Patentable subject matter under review

The Advisory Council on Intellectual Property (ACIP) is conducting a review of patentable subject matter in Australia. The ACIP is an independent body appointed by the Australian government to provide advice to the minister for innovation, industry, science and research, and to IP Australia (the federal agency which includes the Patent, Trademarks and Designs Offices) on matters of IP policy and administration. The ACIP’s brief is to take a broad, strategic view of the role of intellectual property and its contribution to the development of Australian industry. It includes members from business and manufacturing sectors, the patent attorney and legal professions, the government, the tertiary and research sectors, and technology and commercialisation groups.

The current review is essentially an enquiry into the sorts of thing that can, or should, be patented. This is commonly referred to as “patentable subject matter” or sometimes “statutory subject matter” (particularly in the United States). The patent system is generally understood to have the economic objective of providing benefits to society by providing incentives to innovation, as well as public access to new technologies. A patent monopoly provides an exception to free competition, which rewards innovators for their investment in new technologies with a limited period of exclusivity, in return for open disclosure of new inventions. However, only those inventions which satisfy appropriate thresholds of merit are considered deserving of a statutory monopoly. For the majority of innovative technologies, the most important thresholds of merit are novelty and inventiveness, which involve an enquiry as to whether an innovation represents a sufficient advance over the current state of the art. However, the most fundamental threshold is arguably that of the patentability of the subject matter itself. This involves the basic question of whether an innovation relates to the kind of thing for which patent protection should be granted in view of the policy objectives of the patent system.

Why restrict patentable subject matter?

Concerns regarding the scope and benefits of the patent system are not new. The grant of monopolies, no matter how limited in nature, necessarily involves a fine balance of competing interests. On the one hand, there can be no doubt that the patent system provides economic rewards to innovators who develop and patent successful new technologies. On the other hand, it is frequently argued that there are fields of technology in which innovation will occur regardless of the existence of statutory rewards, and that in such cases the patent system may in fact stifle advancement and reduce benefits to society by restricting competitive activities and imposing substantial administrative and legal overhead costs. In some jurisdictions patent protection is denied or limited in certain fields of endeavour for other public policy reasons. For example, methods of medical treatment of human beings may be excluded from patentability so that doctors are not restricted in their ability to provide appropriate care to patients without fear of patent infringement. In many countries, including Australia, patents may not be granted for certain genetic and reproductive technologies relating to human beings or to biological processes for creating human beings, primarily on ethical grounds.

Determining the appropriate scope of patentable subject matter is thus widely considered to be an important tool of social and economic policy. Accordingly, controversy in relation to this aspect of the patent system is not uncommon. In recent times, various interested groups have questioned the appropriateness of granting patents for a range of new technologies, including genetic technologies, software (ie, computer-implemented inventions) and business processes, including computer-implemented processes involving online information systems and e-commerce applications.

International approaches

Not surprisingly, given the significant policy considerations involved, there is considerable divergence in the approach to patentable subject matter in different jurisdictions. In this regard, it is interesting to compare the situation in Australia regarding business processes with the corresponding situations in the United States and Europe.

The Australian test for patentable subject matter has its origins in the UK Statute of Monopolies 1623. Section 6 of that statute provided that patents may be granted for any “manner of new manufacture” which was not contrary to law, mischievous to the state or generally inconvenient. Under the Australian legislation, the Patents Act 1990, the requirement for “newness” is expressed in distinct provisions regarding novelty and inventive step. However, the threshold test for subject matter remains that the claimed invention must be “a manner of manufacture within the meaning of Section 6 of the Statute of Monopolies”. The continuing reference to “manner of manufacture” reflects the general conclusions of a number of past reviews, as the Australian patent system has generally been well served by allowing the courts to determine the patentability of new subject matter in an adaptive and flexible manner in light of general principles that have been developed over centuries of decision making.

With regard to business process patents in Australia, the leading decision is that of the Full Federal Court in Grant v Commissioner of Patents ([2006] FCAFC 120). The court found that a “pure” business method for protecting assets from creditors using trusts and loans, and without the use of any technological apparatus, was not a manner of manufacture. Rather, the alleged invention was found to be a mere scheme, an abstract idea or mere intellectual information which did not result in an “artificial state of affairs” being created through any physical phenomenon or transformation. The process was found to reside in the field of law, which, although economically important, was not considered to have sufficient industrial character to be suitable for patent protection. However, the court emphasised that its decision was based upon these general principles and did not rely upon the fact that the invention was a so-called “business method”. Accordingly, business processes which satisfy the manner of manufacture test, including (but perhaps not limited to) computer-implemented business processes such as e-commerce applications, constitute patentable subject matter in Australia.

Section 101 of the US Patent Code provides a broad, inclusive definition of “patentable subject matter”: “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.” There are no express exclusions; however, abstract ideas, laws of nature and natural phenomena have generally not been considered to fall into any of the four categories of subject matter identified in Section 101. The United States has generally granted patents for a wide range of subject matter and business processes which produce a “useful, concrete and tangible result” have typically been considered patentable in recent years. However, some recent decisions of the US Federal Circuit have been considered by some to be inconsistent. In an effort to resolve these issues, the Federal Circuit recently ordered an en banc review of an appeal in In re Bilski, which relates to a non-machine-implemented business method to hedge consumption risks associated with a commodity sold at a fixed price. While the court’s decision is still pending, it is anticipated that the extent of patentability of processes that do not require technological implementation will be a major issue under review.

In Europe, the situation is more clear cut. It is generally settled that patents may be granted only for inventions having a technical character (ie, which provide a technical solution to a technical problem). Furthermore, the European Patent Convention recites a number of express exclusions from patentablity, including “rules and methods for doing business”. On both these grounds, non-technical solutions to legal or financial problems (eg, the inventions in the Australian Grant Case or the US Bilski Case) are clearly not patentable.

The European approach is generally considered to provide greater certainty, while the US and Australian approaches afford greater flexibility by allowing the law to adapt to technological and social change without the need for legislative intervention.

Scope of Australian review

The scope of the ACIP review is broad. It will consider the economic objectives of prescribing patentable subject matter and the appropriateness of the present approach, along with the consequences of limiting or expanding patentable subject matter. It will also consider whether limits on patentable subject matter can be justified on ethical grounds. It will review the content and structure of current Australian law, as well as the value of the existing body of case law and various associated issues relating to the manner of manufacture test. It will also look at the value of international harmonisation of legal requirements for patentability and the compliance of existing Australian law with various international treaties. Further, the review will address a potential preferred system of patentable subject matter by considering which subject matter should be patentable, and the most appropriate legislative structure for implementing such a system.

While past reviews have generally supported maintaining the status quo in relation to patentable subject matter, it is nonetheless within the terms of reference of the ACIP review to make wide-ranging recommendations, including changes to the Patents Act, should it choose to do so.

The ACIP has recently released an issues paper in relation to its review of patentable subject matter and has invited submissions from interested parties. Further information on the review, including the issues paper, is available from the ACIP website at www.acip.gov.au. Submissions must be received no later than 19th September 2008.


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