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Determining the eligibility of software patents

Are Australia, New Zealand and the US all heading in the same direction with software patents? David Webber of Davies Collison Cave looks at recent court cases

To the dismay of many entrepeneurs, electronic engineers and patent attorneys, but to the delight of the open source software (OSS) community, the New Zealand government decided its new Patents Act 2013 will exclude computer programs from being patentable inventions (New Zealand Patents Act 2013, section 11). The legislation, due to commence in September 2014, is similar to that which has existed in Europe since 1977. The law in Europe has now settled to a point where claims for computer-implemented inventions will be allowed if it can be established they provide a technical contribution, and are not directed to software per se.

The situation in Australia and the US has been entirely the opposite, until recently.

Software patents have been available in Australia for over 20 years, but since 2010 the Australian Patent Office has adopted a negative practice towards certain types of computer-implemented inventions, such as financial systems or gaming systems. The negative practice is founded on a belief that schemes or business methods do not become patent-eligible subject matter just by implementing them in a computer. The practice has been the subject of two Federal Court decisions which are now both on appeal to the Australian Full Federal Court.

In the US, the Supreme Court in Alice Corp v CLS Bank International (Alice) has just made it clear that merely confining a process to implementation on a computer, without providing any improvement in technology, will no longer be sufficient for that process to be eligible for patent protection in the US.


In the latest decision, RPL Central v Commissioner of Patents 2013 (RPL), the Federal Court found that the Patent Office's negative practice was incorrect and did not have a sound basis in Australian law. The Court decided that an automated process for gathering evidence to assess competency did constitute patent-eligible subject matter.

"Since 2010, the Australian Patent Office has adopted a negative practice towards certain types of computer-implemented inventions"

Patent eligible or patentable subject matter in Australia is inexorably linked to the High Court's celebrated judgement in National Research Development Corporation v Commissioner of Patents 1959 (NRDC), which has been described as a watershed case.

In RPL, the Federal Court confirmed NRDC made it clear any attempt to set out prescriptive requirements is impermissible, as it is necessary to be flexible to allow for excitingly unpredictable and emerging inventions to be patentable. NRDC considered an exact formula was not to be used, as patentable subject matter is a mere threshold consideration, particularly when any validity inquiry remains to be determined quite separately, and on different criteria (for example, novelty and inventive step).

RPL Central's invention facilitated improvements in the existing recognition of prior learning processes. It enabled the automatic generation of a user interface to gather evidence from a prospective candidate, in terms of credit or exemption towards any qualification or unit offered across a wide range of training organisations. The evidence facilitated the assessment of the competency of the candidate.

The Australian Federal Court considered and rejected all of the Commissioner of Patents' submissions.

In applying the principles of NRDC, the Court found that the invention did belong to the useful arts rather than the fine arts, and that it did have utility in practical affairs and solved a problem in the field of economic endeavour. The Court also made it clear that there was no binding Australian authority that provides a different test for a method claim as opposed to a method and device claim.

Significantly, the Court found that each of the computer-effected steps of the claimed invention constituted or gave rise to a change in the state or information in a part of a machine, and therefore produced a physical effect in the sense of a concrete effect or phenomenon or manifestation or transformation, as required by the Court's decision in Grant v Commissioner of Patents (Grant). The Court considered the statement in Grant to be a useful précis of the way in which the artificial state of affairs requirement may apply to computer programs, in accordance with the principles set out in NRDC.

Further, the Court emphatically rejected the Commissioner's arguments that the physical effect required must be significant or central to the purpose or operation of the claimed process. The Commissioner felt that this requirement was supported by earlier decisions. In fact, the Commissioner had been applying the requirement to reject a number of patent applications for computer-implemented inventions relating to financial systems or gaming systems. The Court made it clear that none of the earlier decisions articulated a separate or new requirement of substantiality of physical effect.

The Court noted the Commissioner submitted that without this, or some other limiting principle, any method operated on a computer would fulfil the artificial state of affairs requirement. However, the Court indicated that fear is not a valid objection.

The Commissioner also submitted that the invention could be performed without the use of a computer, and if one was to strip away the computer-related aspects of the claims, one would only be left with a method for performing an aspect of business. In response, the Court said one cannot subtract from the invention any aspect of computer implementation, and then determine whether what remains is proper subject matter. The computer is an essential part of the invention claimed, as it enables the method to be performed.

Another argument advanced by the Commissioner, that the steps did not involve anything that is foreign to the normal use of computers, was also rejected by the Court as a requirement not imposed by any of the binding authorities. This is to be considered under the separate requirements of novelty and inventive step.

The Court also distinguished its earlier decision in Research Affiliates v Commissioner of Patents 2013 on the basis that the patent applicant had accepted that the only physical result generated by the method of the claimed invention was a computer file containing a generated index, and that the specification and the relevant claims did not disclose how to produce the index in question. In contrast, the specification and claims at issue in this case provided significant information about how the invention is to be implemented by means of a computer and the computer was integral to the invention as claimed.

