Legal Updates

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

A ground-breaking decision was delivered by the Court of Appeal in the cases of Aerotel Ltd v Telco Holdings Ltd (and others) [2006] and Macrossan’s Application [2006] on 27 October 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 especially relevant to those wishing to patent ‘business methods’ or ‘computer programs’.

A patent is effectively a legal monopoly for a process or product. When granted a patent, the patent holder will be exclusively allowed to exploit a patented product or process for the life of the patent.  When a patent is applied for, the patent examiners must ensure that the product or process which is the subject matter of the patent application meets the test for patentability. Up until this ground-breaking ruling, the test was extremely complicated to apply in practice due to the large amount of case law dealing with the interpretation of the appropriate legislation. Now the test has been concisely summarised by this decision.

The Legislations: There are two main pieces of legislation which had to be interpreted by the courts to provide the basis for the test of patentability. These are s1(2) of the Patents Act 1977 and its equivalent European legislation, namely Article 52(2) of the European Patent Convention (“EPC”). Both pieces of legislation outline what is excluded from patentability.

The wording used in the Patents Act 1977 is different to the wording used in the EPC. So far as relevant, s.1 reads:

(2) It is hereby declared that the following (among other things) are not inventions for the purposes of this Act, that is to say, anything which consists of:

• a discovery, scientific theory or mathematical method;
• a literary, dramatic, musical or artistic work or any other aesthetic creation whatsoever;
• a scheme, rule or method for performing a mental act, playing a game or doing business, or a program for a computer;
• the presentation of information;

but the foregoing provision shall prevent anything from being treated as an invention for the purposes of this Act only to the extent that a patent or application for a patent relates to that thing as such.  Whereas the Article 52 EPC, so far as relevant, reads:

(1) European patents shall be granted for any inventions which are susceptible of industrial application, which are new and which involve an inventive step.

(2) The following in particular shall not be regarded as inventions within the meaning of paragraph 1:

• discoveries, scientific theories and mathematical methods;
• aesthetic creations;

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

• presentations of information.

Although no-one has yet expressly suggested that the difference in wording would result in a difference in practice, to ensure absolute consistency with other EPC contracting states, the court primarily focussed on examining how the European legislation has been interpreted. The reason for doing this was cited as follows:

“The difference in wording has at least the potential to lead to an erroneous construction of a provision which is intended to have the same meaning as that of the EPC... Working using the EPC text obviates that risk”

Background: The issue arising in Aerotel Ltd v Telco Holdings Ltd [2006] relates to the patent of a business method. Aerotel held a UK patent for a telephone system which allows the user to make a call from any available phone and have the cost of this call billed from the credit relating to this account. Once this credit runs out, the call would be disconnected. Aerotel believed that Telco had infringed their patent, and sued them. Telco counterclaimed to have Aerotel’s patent revoked. Aerotel had their patent revoked by summary judgment on 3 May 2006. They are now appealing to have it reinstated.

In Macrossan’s Application [2006], they applied for a UK patent for a computer program. The software allows users to obtain all the necessary legal documentation for the incorporation of a company. The users answer questions asked by a remote server and from their answers the appropriate forms are compiled and filled in automatically. The users are then sent the documents. In the initial application, the UK Patent Office took the view that the subject matter of the patent was unpatentable. Mr Macrossan has now appealed to have the application reviewed.

The new 4 Stage Test: The decision introduced a new 4 stage test in establishing whether an invention is patentable. The UK Patent Office is of the opinion that this decision should be treated as the definitive way in which the law on patentable subject matter of an invention is to be applied in the UK. This substantially reduces the need to refer back to previous case law. The new 4 stage test to be used by patent examiners is consistent with previous UK judgments and is as follows: 

• Step One: Properly construe the claim. This new first step is designed to make the examiners establish what monopoly would be created were the patent to be granted. Once the monopoly has been identified, the examiners will then go on to ask whether the monopoly is in an excluded class of monopolies:-

1. If the monopoly is in an excluded class, then the first step would fail.
2. If the monopoly is not in one of the excluded classes, then the first step would be passed.

