of Monopolies 1623 and is given its current prominence by way of section 18(1)(a) in the Patents Act 1992 (Cth) which provides (emphasis added):

    ‘an invention is a patentable invention for the purposes of a standard patent if the invention, so far as claimed in any claim … is a manner of manufacture within the meaning of section 6 of the Statute of Monopolies’

  • The test in NRDC

    The leading authority on the ‘manner of manufacture’ requirement under the Australian Patents Act 1992 is National Research Development Corp v Commissioner of Patents¹ In this case the High Court ruled that the manner of new manufacture principle can be restated as requiring that a for a particular subject matter to be patentable it must related to a 'product or process' which has some 'industrial or commercial or trading character'.²

    The Court in NRDC made the following statement in relation to processes (which can be generally understood as including business methods):

    ‘The point is that a process, to fall within the limits of patentability which the context of the Statute of Monopolies has supplied, must be one that offers some advantage which is material, in the sense that the process belongs to a useful art as distinct from a fine art'³

    After an extensive analysis of the relevant case law existing prior to its decision, the Court also noted:

    'Notwithstanding the tendency of these decisions, the view which we think is correct in the present case is that the method the subject of the relevant claims has as its end result an artificial effect falling squarely within the true concept of what must be produced by a process if it is to be held patentable.'⁴

    In relation to the patent before the Court in NRDC it found that:

    'the result [of the patent] possesses its own economic utility consisting in an important improvement in the conditions in which the crop is to grow, whereby it is afforded a better opportunity to flourish and yield a good harvest'⁵

    More recently, the High Court has reaffirmed that the manner of manufacture test as enunciated in NRDC is not to be construed too narrowly:

    'The expansion of "a manner of new manufacture" through case law which has been "characteristic of the growth of patent law" came to rest with the acknowledgment in National Research Development Corporation v Commissioner of Patents … that any attempt to fetter the exact meaning of "a manner of new manufacture" could never be sound.'⁶

  • Business methods as a manner of manufacture

    Following the High Court’s decision in NRDC, the Australian Patents and Trade Marks Office has been generally willing to grant letters patent in relation to a number of business methods.⁷ Of course, other requirements in the Patents Act 1992 mean that not all business methods are necessarily patentable and they must also pass the tests for novelty and non-obviousness (among others).

    A business method will only be patentable in Australia where an artificial state of affairs has been created by employing the process described in that particular method. Other cases have referred to NRDC specifically in the context of processes which involve ‘a mere scheme, an abstract idea [or] mere intellectual information’.⁸ Grant v Commissioner of Patents provides authority for the proposition that such mere schemes are not (and never have been) patentable in Australia.⁹ Even so that particular case also makes it clear that business methods are not by their nature ‘unpatentable’.¹⁰

• The situation in the United States

  US courts undertake a 'threshold inquiry'¹¹ in determining whether the claims in a patent specification will be enforceable under law. Like their Australian counterparts, US courts have generally been willing to construe US patent legislation without reference to specific ‘excluded’ subject matters.

  Since the late 1990s – but prior to the recent case of in re Bernard L Bilski and Rand A Warsaw¹² – patenting business methods has not been an uncommon practice in the US.

  • The State Street bank case

    In State Street Bank & Trust Co v Signature Financial Group¹³ the Court of Appeals for the Federal Circuit was asked by the appellant (Signature) to overturn a Massachusetts District Court decision which ruled that Signature's patent for an mutual fund investment system was invalid for 'failure to claim statutory subject matter under 35 USC § 101'. This section states:

    ‘Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.'

    In State Street the Court of Appeals found that the relevant patent in that case claimed a ‘machine’ and was therefore within the scope of § 101. This was because the patent referred to certain physical devices – being in essence the core parts of a typical computer – which were used in implementing the system.

    In stark contrast to the District Court's findings, the Court of Appeals was loathed to acknowledge that certain subject matters, by their very nature, would inevitably fail to meet the requirements for patentability in § 101. In the opinion of the Court of Appeals it was 'improper to read limitations into § 101 on the subject matter that may be patented where the legislative history [indicated] that Congress clearly did not intend such limitations'.

    Even so, the Court of Appeals did acknowledge that abstract ideas are not patentable¹⁴ , unless they have been applied to obtain a 'useful, concrete and tangible result'. Having found that the relevant claim in Signature's patent was 'directed to a machine' through which the investment system was run, it was held that this was not a case involving merely an abstract idea.

    On the question of whether a specific 'business methods' exception existed in relation to § 101, the Court of Appeals was unequivocal in proclaiming that no such exception existed, and that (with emphasis added) '[s]ince the 1952 Patent Act, business methods have been, and should have been, subject to the same legal requirements for patentability as applied to any other process or method'.

    The Court of Appeals did recognise the District Court's concern that in validating the patent, Signature would effectively have the monopoly right for any implementation of that investment system through the use of a computer. However, the Appeals Court concluded that it was not § 101 but rather §§ 102 (novelty), 103 (non-obviousness), and 112 (requirements for patent specifications) which were relevant to invalidity on the basis of the patent claims being too broad.

  • The Bilski case

    The recent Bilski case has brought the issue of business method patents squarely into the cross hairs of legal commentators and professionals alike. Many have openly (and often vigorously) expressed their concerns as to where the Bilski decision leaves business method patents within the US framework of patent law.

    Bilski was decided in 2008 by the full bench of the Court of Appeals for the Federal Circuit. The primary outcome of the case was for the threshold principle for patentability in the US to be restated so that, to be patentable, a process or product must either:

    • be related to a particular machine or apparatus; or
    • involve some transformation at the level of physical objects or substances.

