Intellectual Property – Ground Breaking Decision – Patents – Business Methods – Computer Programs

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Intellectual Property – Ground Breaking Decision – Patents – Business Methods – Computer Programs

A landmark decision was made by the Court of Appeal in the cases of Aerotel Ltd v Telco Holdings Ltd (and others) [2006] and the Macrossan app [2006] on October 27, 2006. This important decision means that there is now a new method by which patent examiners will assess whether or not an invention is patentable. The decision is particularly relevant to those who wish to register a patent on ‘business methods’ or ‘computer software’.

A patent is essentially a legal monopoly for a process or product. When a patent is granted, the patent owner will be entitled to exclusively exploit a patented product or process for the entire life of the patent. When submitting a patent application, patent examiners must verify that the product or process that is the subject of the patent application meets the patent eligibility test. Until this groundbreaking ruling, the test was extremely complicated to apply in practice, due to the multitude of rulings dealing with the interpretation of the appropriate legislation. Now the test has been succinctly summarized in this decision.

Legislation: There are two main pieces of legislation that have had to be interpreted by the courts to provide the basis for the patent test. These are s1(2) of the Patents Act 1977 and its equivalent European legislation, namely s 52(2) of the European Patent Convention (“EPC”). Both sections of the legislation describe what is not included in the patent.

The wording used in the Patents Act 1977 differs from the wording used in the EPC. As relevant, section 1 reads:

(2) It is hereby declared that these (among other things) are not inventions for the purpose of this law, i.e. anything consisting of:

(a) a discovery, scientific theory or mathematical method;

(b) a literary, dramatic, musical or artistic work or any other aesthetic work;

(c) a plan, rule or method for performing a mental act, game or doing business, or a computer program;

(d) displaying information;

But the above provision will prevent anything from being treated as an invention for the purposes of this law only to the extent that a patent or an application for a patent refers to the same thing as such. Whereas in Article 52 EPC, as far as relevant, it is written:

(1) European patents will be granted for any invention subject to industrial application, which are new and which involve the invention.

(2) These in particular shall not be considered inventions as defined in paragraph 1:

(a) discoveries, scientific theories and mathematical methods;

(b) aesthetic works;

(c) programs, rules and methods for performing mental operations, playing or doing business, and programs for computers;

(d) Disclosure of Information.

Although no one has yet explicitly suggested that the difference in wording will result in a difference in practice, to ensure complete consistency with other EPC contracting states, the Court has focused primarily on examining how European legislation has been interpreted. The reason for this was stated as follows:

“The difference in wording has at least the potential to lead to a misconstruction of a provision intended to have the same meaning as the EPC… working with the EPC text obviates this risk”

Background: The issue arising in the matter of Aerotel Ltd v Telco Holdings Ltd [2006] Refers to a business method patent. Aerotel held a patent in the UK for a telephone system which allowed the user to make a call from any available telephone and charge the cost of that call to the credit relating to that account. Once this credit runs out, the call will be disconnected. Aerotel believed that the telco violated their patent and sued them. Telco counter-argued for cancellation of Airotel’s patent. Aerotel’s patent was revoked by summary judgment on May 3, 2006. Now they are applying for its return.

In the Macrossan app [2006], they applied for a UK patent for computer software. The software allows users to obtain all the legal documentation necessary for the incorporation of a company. The users answer the questions asked by a remote server and from their answers the appropriate forms are prepared and filled automatically. The documents are then sent to the users. In the initial application, the British Patent Office considered that the subject matter of the patent was not patentable. Mr McCrossan now applied for a review of the application.

The new 4-step test: The decision introduced a new 4-step test to determine whether an invention is patentable. The British Patent Office believes that this decision should be regarded as the decisive way in which the law on the patentable subject matter of an invention will be applied in the UK. This considerably reduces the need to return to the previous ruling. The new 4-step test that will be used by patent examiners is consistent with previous rulings in the UK and is as follows:

First step: Correctly interpret the claim. This new first step is intended to get examiners to determine what monopoly would be created if the patent were granted. After identifying the monopoly, the examiners will continue to ask whether the monopoly is in the status of excluded monopolies:

o If the monopole is in excluded status, then the first step will fail.

o If the monopoly is not in one of the excluded classes, then the first stage will pass.

