14 August 2005

Federal Court Refuses Protection for Structuring Financial Transactions

On 12 August 2005, the Federal Court handed down Grant v Commissioner of Patents [2005] FCA 1100. Branson J. held that the invention defined by the following claim was not proper subject matter for a patent (see my previous post for some background on this aspect of our patent law):

"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 matter was an appeal from a decision of the delegate of the Commissioner of Patents. The Applicant argued that the invention was patentable because it concerned a method of creating an artificial state of affairs and had economic utillity in practical affairs. The argument was based on the well-known National Research Development Corporation v Commissioner of Patents (1959) 102 CLR 252 (NRDC) case. The Applicant quoted that judgement as setting out:
'... the method the subject of the relevant claims has as its end result an artificial effect falling squarely within the true concept of what must be produced by a process if it is to be held patentable ... It is a "product" because it consists in an artificially created state of affairs, discernible by observing over a period the growth of weeds and crops respectively on sown land on which the method has been put into practice. And the significance of the product is economic; for it provides a remarkable advantage ... for one of the most elemental activities by which man has served his material needs, the cultivation of the soil for the production of its fruits.'

However, the Delegate noted that the concept of manner of manufacture has consistently involved either the discovery of laws of nature or the application of a technology based on the laws of nature. He set out that the invention was " a discovery in relation to the laws of Australia, useful in the affairs of the populace." As such, the Delegate concluded that the invention did not result in an "artificially created state of affairs " in the sense discussed in NRDC.

Branson J. supported the delegate's conclusion, but varied in her reasoning. She cited the NRDC case: "any attempt to state the ambit of s6 of the Statute of Monopolies by precisely defining "manufacture" is bound to fail ". She held that it would be wrong to see NRDC itself as defining a manner of manufacture as resulting in an artificially created state of affairs of economic significance.

As part of her reasoning Branson J. went back to the Statute of Monopolies upon which our interpretation of patentable subject matter is founded. In that statement any manner of new manufacture should not be " contrary to the law nor mischievous to the state, by raising prices of commodities at home, or hurt of trade, or generally inconvenient." Thus, this was intended to allow the grant of monopolies for a limited time where the public benefit might be expected to outweigh the public cost of the resultant interference with free trade. Branson J. reiterated the principle that applying the Statute of Monopolies involves more than just identifying classes of invention which have in the past been found to constitute a manner of manufacture. Our courts have repeatedly held that advances in science and the development of new technologies render this approach unsound.

Her honour applied the principle derived from the Statute of Monopolies that an invention should only enjoy the protection of a patent if the social cost of the resulting restrictions upon the use of the invention is counterbalanced by resulting social benefits. She cited NRDC in which it was set out that the invention " must be one that offers some advantage which is material, in the sense that the process belongs to a useful art as distinct from a fine art -- that its value to the country is in the field of economic endeavour." Her honour held that the value of the invention was only to those whose assets are ultimately protected - and possibly to their professional advisers. She held that the performance of the invention will not add to the economic wealth of Australia or otherwise benefit Australian society as a whole. For that reason, in her view, the invention was not proper subject matter for a patent. Her honour went on further to state that the claimed invention is a method by which the owner may be insulated from the operation of laws intended to serve the public interest. She held that a court of law must assume that the performance of the invention will not advance the public interest but merely advance private interests. Finally, her honour held that the social cost of conferring on the invention the protection of a patent would not be counterbalanced by any resultant benefit to the public.

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