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Patents for software and business methods – recent developments

David Jackson - Friday, December 19, 2014

New business ventures often rely upon or arise from an inventive method for doing business or a new software program, or both. The viability and value of the business may depend on whether it can prevent competitors from using or emulating that method or software.

Patents provide the strongest protection for inventions, but not all inventions are patentable. Software and business methods are examples of the sorts of inventions that have consistently hovered at the margins of patentability. Inventions that are perceived as being ‘abstract’ or ‘mere ideas’ are least likely to gain patent protection. However, there is no clear demarcation between software and business methods that are and are not patentable.

Some light has been shed on this issue by a recent decision of the Full Federal Court (the ‘Research Affiliates’ case), which indicates that computer implementation of a method or system will not be enough to make an invention patentable, unless the method or system itself is sufficiently innovative and produces a tangible outcome, such as an improvement in the computer‘s operation or an improvement of some other technology.

Research Affiliates’ invention concerned a computer-implemented method of constructing a certain type of weighted portfolio of assets. Such methods per se are not patentable (being seen as ‘mere ideas’), and the question for the court was whether the computer implementation altered the result.

The court answered: No. It decided that:

  • the essence of the invention was “the scheme, the idea”, and the computer implementation aspect was not inventive;
  • the invention did not involve any ‘artificially created state of affairs’, and hence did not pass the threshold of patentability; and
  • the transformed data and memory storage effects inherent in the invention were not sufficient in that respect.

Underlying the court’s reasoning was an evident concern that granting a patent for this invention would open the door to the patenting of many other “mere implementation[s] of [an] abstract idea or scheme in a well-known machine”.

The decision in Research Affiliates seems to confirm that algorithms, methods for doing business, and other ‘abstract’ inventions are unlikely to be patentable unless the real ‘substance’ of the invention is more tangible. For example, while an invention comprising a new method for operating a driverless car using a software-implemented algorithm may be patentable, an invention based on a system for making investment or marketing decisions via a computer program probably would not be.

The reasoning and outcome in Research Affiliates are generally consistent with a decision of the U.S. Supreme Court handed down earlier in 2014 (the ‘Alice Corporation’ case). The invention in that case was a system for “mitigating settlement risk” in transactions. The Supreme Court found that the essence of that invention was the “abstract idea of intermediated settlement” and that the “generic computer implementation fails to transform that abstract idea into a patent-eligible invention.”

There has been considerable criticism of both these decisions, particularly on the basis that they may effectively invalidate many patents already granted for software-related inventions. The Research Affiliates decision has also been criticised for lacking any clear and coherent central principle that would facilitate application to other cases.

As such, these decisions are unlikely to the final word on the patentability of inventions for business methods and software. The legal principles will probably continue to evolve as new, borderline inventions come before the courts both in Australia and the U.S.

In the meantime, anyone developing an innovative business method or software program should seek advice, at an early stage, to ascertain whether it may be patentable. If it is not patentable, some protection may still be available under copyright law, for example.

Finally, as with any potentially patentable invention, care should be taken not to publicly disclose it before obtaining advice and, if appropriate, applying for patent protection.