6. New Issues in Patentability 2: Business Methods and Software
A. Business Method Patents
What is a Business Method?
165. There is no universally agreed definition of a "business method". One definition that gives a good idea of the sort of things covered by the term "business method" is that provided by the draft United States Business Methods Improvement Act 200029 (HR 5364):
| (1) a method of |
| (a) | administering, managing, or otherwise operating an enterprise or organisation, including a technique used in doing or conducting business; or |
| (b) | processing financial data; |
| (2) any technique used in athletics, instruction, or personal skills; and |
| (3) any computer-assisted implementation of a method described in paragraph (1) or a technique described in paragraph (2). |
Why Are Business Methods an Issue?
166. Business methods, along with computer software have, in the past, not been considered suitable subject matter for patent protection by many countries. In recent years, however, some countries, particularly the United States, have begun to allow such patents. Developments in computer technology, particularly the Internet, have made business method patents a potentially large source of income for the owners of such patents.
167. The grant of these patents has not been without controversy. This has largely centred around the suggestion that Patent Offices do not have the appropriate expertise to adequately examine all applications in this fields. It has been alleged that this has resulted in patents being granted for business methods and software that are not novel or inventive. It has also been suggested that allowing patents for business methods may in fact stifle innovation in these fields rather than encourage it, and that business methods should not be patentable at all.
Business Method Patents in New Zealand
168. The definition of a patentable invention in the New Zealand Patents Act 195330 does not specifically exclude the granting of patents for business methods. IPONZ will grant patents for such methods if they are considered to fall within the definition of invention, that is, if they constitute a "manner of new manufacture".
169. The question of whether a particular method falls within the definition of a patentable invention is ultimately determined by the Courts. The High Court of Australia in National Research and Development Corporation v Commissioner of Patents31 stated that for a process to be considered a "manner of new manufacture" it must result in a product that is an "artificially created state of affairs" that has utility in the field of economic endeavour.
170. The Australian patents legislation in force at the time of the "National Research" decision, (the Patents Act 1952) contained the same definition of invention as the New Zealand Patents Act 1953. The New Zealand courts, and hence IPONZ, have followed this decision.
171. Any method (and not just a business method) that meets the requirement set out above will be granted a patent provided it meets the other requirements of the Patents Act 1953.
172. Methods that are no more than mere schemes or plans would not be considered manners of new manufacture,32 as they do not give rise to an "artificially created state of affairs", and are unlikely to be granted a patent. Such methods may, however, be patentable if they are linked to some mode of carrying out the method, for example, by implementing the method using a computer. As a result, many business method patents include the use of a computer or computer software.
Patenting of Business Methods in Other Countries
European Union
173. According to Article 52(1) of the EPC, European patents shall be granted for "any inventions which are susceptible of industrial application, which are new and which involve an inventive step." Subparagraph 2 of Article 52 sets out exceptions to this rule:
- discoveries, scientific theories and mathematical methods;
- aesthetic creations;
- schemes, rules and the methods for performing mental acts, playing games or doing business, and programs for computers;
- presentations of information.
Methods of doing business, among others, are specifically excluded from patentability. The EPC, however, does not specifically define a "method for doing business".
174. In a recent decision33 of the Board of Appeal of the European Patent Office, it was observed:
Having technical character is an implicit requirement of the EPC to be met by an invention within the meaning of Article 52(1)EPC.
and
Methods only involving economic concepts and practices of doing business are not inventions within the meaning of Article 52(1)EPC. A feature of a method which concerns the use of technical means for a purely non-technical purpose and/or for processing purely non-technical information does not necessarily confer a technical character to such a method.
United States
175. The definition of a patentable invention in the United States Patent Act34 does not specifically exclude business methods. It was long considered that business methods were inherently unpatentable. In 1998, this practice was overturned by the United States Court of Appeals for the Federal Circuit (CAFC) in a decision (the "State Street" decision)35 which held that the subject matter of a United States patent is not inherently unpatentable merely because it relates to a method of doing business.