• Step Two: Identify the actual contribution. The purpose of this step is to allow the patent examiners to identify categorically what an inventor has contributed to the stock of human knowledge through the creation of his or her invention. It is the substance of the invention which requires the consideration. The invention is looked at as a whole.  As long as the overall substance of the invention, when it is considered in its entirety, contributes suitably to the stock of human knowledge, the second step will be passed. In the end the test must be what contribution has actually been made, not what the inventor says he has made.
• Step Three: Ask whether it falls solely within the excluded subject matter. This third step is intended to establish whether the invention is comprised of solely unpatentable subject matter. There is a list of matters which will not be afforded patent protection under Article 52(2) of the EPC. These are outlined above. If the invention in question falls:-

1. wholly within excluded subject matte, it would fail the third step
2. only partly within excluded subject matter, it would pass
3. outside all the categories of excluded subject matter, then it would also pass.

• Step Four: Check whether the actual or alleged contribution is actually technical in nature. The final step is relatively simple in comparison to the previous three. The examiners will merely consider whether the contribution to the stock of human knowledge is technical in nature:-

1. If it is held by the patent examiners that it is not technical in nature, then the fourth step would fail.
2. If it is held by the patent examiners that it is technical in nature, the fourth step would be passed.

The Application Of The New Test In The Cases: The Aerotel Appeal: The patent application consisted of two halves. The first half was for the method of carrying out the telephone calls. The second half was for the actual system which needed to be used in carrying out the telephone calls. It was held by the court that the system as a whole was new, despite it partly being made up of existing components, and therefore the patent application was for something more than merely a method of doing business. The method of carrying out the telephone call would be impossible without using the new system.

The monopoly to be created was the method of carrying out the telephone calls by using the new system. Thus the claim was held to be properly construed. The actual contribution to the stock of human knowledge was the new system, which included a piece of new hardware. The claim partly fell within one of the excluded categories (namely the ‘business method’ category) due to the fact that the application was for both the new system and the method of carrying out  telephone calls. And finally it was clear that the contribution was technical in nature. For these reasons the appeal was granted.

The Macrossan Appeal: The court held that the patent application was for both a business method and a computer program. The monopoly to be created was for the system comprising of the method of selling documents to users by using the computer program. Although no new hardware has been created, the court held that the overall contribution was the system itself. It is the third step where the Macrossan Appeal falls down. The contribution concerns solely excluded subject matter. It is for both a business method and a computer program. Nothing more. It was therefore not necessary for the court to consider the fourth step, even though; the contribution was clearly technical in nature.

The Position Outside Europe: Both business methods and computer programs are patentable in the USA. These decisions were made in the cases of State Street Bank v Signature Financial Group (1998) and Re Alappat (1994) respectively. The primary reason is that there is no equivalent of Article 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 USA for what are excluded categories in the UK has resulted in an increase in such US patent applications. It is a commercial necessity that if patents are applied for, and granted, in the USA, then they should be applied for everywhere. However, it is interesting to note that there is no significant data which suggests that there has been an increase in innovation or investment in the excluded categories, especially business methods and computer programs, in the USA since the decisions in 1998 and 1994.

Conclusion: If all four parts of the test are passed, the invention in question is likely to be afforded patent protection. The Patent Office insists that this new test does not change the boundaries between what is and what is not patentable. The purpose is to improve the way the decision process takes place and to provide evidence of better reasoning behind a decision where a patent application is turned down. It does however recognise that there is likely to be the odd cases on the boundary which would be decided differently under this new method. As this early stage, we would have to wait and see whether this decision leads to an increase in the number of patent applications for business methods, games or computer programs and the number of granted patents for such subject matters.

If you require assistance with patenting your business method or computer programs, contact us at [email protected].

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© RT COOPERS, 2006. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.