Patent rights in how you do business

With an increasing number of patents being granted for 'business method' inventions (such as IT inventions), an 'arms race' has developed as companies file patent applications in which the scope of subject matter is becoming progressively wider.

In 1995, IP Australia received only 23 applications for business method patents. More recently, the number of applications has increased dramatically. A review of applications for innovation patents filed in Australia between 2001 and 2003 found that IT innovations accounted for 9% of the total and were one of the top five technology groups. This indicates that those companies that fail to properly audit their intellectual property, may require a licence to enter a new market, or risk infringing a competitor’s patent.

A recent example is the residential property funds management group, Rismark International, which has been granted a number of patents for business methods that relate to its shared equity home loan. If these patents are valid, a new player in this market (such as one of the big banks) may require a licence agreement from Rismark.

Is your business method patentable?

The Patents Act 1990 provides that an invention is patentable if the ‘method of manufacture’ is new, not obvious, useful and was not secretly used. An initial hurdle that a business method must overcome is to establish that the claimed invention is a ‘method of manufacture’. This expression comes from the original Statute of Monopolies, which was passed in England in 1623.

Australian decisions have interpreted ‘manner of manufacture’ to mean that the claimed invention has a ‘physical effect’ that results in an ‘artificial state of affairs’. In essence, this means that there must be some observable effect, phenomenon, manifestation or transformation. However, the application of this meaning has caused the courts some difficulties.

For example, the courts have held that the application of an invention through an IT system may have the effect of creating an artificial state of affairs and therefore be held to be a manner of manufacture:

• In Ccom Pty Ltd v Jiejing Pty Ltd (1994) 122 ALR 417, the Full Federal Court found that an invention for storing and retrieval from a computer of Chinese characters for word processing produced a physical effect.
• In Welcome Real-Time SA v Catuity [2001] FCA 445, the invention was a process and device for the operation of smart cards in connection with loyalty programs. The inventive step in this invention was that it could ‘dynamically’ store each merchant’s loyalty program in a separate file on the smart card.

However, the courts have been reticent in finding that business methods that do not rely on an IT application, commonly called ‘pure business methods’, are patentable:

• In the most recent case to consider this issue, Grant v Commissioner of Patents [2006] FCAFC 120, the Full Federal Court found that an invention which was designed to protect assets in the event of insolvency did not have a ‘physical effect’.
• Similarly in the decision of Re Peter Szabo (2005) 66 IPR 370, the Deputy Commissioner of Patents rejected a patent for a reverse mortgage, which is where an elderly person part sells an interest in their property for a cash deposit, with the remainder to be paid out upon death.

However, in Grant v Commissioner of Patents, the Full Federal Court clarified that ‘manner of manufacture’ does not mean that the application of technology, such as through a computer system, is required. Rather, the focus must always be on whether there is a ‘physical effect’. This has left wide open the issue of what can be patented.

Conclusion - review your IP

This wide scope of patentability provides innovative companies with an excellent opportunity to commercialise a virtual treasure trove of potential patents, that may currently be gathering dust in their computer systems.

The best way to assess potential patents is to conduct a comprehensive IP audit, with particular reference to any inventive way that your company does business. If such an invention is identified, then expert advice should be sought in order to determine whether the invention is patentable.

If you have an appropriate business method invention, we can refer you to a patent attorney with experience in preparing and prosecuting patent applications for business methods. We are also able to assist you in commercialising, licensing or protecting your invention.

For more information, please contact:

Ben Coogan, Partner
Tel +61 7 3246 4046
ben.coogan@dlaphillipsfox.com

Joshua Henderson, Solicitor
Tel +61 7 3246 4029
joshua.henderson@dlaphillipsfox.com