176. Guidelines36 to United States patent examiners dealing with business method applications state:
The claimed invention as a whole must accomplish a practical application. That is, it must produce a "useful, concrete and tangible result." State Street, 149 F.3d at 1373, 47 USPQ2d at 1601-02. The purpose of this requirement is to limit patent protection to inventions that possess a certain level of "real world" value, as opposed to subject matter that represents nothing more than an idea or concept, or is simply a starting point for future investigation or research (Brenner v. Manson, 383 U.S. 519, 528-36, 148 USPQ 689, 693-96); In re Ziegler, 992, F.2d 1197, 1200- 03, 26 USPQ2d 1600, 1603-06 (Fed. Cir. 1993)). Accordingly, a complete disclosure should contain some indication of the practical application for the claimed invention, i.e., why the applicant believes the claimed invention is useful.
and
A process that consists solely of the manipulation of an abstract idea is not concrete or tangible.
Australia
177. S18(1) of the Australian Patents Act 1990 states that an invention is a patentable invention 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; and, when compared with the prior art base as it existed before the priority date of that claim, is novel, and involves an inventive step, and is useful.
178. Whether business methods can be patented will depend on whether the method meets the requirements set down in s18(1), in particular the requirement that the invention be a "manner of manufacture." In its publication Patents for Schemes or Plans37, IPAustralia (the trading name of the Australian Patent Office) states:
Essentially a patent may be granted for a scheme or plan where there is a means for putting the scheme or plan into effect.
Examples of such patentable schemes are:
A method of analysing business performance by operating a computer system to set specified parameters and thresholds in accordance with preselected criteria and to compare business performance against the parameters and thresholds.
and
A method of raising funds by seeking sponsors to donate products, and programming a computerised random number generator to operate in a specified way to conduct a raffle of those products.
179. Patents for Schemes or Plans goes on to state:
…a scheme (including a business scheme) or plan is, in itself, not suitable for a patent because it does not specifically give rise to an artificially created end result of economic utility."
Examples of unpatentable schemes are given as:
"A method of raising funds by seeking sponsors to donate products, and conducting a raffle of those products."
and
"A method of analysing the performance of an investment by creating a benchmark, and comparing the investment to the benchmark.
This suggests that unpatentable schemes can be turned into patentable subject matter by implementing them in some way, for example on a computer.
B. Computer Software
What Is Computer Software?
180. Computer software or computer programs can be defined as "a series of instructions written in a computer language which enables the computer hardware to perform a particular function". In many countries, including New Zealand, computer software was, in the past, generally regarded as not being suitable subject matter for a patent.
Why Is Computer Software an Issue?
181. The issues surrounding the patenting of computer software are similar to those surrounding the patenting of business methods. That is, that Patent Offices do not have the expertise or resources to adequately examine all patent applications for inventions involving software, resulting in patents being granted for software that is neither new or inventive. It has also been suggested that the patenting of computer software would act to stifle innovation, and that computer software should not be patentable at all.
182. It should be noted that computer software already enjoys copyright protection under the Copyright Act 1994. This gives protection against direct copying of the software, but does not protect the principles or ideas underlying the software.
Computer Software Patents in New Zealand
183. Up until 1993, computer software was held to be unpatentable in New Zealand. On 30 June 1993, the Commissioner of Patents released a decision on Patent Application No 193718, in the name of Clarks Limited.38 This application concerned a method of producing a pattern for a shoe by providing a computer with information defining the three dimensional shape of the last. The Commissioner eventually allowed a patent to be granted, notwithstanding some reservations on whether such subject matter should be eligible for patent protection under New Zealand law.