Step Two: Identify the actual contribution. The purpose of this step is to allow patent examiners to categorically identify what the inventor contributed to the stock of human knowledge through the creation of his invention. It is the essence of the invention that requires the consideration. Looking at the invention as a whole. As long as the total essence of the invention, when considered in its entirety, contributes adequately to the stock of human knowledge, the second stage will pass. Ultimately the test must be what contribution was actually made, not what the inventor says he contributed.

Step Three: Ask if it falls solely on the excluded subject. This third step is intended to determine whether the invention consists solely of non-patentable subject matter. There is a list of matters that will not receive patent protection under Article 52(2) of the EPC. These are listed above. If the invention in question fails:-

o completely within the excluded topic, it will fail in the third step

o Only partially within an excluded topic, it will pass

o outside of all categories of excluded subjects, so this too will pass.

Step Four: Check if the actual or alleged contribution is actually technical in nature. The last step is relatively simple compared to the previous three. The examiners will only consider whether the contribution to the stock of human knowledge is technical in nature:

o If it is determined by the patent examiners that it is not technical in nature, then the fourth step will fail.

o If it is determined by the patent examiners that it is technical in nature, the fourth stage will pass.

Application of the new test in the cases: Aerotel appeal: the patent application consisted of two halves. The first half was for the method of making phone calls. The other half was for the actual system that was to be used to make the phone calls. It was determined by the court that the entire system is new, even though it is partly composed of existing components, and therefore the patent application is for something more than just a method of doing business. The method of making the phone call will be impossible without using the new system.

The resulting monopoly was the method of making phone calls using the new system. Therefore, it was determined that the claim is properly interpreted. The actual contribution to the stock of human knowledge was the new system, which included a new piece of hardware. The claim fell in part into one of the excluded categories (ie the ‘business method’ category) due to the fact that the application was intended for both the new system and the method of making telephone calls. And finally it was clear that the contribution was technical in nature. For these reasons the appeal was accepted.

Macrossan’s appeal: The court held that the patent application was for both a business method and a computer program. The monopoly that was created was for the system that includes the method of selling documents to users through the computer software. Although no new hardware was created, the court ruled that the overall contribution was the system itself. This is the third stage in which Macrossan’s appeal falls. The donation only concerns a topic that is not included. It is for both business method and computer software. nothing more. Therefore it was not necessary for the court to discuss the fourth step, although; Obviously the contribution was technical in nature.

The position outside Europe: Both business methods and computer software are patentable in the US. These decisions were made in the cases of State Street Bank v Signature Financial Group (1998) and Re Alappat (1994) respectively. The main reason is that there is no equivalent to section 52(2) Under US law, this means that the excluded categories in Europe and the UK are not represented across the Atlantic.

The fact that patents can be granted in the US for categories not included in the UK has resulted in an increase in applications for such patents in the US. It is a commercial imperative that if patents are filed and granted in the US, then they must be filed everywhere. However, it is interesting to note that there is no significant data to indicate an increase in innovation or investment in the excluded categories, mainly in business methods and computer software, in the US since the decisions in -1998 and in 1994.

Conclusion: If all four parts of the test pass, it is likely that the invention in question will receive patent protection. The patent office insists that this new test does not change the boundaries between what is and what is not patentable. The goal is to improve the way the decision process takes place and provide evidence for better reasoning behind a decision in which a patent application is rejected. However, he acknowledges that there are likely to be odd cases on the border that will be decided differently under this new method. At this early stage, we will have to wait and see if this decision results in an increase in the number of patent applications for business methods, games or computer software and the number of patents granted for such subjects.

If you need help patenting your business method or your computer programs, contact us at

© RT COOPERS, 2006. This briefing note does not provide a comprehensive or complete statement of the law relating to the subjects discussed and does not constitute legal advice. It is only intended to highlight general issues. Expert legal advice should always be sought in relation to certain circumstances.

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