25 July 2006

Full Court Finds Asset Protection Method not Patentable Subject Matter

Introduction

In my post of 14 August 2005, I reported that Justice Branson had upheld a decision of the Commissioner of Patents to grant a patent for "An Asset Protection Method". The relevant claim can be seen in that post.

On 18 July 2006, the Full Bench of the Federal Court handed down Grant v Commissioner of Patents [2006] FCAFC, which was an appeal from the case reported in my post. Perhaps to avoid the high costs of litigation, Grant himself appeared in what seemed to be a desperate and vain attempt to challenge settled law in Australia.

In this post, I will have a look at some of the important aspects raised by the Full Bench. However, this matter does not raise any new law, possibly evidenced by the fact that the judgment is only 14 pages long, a refreshing change from some of the turgid documents generated by this court in the past.

Brief Background

In the initial hearing before the Commissioner of Patents, the Deputy Commissioner concluded that the invention did not involve any discovery of a law of nature nor involve the application of technology in some form or other to perform the process claimed. He held that it does not result in an "artificially created state of affairs" and is not a manner of manufacture.

In the Federal Court, Branson J., for some reason, 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.

This was rather strange reasoning given the wealth of precedent behind her and may in fact have provoked Grant's folly in pursuing an appeal.

Relevant Principles Discussed by the Court

It is not really necessary to get too involved here. Most of these principles are set out in my previous post of 29 May 2006. Some things are worth pointing out, though.

The court set out an interesting review of the historical development of patentable subject matter, which should be read. Their honours point out that business, commercial and financial schemes as such have never been considered patentable in the same way that the discovery of a law or principle of nature is not patentable. For example, in Re Cooper's Application for a Patent (1901) 19 RPC 53, it was held that "you cannot have a Patent for a mere scheme or plan - a plan for becoming rich; a plan for the better government of a State; a plan for the efficient conduct of business."

Business Systems

Mr. Grant contended that the invention is a "business system" as discussed in a report by the Advisory Council on Intellectual Property. The Government was in favour of the patentability of business systems. However, their honours held that the question was not whether a system for use in business was or was not patentable. Rather, they held that an invention must comply with the requirements of the Patents Act and the fact that it may be called a business method does not prevent it being proper subject matter for a patent.

Manner of Manufacture

Mr. Granted argued, for various reasons, that the invention was a "manner of manufacture". As discussed in my post of 29 May 2006, in order for the claimed method or process to be a "manner of manufacture", the method or process must result in an "artificially created state of affairs".

Their honours pointed out that the method of Mr. Grant's invention does not produce an artificial state of affairs, "in the sense of a concrete, tangible, physical or observable effect". They stated further that it was quite different from the invention in Welcome Real-Time SA v Catuity Inc [2001] FCA 445 (17 May 2001), discussed in an article linked in my post of 17 July 2006. The method disputed in that case involved components such as smart cards and point of sale terminals, and produced tangible results. According to their honours, Mr Grant's method resulted in "at best an abstract, intangible situation, namely that a hypothetical, unsecured creditor who recovered judgment against a user of the method could not levy against the user's assets to the extent they were subject to the charge."

Their honours emphasized that a physical effect in the sense of a concrete effect or phenomenon or manifestation or transformation is required. By contrast, Mr Grant's alleged invention resulted in no physical consequence at all.

Must the Result be an Application of Science and Technology?

This question arose because in Re Peter Szabo and Associates Pty Ltd (2006) 66 IPR 370, reported in my post of 1 July 2005, the Commissioner had expressed the opinion that "an artificially created state of affairs...required the application of science or technology in some material manner."

Their honours stated that they were "not sure that this is correct". They supported this by stating that to erect a requirement that an alleged invention be within the area of science and technology would be "to risk the very kind of rigidity which the High Court warned against" in the NRDC case, which forms the basis of the "artificially created state of affairs" requirement and is discussed in my post of 29 May 2006.

Justice Branson's Diversion

As mentioned above, Justice Branson had set out some other "interesting" reasons why the patent should not be granted. These included her conclusion 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."

According to their honours, however, it was not relevant whether or not the public interest is advanced. Also, they held, the Court is not in a position to determine the balance between social cost and public benefit. Their honours rubbed it in a little by stating that the court's predecessor had already determined the balance in 1623, by rewarding innovation with time-limited monopoly.

Conclusion

Mr Grant's asset protection scheme is not unpatentable because it is a "business method". The proper assessment is carried out by applying the principles that have been developed, irrespective of the area of activity. Their honours repeated the requirement that there be some "useful product", some physical phenomenon or effect resulting from the working of a method for it to be properly the subject of a patent.

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