Computer-implemented inventions and business method patents in Australia: 2011 Update

There has recently been a marked shift in the attitude of the Australian Patent Office (APO) in relation to the patentability of computer-implemented inventions and business methods. In short, the practice of the APO has changed in a manner that causes complications for patent applications in these areas of technology currently under examination. However, the law itself remains favourable and we are reasonably confident that with guidance from the Courts, the present divergence of APO practice from the prevailing law will be relatively short-lived.


Set out below is an overview of the current landscape, and practical advice for patent applicants with an interest in these areas of technology.

Current law on patentable subject matter

Australia has traditionally taken a broad view of patentable subject matter and our legislators and courts alike have repeatedly resisted any temptation to create ad hoc or arbitrary exclusions solely on the basis of technology. Nothing has changed in the legislation or the courts to alter that, and hence the law as it presently stands remains favourable in affording patent protection across a broad range of technologies, including business methods, gaming, computer implemented technologies, and the like, provided of course that the fundamental threshold tests for novelty, inventive step and commercial utility are satisfied.

The Australian law on patentability can be traced back to the Statute of Monopolies of 1623. However, in modern times, the best staring point is the decision of the High Court in NRDC v Commission of Patents (1959) 102 CLR 252. That decision established beyond question that irrespective of the particular field of technology, a method is patentable if it produces “an artificially created state of affairs of utility in the field of economic endeavour”. This is essentially a two-pronged test requiring firstly that the method as claimed results in some tangibly or physically altered “state of affairs”, which has commercial or industrial applicability as distinct from, for example, a product of purely artistic expression. This test casts a wide net indeed, and has led to numerous subsequent decisions by the courts that are favourable to computer software, hardware and the like.

In fact, the universality of this test is often regarded as a great strength of Australian patent law, because it is so readily and inherently adaptable to innovations across a vast array of technical fields – including those that have not yet even been thought of.

More recently, the most relevant judicial precedent for assessing the patentability of method claims in Australia is Grant v Commissioner of Patents [2006] FCAFC 120 (18 July 2006). In the Grant decision, the Full Federal Court, on appeal, in applying the principles laid down by the High Court in NRDC, clarified that:

  • a method must produce some ‘useful product’, or some physical phenomenon or effect
  • this test should be considered irrespective of the field of activity in which the method is applied and
  • one example of a “physical effect” is a change in state or information in a part of a machine.

Although the Grant decision ultimately led to the refusal of the particular business method under consideration, the Federal Court of Australia made it clear that business methods per se were not necessarily unpatentable:

“Whether the method is properly the subject of letters patent is assessed by applying the principles … irrespective of the area of activity in which the method is to be applied”.

 Accordingly, whether a claimed method may be categorised as a “business method” is entirely irrelevant in determining patentability. Rather, the determinative factor is simply the presence/absence of a physical transformation, product, phenomenon or effect (ie “an artificially created state of affairs”) that is discernible as a consequence of the claimed method being applied. This has opened the way for patentability across a wide range of fields.

On the basis of that test, it is clear that not all methods are patentable; some methods as claimed merely result in an abstract situation or status that has no discernible physical expression or consistently repeatable result. Examples include risk management (as in Bilski v Kappos (US Supreme Court 2010) (08-964)) or asset protection methods (as in Grant). In such cases, it is not possible to observe any concrete, tangible, or physical transformation or observable effect, as a direct result of the implementation of the claimed method. Hence, the fundamental threshold test laid out in NRDC is not satisfied.

In this context, the way in which patent claims are drafted can be pivotal. In some situations, the same inventive concept could be defined in one way so as to specify a physical transformation, in effect or result (in which case it should be patentable) or in another way such that any effect or result is entirely abstract, intellectual or mere “working directions” as part of a scheme or plan (in which case it should not be patentable).

