International report - CRI guidelines and patentability of financial methods under Section 3(k) 08 Nov 17
LexOrbis - India
Financial method and business method patents seemingly refer to the same subject matter of inventions in patent law. However, they are treated differently for purposes of allowability under the patent laws of various countries. While the legal landscape of the United States changed substantially with regard to business method patent applications and grants after the well-known State Street Bank decision, the Yahoo decision in India had a lesser impact on business method patent applications. Even in the new Guidelines for Examination of computer-related inventions (CRI), the position of business method patents remained unaffected. As a rule, these CRIs are seen as relating to an invention with a technical component. Even where the claimed subject matter specifies an apparatus or technical process for carrying out the invention and partly includes such claims, they are examined as a whole.
The new guidelines shy away from defining the extent and scope of coverage of business methods which are excluded under Section 3(k). However, Paragraph 4.5.2 regarding the determination of excluded subject matter relating to CRIs requires claims for a business method to be examined. The guidelines provide a rudimentary and inconclusive scope of coverage as well as exceptions for examiners to consider where the subject matter seems to involve business methods in respect of activities in a commercial or industrial enterprise relating to the transaction of goods or services. Under the guidelines, examiners are first recommended to check whether the claims are drafted indirectly as business methods. Where claims are linked to some unspecified means, such business methods should be rejected under Section 3(k). When a claim is business methods in substance, it must not be considered patentable subject matter. The following word of caution is also given to examiners:
“Mere presence of the words such as ‘enterprise’; ‘'business’; 'business rules’; 'supply-chain’; ‘order’; 'sales’; ‘transactions’; ‘commerce’; 'payment’ etc. in the claims may not lead to conclusion of an invention being just a ‘Business Method.'"
Further, if an examiner finds that the subject matter is essentially about carrying out business, trade or financial activities (eg, a transaction or method of buying or selling goods through the Internet, such as providing web service functionality), it should be treated as a business method and thus cannot be patentable.
It is not only surprising, but also unnecessary to cover financial methods within the exclusions under business methods in Section 3(k) as stated in the subject matter analysis:
“the subject matter is essentially about carrying out... financial activity/transaction and/or a method of buying/selling goods through web (e.g. providing web service functionality)”.
Conflating financial methods with business methods is unwarranted and non-statutory. While it is true that ‘business method’ is not defined in the act, this does not mean that this term covers every aspect of e-trade and e-commerce. Justice Rajagopala Ayyanger’s comments on the exclusion under Section 3 reflect the spirit and purpose of exclusions.
“I consider that if a state proceeds to define what is not patentable, it is much more satisfactory that it should be as exhaustive as possible in respect of that matter than that some portion of it should be left to be dealt with on the basis of the case law on the subject... The form I have adopted would leave not much room for doubt or ambiguity."
Ayyanger’s purposeful comments are still relevant when looking at Section 3, which defines what is not patentable. In view of this it would be incorrect to provide a wider interpretation of business methods than that provided by the legislature. The Indian Patent Office’s (IPO’s) stance on business methods has changed in every set of guidelines issued so far. In the Manual of Patent Procedures 2008, the IPO defined ‘business methods’ as the:
“whole gamut of activities in a commercial or industrial enterprise relating to transaction of goods or services. With the development of Internet Technologies, business activities have grown tremendously through e-commerce and related 828 and B2C business.”
In its explanation of claim drafting in the CRI Guidelines 2008, the IPO held that:
“The claims are at times drafted not directly as business method but apparently with hitherto available technical features such as internet, networks, satellites, telecommunications, etc. did not whisper about the financial methods within the ambit of business method. The Indian law does not explicitly exclude financial methods from patentability yet the New CRI guidelines suggest broadening of the scope of Business method to cover every the subject invention for carrying out… financial activity/transaction and/or a method of buying/selling goods through web (e.g. providing web service functionality).”
Equating financial methods with business methods for the purpose of exclusion under Section 3(k) is unnecessary. The new guidelines possibly took this stance to address a complex alignment of forces within the e-commerce world, even when there is no clear statutory language or court precedent to foreclose the possibility of financial method patents. In Yahoo, the Intellectual Property Appellate Board (IPAB) expressed its difficulty in defining business methods as follows:
“Similarly we too have a difficulty in explaining what exactly is a business method. It has not been defined… But in this case one thing is clear. In the invention there is an exchange of business viz./ bid amount bidder's account and position of advertisement.”
