10 June 2004
Key Points:
Dramatic spikes in the number of application for patents for business systems have led to considerable debate globally about whether patent protection for business systems is appropriate.
The emergence of knowledge-based economies, globalisation and the growth of service industry activity in recent years have created an increased demand throughout the world for methods of protecting commercial advantage gained through innovation. There has been an increasing interest in protecting innovation of a much broader kind than previously – new and different ways of doing business. One of the primary means for doing so has been through the patenting of what have been variously described as business systems, methods, models, schemes or processes.
Patenting business systems is not new. However, rapid developments in information technology that have created new opportunities for innovation in business practices, as well as recent Australian and US court decisions holding such systems patentable under their respective national laws, have resulted in dramatic spikes in the number of applications for patents for business systems. This, in turn, has led to considerable debate and numerous industry and government reviews throughout the world as to, among other things, whether patent protection for business systems is appropriate.
The Advisory Council on Intellectual Property ("ACIP"), an independent body established to provide advice to the Federal Government on intellectual property policy and administrative issues, was asked by the Federal Government in February 2002 to examine the issue of patenting business systems and propose policy options to best meet Australia's national needs. ACIP has recently issued its report. For the purposes of its inquiry, ACIP defined a "business system" as "a method of operating any aspect of an economic enterprise". The central recommendation offered by ACIP in its report is that Australian patent legislation should not be altered. The report also offers some more minor recommendations, suggesting changes to the day to day operations of IP Australia, the body responsible for the examination and granting of patents, so as to improve the quality of business system patents.
Business system patents in Australia
The Patents Act 1990 contains no specific reference to business systems, and thus neither specifically includes them within, or excludes them from, patentable subject matter under the Act. In 2001, the Federal Court of Australia in Welcome Real-Time SA v Catuity Inc [2001] FCA 445 confirmed a number of earlier Australian decision in this area, and found recent US decisions persuasive, in finding a business system invention to be patentable provided that it satisfied the same patentability requirements as other inventions. That is, it must, among other things, be a "manner of new manufacture", as well as useful, novel, and involve an inventive step.
What, then, is "manner of new manufacture"? In Welcome, the Federal Court said that a mere abstract idea, a calculation method, a mere way of doing business or a new use of a known article would not be patentable. However, if a business method was combined with a device (including computer software) which can be used to solve a technical problem, thereby having value and benefit in a field of economic endeavour, the process would be a "manner of new manufacture" and, so long as the other tests were satisfied, patentable. IP Australia has since modified its examination requirements so as to no longer require an invention (including business systems) to have a technical means of implementation to be patentable.
Business system patents throughout the world
Most international obligations in relation to intellectual property are governed by the Trade-Related Aspects of Intellectual Property Rights Agreement ("TRIPS"). All members of the World Trade Organisation, including Australia, are bound by TRIPS, which requires that patents must be available for all inventions in all fields of technology. There are some limited exceptions to this, but business systems patents are not included among those exceptions. However, business systems may still be excluded from patentability at a national level if they are not considered to be within a field of technology and thus subject to mandatory patentability requirements.
This has led to a differing scope of patent protection for business systems among WTO members. Business systems are generally patentable in Australia, the US and Japan, but are specifically excluded from patentable subject matter by the European Patent Convention and thus are generally not patentable in Europe, including the United Kingdom. Business systems, however, may constitute patentable subject matter in those jurisdictions if claimed as a computer-implemented system which makes a technical contribution to the state of the art.
While it is generally in Australia's interests to have its intellectual property laws in line with all major industrialised countries, the differences in approaches to business system patents among these countries mean that this is simply not possible in all cases.
Evidence before ACIP
ACIP recognised that patents both dampen competition on the one hand and encourage innovation and the disclosure of inventions on the other, and thus, in deciding on the scope of patent protection for business systems, a suitable balance between the two competing ideals of competition and innovation must be struck. However, ACIP received little conclusive evidence on how the patenting of business systems affected either of these goals. Evidence arguing that the patents stimulated greater investment in research, development and commercialisation of business systems was inconclusive. There was no evidence to show that these patents stifled competition in new areas of commercial activity.
Amending the Patents Act
As Australia is bound by its TRIPS obligations, the focus of ACIP's report is whether Australia should go beyond those obligations in continuing to grant patents for business systems that are not within a field of technology.
One way of limiting Australian patents to those within a field of technology would be to introduce as a specific criterion of patentability that an invention be in a field of technology (or a specific exclusion of inventions not in a field of technology). Alternatively, Australian law could be brought closer to European law by introducing a requirement that an invention must have a "technical effect" in order to be patentable. However, ACIP came to the conclusion that the introduction of either a "field of technology" or "technical effect" requirement may result in extensive changes to Australian patent law. These changes would have unpredictable consequences, with terms such as "technical effect" and "field of technology" left open to be interpreted by the courts. It may also result in the changes being ineffectively implemented, and thereby being avoided by clever claim drafting from patent applicants.
ACIP also considered a specific exclusion of business systems patents, concluding that such an exclusion would have a lesser effect on Australian patent law. However, the term "business system" would then be open to interpretation. Experiences in Europe have shown that such specific legislative exceptions can often be easily avoided, and so could prove ineffective.
Given the problems with amending the Patents Act, as well as the flexibility and adaptiveness of the present patent system, ACIP concluded that there is no legal basis for amending the Patents Act with respect to business systems.
Worldwide controversy
ACIP accepted that the issue of business systems patents has generated significant controversy at a global level, but the evidence before it showed that there was little controversy within Australia. Further, there remains a relatively small number of business systems patents in this country. ACIP concluded that any adverse impact from such a small number of patents is not worth the expense and uncertainty that changes to the patent law would create.
ACIP further concluded that much of the worldwide controversy is simply due to a lack of understanding of business systems patents, both by patent applicants and patent offices. This problem was best tackled by procedural changes within IP Australia rather than any changes to the Patents Act. Among the procedural changes recommended were to enhance the business system training provided to patent examiners, increase the non-patent literature available to examiners, and raise public awareness about the patent system, including the ability to submit prior art during the examination process.
If you wish to read the paper in greater detail, or to look at the specific list of recommendations made by ACIP, the paper is online at http://www.acip.gov.au/library/bsreport.pdf
The Australia-US Free Trade Agreement
Though not part of the ACIP review, the Australia-US Free Trade Agreement, if enacted into Australian law, will require, based on its general statements about patentable subject matter, that business systems remain patentable in Australia. Though the FTA will not require specific legislative recognition of the patentability of business systems, it will preclude legislation excluding such systems from patentability.