184. The decision on Clark's Application was followed in 1995 by a further decision of the Commissioner in patent applications 221797, 233797 and 233798 in the name of Hughes Aircraft Company. The Hughes Aircraft applications concerned methods for calculating a conflict alert status for an aircraft using a computer. In allowing these applications, the Commissioner followed the decision of the Federal Court of Australia in International Business Machines Corporation v the Commissioner of Patents,39 and adopted the guidelines for patentability of computer software-related inventions as used at the time by the Australian Patent Office following this Court decision. These guidelines are now used by IPONZ. This means that computer software is now patentable in New Zealand, provided that it meets the requirements in the guidelines.
185. The guidelines for determining the patentability of computer software related inventions now used by IPONZ are as follows:
- A method-type claim must define a method, which either directly, or by implication embodies [a] commercially useful effect.
- A claim to a mathematical algorithm per se is not patentable, because it does not produce a commercially useful effect. A commercially useful effect can only arise when the mathematical algorithm is implemented in some manner to produce a result.
- A claim to a mathematical algorithm when used in a computer is patentable so long as a commercially useful effect is produced.
The term "commercially useful effect" in this context is an "artificially created state of affairs that has utility in the field of economic endeavour" as set out in the National Research and Development Corporation v Commissioner of Patents.40
Patentability of Computer Software in Other Countries
Australia
186. As in New Zealand, computer software had long been held to be unpatentable in Australia. This policy was changed after the decision in IBM v Commissioner of Patents referred to above in the discussion on the patentability of software in New Zealand. Since then, the Australian Patent Office has adopted amended guidelines, based on another Australian Federal Court decision, CCOM v Jeijing.41 This case was an appeal from an earlier decision revoking a patent. The patent in question was for an apparatus for storing and retrieving Chinese characters in a word processor.
187. The test now used by IPAustralia for determining the patentability of software patents is whether there is:42
a mode or manner of achieving an end result which is an artificially created state of affairs of utility in the field of economic endeavour
United States
188. Following a series of judicial decisions,43 computer software is now considered to be patentable in the United States provided it meets certain conditions. For example, USPTO's "Examination Guidelines for Computer-Related Inventions"44 includes the following statement:
A process that merely manipulates an abstract idea or performs a purely mathematical algorithm is non-statutory despite the fact that it might inherently have some usefulness. For such subject matter to be statutory, the claimed process must be limited to a practical application of the abstract idea or mathematical algorithm in the technological arts. For example, a computer process that simply calculates a mathematical algorithm that models noise is non-statutory. However, a claimed process for digitally filtering noise employing the mathematical algorithm is statutory.
European Community
189. Article 52(2) of the European Patent Convention sets out those things that are excluded from patentability. These include:
- discoveries, scientific theories and mathematical methods;
- aesthetic creations;
- schemes, rules and the methods for performing mental acts, playing games or doing business, and programs for computers; presentations of information.
- This specifically excludes computer programs.
The Board of Appeal of the European Patent Office has, however, held that the exclusion from patentability of computer programs as such in Article 52(2) does not prevent the patenting of computer-related inventions. "Case Law of the Boards of Appeal", Part 1, Chapter A, Section 1.145 states:
Decision T 208/84 (OJ 1987, 14) set out the principles governing the patentability of computer-related inventions. Even if the idea underlying an invention may be considered to reside in a mathematical method, a claim directed to a technical process in which the method is used does not seek protection for the mathematical method as such. A claim directed to a technical process carried out under the control of a program (whether by means of hardware or software) cannot be regarded as relating to a computer program as such. A claim which can be considered as being directed to a computer set up to operate in accordance with a specified program (whether by means of hardware or software) for controlling or carrying out a technical process cannot be regarded as relating to a computer program as such.
This means that computer software is now patentable in the European Community, provided the software is directed to carrying out a "technical process".
How Should New Zealand Treat Patent Applications for Business Methods and Computer Software?
190. As mentioned above, under New Zealand law, there is no absolute bar to the patenting of business methods. Such methods can be patented, provided that they result in an "artificially created state of affairs that has utility in the field of economic endeavour". As there is no specific definition of "business method", it is not possible to state how many "business method" patents have been granted in New Zealand.