Importantly in the context of computer-implemented inventions, the Full Federal Court in Grant clarified that a change in state or information in part of a machine, or the transformation of data in a computer, can be legitimately regarded as a “physical effect” in the relevant sense.

New Australian Patent Office practice

Against this legal framework, the APO has unilaterally implemented a series of new tests for assessing whether or not claimed subject matter is patent-eligible.

In a nutshell, examiners under the new policy guidelines are tending to assess the general field of an invention as a whole, and based solely on that assessment, to judge whether or not the claims define patentable subject matter. Where the general field of invention is deemed not to relate to the application of “science” or “technology”, (whatever those terms are considered to mean) objections are being raised on the basis that the subject matter is inherently unpatentable. This is impacting on applications across a number of fields including web-delivered services, gaming technologies, business processes, financial services and the like.

Previously, it was usually possible to overcome subject matter objections in these areas by the inclusion of computer software or hardware, in terms of which the requisite physical transformation, effect or result could be explicitly defined in the claims. However, the APO is no longer satisfied with this approach. Specifically, the Patent Office has taken a position that the inclusion of computer hardware or software in a claim is generally irrelevant when considering whether subject matter is suitable for patenting.

Australian Patent Office practice versus patent law

Not only do these new tests represent a significant tightening compared with past practice, in our view they have no foundation in Australian patent legislation or in jurisprudence established by the Australian courts.

In fact, in Grant, the Full Federal Court on appeal explicitly distinguished this approach. In a unanimous judgment, their Honours stated: “We think 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 [in NRDC] warned against…”. Their Honours also emphasised that the principles of NRDC should be “…applied flexibly, recognising that developments and inventions are ‘excitingly unpredictable’”.

The Court restated that “The ability to adapt the notion of patentability to new scientific discoveries and technologies should not be fettered by contrived constraints…” (emphasis added). In particular, the Court held that such “contrived constraints” would include definitions of manner of manufacture, science or technology, business methods or business systems, or a determination of a social cost-benefit.

Thus, the Full Federal Court in Grant, in applying the principles set out by the High Court in NRDC, explicitly emphasises that any attempts at arbitrary restrictions or limiting definitions of patentable subject matter in this context must be unequivocally discarded. Yet this would appear to be precisely what the Australian Patent Office is attempting to do.

Be alert but not alarmed

Although this change in APO practice may seem concerning, and indeed without sound legal foundation, we believe there is no need for patent applicants adversely affected by the new examination guidelines to be unduly concerned at this stage.

Firstly, it should be emphasised that Patent Office policies, procedures and internal decisions do not in any way change the law. The law remains favourable to the patentability of a broad spectrum of subject matter including business methods, gaming activities, computer-implemented technologies and the like, subject to the fundamental requirements as outlined above being satisfied. Accordingly, aside from a need to adjust short term examination strategies in some cases, it is generally “business as usual” for patentees and applicants insofar as the fundamentals are concerned.

Secondly, it should be noted that even with this change in examination policy, the APO has no authority to revoke granted patents solely on the basis of their subject matter.

It is not the role of a APO to create or modify the law. Its role is to apply the law as it stands, in the examination of patent applications. It is not without precedent for patent offices in Australia and elsewhere to cross the line from implementation to attempted modification of the law. In such circumstances, however, those patent offices are usually set straight by the courts soon enough, when aberrant decisions based on misapplication of the prevailing law are appealed.

Advice for applicants

Additional clarity is likely to emerge later this year, pending a Federal Court decision in Research Affiliates v Commissioner of Patents, which is an appeal of an Australian Patent Office decision based on the new examination practices. This appeal will provide an opportunity for the Federal Court to bring APO practice back into line with current legal precedent. Shelston IP is representing the patent applicant in this appeal.

Our general advice, in the present circumstances, is not to be unduly concerned at these developments. For pending applications, there are typically strategies available, in effect, to “weather the storm” in anticipation of a Federal Court judgement. Accepted applications and granted patents are unaffected by the present examination practices.