    In the words of the Court:

    'A claimed process is surely patent-eligible under § 101 if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.'¹⁵

    According to the Court, this 'machine-or-transformation test' fell into line with several US Supreme Court precedents. The State Street test on the other hand was explicitly rebuked by the Court for being outside this line of authority.¹⁶

    The Bilski case involved a patent application with claims describing a 'method for managing the consumption risk costs of a commodity sold by a commodity provider at a fixed price' comprising of a number of steps. Basically, the patent being applied for was a method for hedging risks in commodity trading.

    The application had been rejected by the examiner in the first place on the basis that it was for a process represented by an abstract idea detached from any specific apparatus.¹⁷ This ruling was subsequently overturned on appeal to the Board of Patent Appeals and Interferences. Ultimately, the Court of Appeals affirmed the Board’s decision after applying the machine-or-transformation test.

  • The post-Bilski chorus of confusion

    The reinstatement of the machine-or-transformation test in Bilski poses some serious and genuine questions as to the enforceability of many business methods patents which have already been granted in the US on the basis of the State Street test. The current crescendo of concern coming from patentees is set to be silenced (or at least softened) when the US Supreme Court eventually considers the issues raised in Bilski in an upcoming proceeding which was recently instituted by writ of certiorari.

    In granting the Bilski writ of certiorari, the Supreme Court has foreshadowed that it will provide answers to the following crucial questions:

    • ‘Whether the Federal Circuit [in Bilski] erred by holding that a “process” must be tied to a particular machine or apparatus, or transform a particular article into a different state or thing (“machine-or-transformation” test), to be eligible for patenting under 35 USC § 101, despite this Court’s precedent declining to limit the broad statutory grant of patent eligibility for “any” new and useful process beyond excluding patents for “laws of nature, physical phenomena, and abstract ideas”.’
    • ‘Whether the Federal Circuit’s “machine-or-transformation” test for patent eligibility, which effectively forecloses meaningful patent protection to many business methods, contradicts the clear Congressional intent that patents protect “method[s] of doing or conducting business.” 35 USC § 273’

    Presently, it remains to be seen whether the US will realign itself with the pre-Bilski position in favour of business method patentability, or – perhaps less likely¹⁸ – the Supreme Court will uphold the strict approach set out in Bilski.

• Other Jurisdictions

  • Europe

    Unlike the respective legislation in the US and Australia, the European Patent Convention expressly excludes schemes, rules and methods for doing business from what is regarded as patentable subject matter.¹⁹ Therefore, the question of whether patent rights can be obtained for business methods is answered much more simply in Europe than the US and Australia: ‘no’.

  • Canada

    A recent ruling by the Canadian Patent Appeal Board on 5 March 2009 provides another example, in addition to the US that is, of a patent law jurisdiction which is in need of clear top-level authority on the issue of business method patentability.

    That case related to Amazon.com’s well known ‘1-click’ online product ordering method and system. The history of Amazon’s application for a patent over the system in Canada dates back to September 1997, which was the priority date for the associated US patent application (which has since been granted).

    In interpreting the Canadian legislation (under section 2 of the Canadian Patent Act²⁰ an invention means any new and useful art, process, machine, manufacture or composition of matter, or any new and useful improvement in any art, process, machine, manufacture or composition of matter), the Commissioner made a number of important findings, including the following:

    'for a claim to be patentable, the form of the claim (the claim on its face) must relate to one of the five patentable categories of invention (art, process, machine, manufacture or composition of matter). Also, the form of the claim must be neither excluded subject matter nor non-technological subject matter.' (cf Australia and the US’s ‘threshold’ tests)
    
    'A claimed invention which in form or in substance amounts to a business method is excluded from patentability.' (cf the European approach)

    Although this Canadian Patent Appeal Board decision show traits of both the US and Australian approaches – which is not unsurprising noting the similarities in the legislation between these jurisdictions – it ends up being more substantially aligned with the European approach. In the view of the Canadian Commissioner for Patents (at [180]):

    'since patenting business methods would involve a radical departure from the traditional patent regime [in Canada], and since the patentability of such methods is a highly contentious matter, clear and unequivocal legislation is required for business methods to be patentable.'

  • India

    The Indian Patents Act 1970 was amended in 2003 to include a new definition of patentable subject matter in response largely to commercial and economic pressures associated with the increased presence of large multinational computer software companies in the 1990s and early 2000s.²¹

    As such, a new paragraph (k) was added to section 3 of the Act to exclude 'a mathematical or business method or a computer programme per se or algorithms' from the definition of an invention.²²

    Therefore, India adopts much the same approach as Europe where business methods cannot be the subject of patent rights.

  • New Zealand

    New Zealand’s patent laws are currently undergoing a major review. The Patents Bill²³ refers to business methods in its Explanatory Note as being a 'contentious issue' in relation to patent law. The Bill does not specifically refer to business method patents, so on its face it would appear to maintain the status quo in New Zealand where business methods can potentially be patented in much the same way as is permitted in the US and Australia.

Conclusion

It is inherently inevitable that businesses will try to dream up new business methods in attempting to ‘separate themselves from the pack’. Whether the creation of new business methods requires any further external incentivisation (such as that provided by patent law), is not necessarily clear. As a result, the issue of business method patentability is likely to continue to be the subject of considerable political and philosophical debate.

Other important questions also remain however. For example, how is it that the current international approaches – which would otherwise appear to be incompatible approaches – co-exist in such a globalised area of law. And more importantly, how long can this co-existence be sustained?

If you have any questions about this article please contact Leonard Hickey on leonard.hickey@ekmlegal.com.