191. Similarly, computer software can also be patented in New Zealand, again as long as it is connected with an "artificially created state of affairs that has utility in the field of economic endeavour".
192. The first question that arises is whether New Zealand should be granting patents for computer software or business methods at all. At present, New Zealand's international obligations do not require New Zealand to grant such patents, so it is possible for New Zealand to consider the issue from a local point of view, that is, what provides the most benefit (or least cost) to New Zealand.
What Are the Arguments for and against Granting Patents for Business Methods and Computer Software?
193. The main arguments advanced in favour of granting patents for business methods and software are:
- the granting of patents is necessary to stimulate innovation; and
- that inventors of new computer software and business methods are entitled to protection for their intellectual property, just as other inventors are, and that there is no logical reason to exclude these things from patentability.
194. The theoretical justification for the granting of patents, as set out in Section 1 of this document, is that the exclusive right conferred by the patent stimulates innovation by giving innovators an opportunity to profit from their investment in research and development. In return society gains something that it might not otherwise have had - the disclosure of an invention that is new and innovative. This gain to society is considered to provide a benefit to society that exceeds the costs of granting an exclusive right.
195. If innovation is occurring without the stimulation of patents, there may be no benefit to society by granting patents, as there may be no increase in innovation. On the other hand, society will still have to bear the costs imposed by the existence of the patents. In this case the granting of patents would not be justified, as the costs would exceed the benefits.
196. On 1 November 2000, the United Kingdom Patent Office released a consultation document46Should Patents be Granted for Computer Software or Ways of Doing Business. After considering the responses, the United Kingdom government concluded:
There is no sign, at least to date, of a want of innovation in computer-implemented business methods, and nor was there in the US before business methods became patentable in 1998. Intense innovation has characterised this field. The Government's conclusion is that those who favour some form of patentability for business methods have not provided the necessary evidence that it would be likely to increase innovation. Unless and until that evidence is available, ways of doing business should remain unpatentable.
(The United Kingdom is a party to the European Patent Convention, and the United Kingdom Patents Act 1977 incorporates the Convention's exclusion from patentability of methods for doing business and computer programs.)
197. With regard to computer software, the United Kingdom government concluded:
The Government's conclusion is thus to reaffirm the principle that patents are for technological innovations. Software should not be patentable where there is no technological innovation, and technological innovations should not cease to be patentable merely because the innovation lies in software. However, the Government agrees with those respondents who said that at present the law is not clear enough, and that this is damaging. Clarification is needed. This raises complex and technical questions, but the central difficulty can be expressed simply: how to define the boundary determining when software is, and is not, part of a technological innovation, so that what is patentable will be clear in specific cases in future. The Government intends to take this matter up with its partners in the European Union and the European Patent Convention as a matter of urgency.
This raises the question as to whether New Zealand should clarify its patent legislation to require patents to be for "technological innovations".
198. The other main argument advanced for granting patents for business methods and computer software is that there is no logical reason for denying them patent protection. Developers of other inventions can receive patent protection; why should developers of software and business methods not be able to receive similar protection?
199. An argument against the granting of patents for business methods and in particular, computer software, is that it actually discourages rather than encourages innovation. If new advances in these fields are patented, the argument goes, they will be unavailable for others to use during the life of the patent. It is suggested that new computer software builds incrementally on existing software. If programmers are unable to use the ideas in this existing software because it is protected by patents, innovation will be stifled, especially given the short commercial "life" of most software.
200. It is also argued that the software industry has flourished in the past without the incentive of patent protection. Much of the software developed in recent times is not the subject of patent protection. It has even been argued that it was the lack of patent protection, and consequent free access by developers to the innovations of others before them, that is responsible for the growth and prosperity of the software industry.