Relying on the European Patent Office’s rejection of this patent as a business method, the IPAB concluded that it was a business method and that even the technical improvements in business methods would not change its exclusion under Section 3(k).
Differentiating business methods and financial methods
It is important to understand that the strategic management of operating a complete process for selecting and implementing a corporate strategy in the pure service or financial sector is different from that of manufacturing businesses. In the pure service or financial sector, the service is the primary entity that is sold, whereas in manufacturing businesses the manufactured products are sold as commodities. The predominant definition of a business method is ‘the way things work’ in business, which explains its product-based understanding. Consequently, it is unsurprising to find product-oriented language in claimed inventions. Without such tangible products in financial method inventions, the claimed language falls short of examiner expectations with regard to a product-oriented invention. While highly innovative approaches to conducting financial business are possible – particularly in electronics –the IPO is bound to equate such innovation with business methods in view of new CRI guidelines.
Financial methods patents – existing examination practice
The IPO must acknowledge the dichotomy between financial methods and business methods. Further, the IPO must clarify whether the business method exception under Section 3(k) precludes patents on all business-related processes. Without standards that must be applied to financial business techniques, the new CRI guidelines will leave a vacuum for IPO examiners who rely on patenting guidelines that evolved in the context of business methods. Examiners could equate financial methods with business methods and keep this separate and distinct category of inventions unpatentable under Section 3(k). Such IPO practise not only overlooks, but also remarkably reduces the filing rate of applications in otherwise patentable inventions.
Position under Section 3 – safeguards
Indian patent law is quite robust when dealing with frivolous patents. Section 3(a) treats inventions claiming anything obviously contrary to well-established natural laws as “not [an] invention within the meaning of this Act”. The formulation of an abstract theory is also not treated as an invention as per Section 3(c). Similarly, a mere scheme or rule or methods of performing mental act are not inventions under Section 3(m). A presentation of information in form is also excluded from the definition of an invention.
Inventions relating to anything obviously contrary to well-established natural laws or the formulation of an abstract theory were already non-patentable before the introduction of the Section 3(k) exclusion for business methods. As an extra precaution, inventions relating to a mere scheme or rule or method of performing mental act and a presentation of information were excluded in the 2002 amendments.
The effect of such exclusions has provided IPO examiners with enough leeway to categorise abstract ideas, methods of organising human activities, basic economic practices, ideas per se and mental steps as subject matter which is not patentable under Indian patent law. In other words, all such activities, including business methods, do not qualify as a ‘process’ under Section 2(1)(j). Therefore, claims merely describing methods of doing business are covered under the Section 3(k) exclusions. However, financial methods which are not otherwise excluded under Section 3(k) as a mere scheme or rule or method of performing a mental act or as abstract theory should be treated as a process covered under Section 2(1)(j) and dealt with accordingly for evaluation purposes when granting a patent.
CRI guidelines – re-examination required
The traditional perception of the financial sector is that it is invariably and undeviating personal, something performed by individuals for other individuals. Innovative automated ticketing, automated banking services and one-click-sale-related inventions are just three of the many examples of financial business in which the financial transection service is provided by automated equipment or in a virtual environment. However, this perception is erroneous when applied to methods of doing business (eg, business to business). In view of the clear distinction between business methods and financial methods, it is more important for the IPO to adopt a different strategy while examining financial method-related patent applications. Accordingly, the CRI guidelines must be re-examined to accommodate financial methods, web-based business functions, e-commerce and financial data processing.
It is true that financial service-oriented businesses are different from product-oriented businesses, and the predominant perception of financial method inventions is not emerging in India as in other jurisdictions. However, innovative activity in this area is promising and deserves IP protection.
The idea of customised propriety for financial method developments is paving the way for IP development and protection in digitally savvy financial services. However, claims that include financial methods must include additional features (technical or otherwise) to clear the threshold of being claims that are more than merely a drafting effort to monopolise existing financial practices. While it remains to be seen how the IPO will tackle this challenge in India’s growing digital environment, the Office of the Controller General of Patents, Designs and Trademarks must take the initiative and address this issue immediately through administrative instructions.
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