United States

Alice Corporation's patent claims were characterised by the Supreme Court as relating to a computerised scheme for mitigating settlement risk. The scheme facilitated the exchange of financial obligations between two parties by using a computer system as a third-party intermediary. The intermediary creates shadow credit and debit records that mirror the balances of the parties' real world accounts. Further, it updates the shadow records in real time as transactions are entered, allowing only those transactions for which parties' updated shadow records indicate sufficient resources to satisfy their mutual obligations.

"It is necessary to be flexible to allow for excitingly unpredictable and emerging inventions to be patentable"

The Supreme Court confirmed that the section of the US Patents Act, which defines subject matter eligible for patent protection, has always contained an implicit exception: laws of nature, natural phenomena and abstract ideas are not patentable. In applying the exception, the Court said it was necessary to distinguish between patents that claim these "building blocks" of human ingenuity and those that integrate the building blocks into something more, thereby transforming them into a patent-eligible invention. The concern is that all uses of an abstract idea should not be pre-empted by a patent.

To distinguish between claims that are eligible and those that are not, the Court relied on the test from its decision in Mayo Collaborative Services v Prometheus Laboratories 2012. The test consists of asking the following questions: (i) are the claims at issue directed to one of the patent-ineligible concepts (laws of nature, natural phenomena or an abstract idea); and, (ii) if so, what else is there in the claims before us?

To answer the second question, the elements of each claim, both individually and as an ordered combination, need to be considered to determine whether the additional elements transform the nature of the claim into a patent-eligible application. This analysis involves a search for an inventive concept; that is, an element or combination of elements that is sufficient to ensure that the patent in practice amounts to significantly more than the patent on the ineligible concept itself.

The Court referred to its past decisions on computer-implemented inventions to give some guidance as to how the test is to be applied.

In Gottshalk v Benson 1972, the claimed process converted binary coded decimal into binary using a shift register. The implemented algorithm was considered an abstract idea, and the claim therefore had to supply a new and useful application of that idea to be patent eligible. The Court noted the computer implementation did not supply the necessary "inventive concept" and the process could be "carried out in existing computers long in use". The Court also said the introduction of a computer into the claims does not alter the analysis for step (ii).

Parker v Flook 1978 (Flook).was considered to be "to the same effect", and the claims were directed to a computerised method for using a mathematical formula to adjust alarm limits for certain operating conditions for a catalytic conversion process. The Court said the formula was an abstract idea and the computer implementation was purely conventional. The Court considered that Flook stood for the proposition that the prohibition against patenting abstract ideas cannot be circumvented by an attempt to limit the use to a particular technological environment.

In Diamond v Diehr 1981 (Diehr), the claims were considered to be patent-eligible, but are not that dissimilar to those of Flook. The claims do, however, include more specific implementation detail. The claims relate to a process for curing rubber and according to the Court, employed a known mathematical equation used to solve a technological problem in a conventional industry practice. The Court referred to the invention in Diehr using a "thermocouple" to obtain previously unobtainable temperature measurements inside the rubber mold. The Court considered the claims in Diehr to be patent-eligible because they improved an existing technological process, not because they were implemented on a computer.

One of the other distinctions between Flook and Diehr was that in Flook, the formula or idea was new.

Applying the test to Alice's claims, the Court concluded that the relevant question is whether the claims here do more than simply instruct the practitioner to implement the abstract idea of intermediated settlement on a generic computer. They considered that they did not. The Court felt that the method claims did not, for example, purport to improve the functioning of the computer itself, nor do they effect an improvement in any other technology or technical field.

Accordingly, the previous decision of the Court of Appeals of the Federal Circuit finding that the claims were not patent-eligible, was affirmed.

The future

To be eligible for a patent in the US, a computer-implemented invention will probably now need to provide a technological improvement, solve a technical problem or effect some improvement in technology or a technical field. It will certainly need to involve more than simply implementing an abstract idea on a generic computer.

Whether it was intentional or not, the US Supreme Court may have introduced into US law technical contribution requirements similar to those of European patent law, and which now may also apply in New Zealand after September 2014.

The Australian Full Federal Court appeal decisions in Research Affiliates and RPL are now awaited to see if Australia will follow a similar path, or continue to be a jurisidiction where the word technical is not of paramount importance in determining patent eligibility.

David Webber

David Webber is a partner at Davies Collison Cave, and specialises in patent, design and copyright advice for electronics, computer software and communications products. He has considerable experience in patent drafting, patent oppositions and patent infringement, due diligence and freedom to operate advice. David lectures in patent and copyright law and integrated circuit legislation for the University of Melbourne, Monash University, and Swinburne University.

David has over 20 years' experience acting on behalf of large corporations, research institutes, universities and start-up companies, both in Australia and overseas. He has successfully handled many complex patent oppositions, and is adept at managing large patent portfolios. He acted in the first finding of infringement by a court under semi-conductor chip protection legislation.

David was the exclusive winner of the International Law Office (ILO) Client Choice Award in 2010 for intellectual property in Australia, based on nominations received from corporate counsel worldwide. He was recommended as a leading lawyer in the IAM Patent 1000 Guide for 2012, 2013 and 2014, in the 2013 edition of Asia IP Experts, the 2013 Doyle's Guide, and in the Best Lawyers report in 2014.



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