201. The arguments raised against the patenting of business methods and software could be raised against the patenting of any newly developed technology. Most inventions, whether patented or not, are improvements on already existing inventions. In the past, software and business methods were generally not patentable. As a result, people developing new software or business methods were accustomed to building on the ideas of others. If software and business methods are patentable, this activity may become more difficult. This may have negative implications for local developers, as most New Zealand patents, and therefore most business method and software patents, are granted to foreign owners.
202. The granting of patents to business methods and computer software has attracted considerable criticism overseas, particularly in the United States. The criticism has largely centred around the alleged inability of patent offices to adequately examine such applications rather than whether it is appropriate to grant patents at all for business methods and software. It is claimed that this has led to the granting of patents for business methods and software which are neither new nor inventive. While such patents would be held to be invalid by the Courts in revocation proceedings, the process of challenging the validity of a patent can be expensive. As a result, not all of these invalid patents may be subject to challenge.
203. The criticism of patent offices has been:
- that patent examiners lack the knowledge and appropriate resources to adequately examine applications for business method and software patents; and
- that much of the "prior art"47 involving business methods and software may be difficult for patent examiners to locate.
These issues are likely to be relevant in New Zealand as well.
204. One other problem that may arise in New Zealand is that IPONZ currently does not examine patent applications for inventive step or "obviousness". As a result, some business methods and computer software that are obvious variants of known methods or software may be granted a patent. While obviousness is a ground for revoking a patent, the revocation process can be costly and time-consuming, and, as noted previously, not all invalid patents may be challenged.
205. It does seem then, that any problems associated with business method and software patents in New Zealand are likely to be due to difficulties in examining such patent applications, rather than with the principle of patenting business methods or software. Changes proposed to the Patents Act in Stage 1 and Stage 2 of the current Review however, may go some way towards mitigating these problems.
206. Included among the changes is a proposal to introduce examination for inventive step. This will reduce the likelihood of invalid patents being granted. If invalid patents are granted, other changes that have been proposed will make it easier to challenge the validity of a patent. To this end, a re-examination procedure has been proposed as well as a simplified revocation procedure. The re-examination procedure will allow anyone to submit to IPONZ any material which may suggest that a patent or patent application is not new or lacks an inventive step.
207. Another factor that may need to be considered is the effect of any change to the definition of invention in the Patents Act. If the current definition is replaced, the criteria now applied by IPONZ in assessing the patentability of inventions involving business methods and software may no longer apply. This may mean for example, that inventions involving methods that do not produce an "artificially created state of affairs that has utility in the field of economic endeavour" would become patentable. This could include such things as mere schemes or plans, and mathematical algorithms. Would this be desirable?
International Obligations
208. The TRIPS agreement specifies, in Article 27.1 that "patents shall be available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application." The TRIPS agreement was negotiated at a time when most countries did not allow patents for business methods and computer software as they were thought to be inherently unpatentable. As a consequence, it is not clear whether the TRIPS agreement includes or excludes business methods and software. It can be noted though, that the European Patent Convention has retained its exclusions of business methods and computer programs despite the provisions of TRIPS.
209. Any restrictions on the patenting of business methods and computer software may not be inconsistent with TRIPS. Such restrictions however, may attract criticism from other countries with more liberal patenting regimes. Such restrictions would also mean that New Zealand would be out of step with Australia.
Questions
- Business methods and computer software are currently patentable in New Zealand. Should they continue to be patentable? Why?
- If business methods and/or computer software should continue to be patentable in New Zealand, are the criteria for granting a patent adequate? If not, what should they be?
- Should there be an explicit requirement for business methods and computer software to possess "technical character" in order to be patentable.
- What resources might IPONZ require to ensure that it is able to adequately examine patent applications involving business methods and computer software?
- If business methods were to be excluded from patent protection, should some other form of protection be given to them? If so, what should this be?
- Should schemes or plans, mathematical algorithms and other abstract concepts remain unpatentable? If not, why not?
- If mathematical algorithms, schemes and plans, and other abstract concepts were to remain unpatentable, should they be the subject of specific exclusions in the Patents Act?
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