News Centre - Article 4
 
Grant v Commissioner of Patents [2006] FCAFC 120 (18 July 2006)
 

- Bill Bennett

This case has, subject to further appeal to the High Court, effectively re-established the non-patentability of pure business methods under Australian Patent law.  As used herein, the term “pure business method” is used to refer to a commercial, financial or legal scheme which is not implemented in a computer or other physical environment, but rather exists only in an intangible or abstract form.

It had historically been the case in Australia that business, commercial and financial schemes were not patentable.  However, in 1959 the Australia High Court pronounced (in the NRDC case) that any method which resulted in an “artificially created state of affairs” was proper subject matter for a patent.  This liberal statement by the High Court opened the floodgates for patents in a range of new areas and, in recent years, numerous patents have been granted for “pure business methods”.

Claim 1 of Grant reads as follows:-

1. An asset protection method for protecting an asset owned by an owner, the method comprising the steps of:
(a) establishing a trust having a trustee,
(b) the owner making a gift of a sum of money to the trust,
(c) the trustee making a loan of said sum of money from the trust to the owner, and
(d) the trustee securing the loan by taking a charge for said sum of money over the asset.

The issue in Grant was whether a method of asset protection consisting of actions of financial and legal consequence (i.e. gift, loan, & secure) is proper subject matter for a patent.

Initially, the Deputy Commissioner of Patents revoked the patent on the basis that the invention did not involve any application of technology, and hence did not result in an “artificially created state of affairs” as required by NRDC.  In essence, the Deputy Commissioner took the view that patents were only available for innovations in the realms of science and technology, and that an innovation in the realm of commerce or law was not proper subject matter for a patent.

On primary appeal, the Federal Court also found the subject matter to be unpatentable, but for very different reasons.  Branson J was of the view that an invention should only enjoy the protection of a patent if the social cost of the resulting restriction upon the use of the invention is counterbalanced by resulting social benefits.  In essence, Branson J found the idea of protecting a bankrupt’s assets from creditors distasteful, and decided the case on moral grounds.

On secondary appeal, the Full Federal Court also found the subject matter to be unpatentable for reasons which were similar, but not identical, to those of the Deputy Commissioner.  The Full Federal Court was not attracted to the “realm of science and technology” test propounded by the Deputy Commissioner for the simple reason that the exact bounds of this realm are dynamic and impossible to define with any precision.  The Full Federal Court was likewise not attracted to the moral position adopted by the Primary Judge and concluded that it was not relevant, in their view, “that some may think that a method or product will not advance the public interest”. 

Rather, the Full Federal Court concluded (at para 32) that:-

32 A physical effect in the sense of a concrete effect or phenomenon or manifestation or transformation is required. In NRDC, an artificial effect was physically created on the land. In Catuity and CCOM as in State Street and AT&T, there was a component that was physically affected or a change in state or information in a part of a machine. These can all be regarded as physical effects. By contrast, the alleged invention is a mere scheme, an abstract idea, mere intellectual information, which has never been held to be patentable, despite the existence of such schemes over many years of the development of the principles that apply to manner of manufacture. There is no physical consequence at all.

Thus, the Full Federal Court found that a “physical effect” is a pre-requisite for patentability.  It is noteworthy that the Full Federal Court expressly approved of earlier cases where the methodology was implemented in a computer environment such that performance of the patented method resulted in a “change of state or information” in a part of the computer. 

It would seem clear that methods which are implemented in a computer or other physical environment remain patentable, and it is only those methods which exist only in an abstract or intangible form which are excluded from patentability.

The Full Federal Court’s full decision can be reviewed at: http://www.austlii.edu.au/au/cases/cth/FCAFC/2006/120.html

- Bill Bennett , Pizzeys Patent and Trade Mark Attorneys (bbennett@pizzeys.com.au)