Policy brief Australian IP law

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Роliсy brief Аustrаliа IР law

Productivity Commission


Under Australian patent law, business methods and software can be patented. However, The Productivity Commission has spoken against the need of such protection. The University of Newcastle has decided to comment on the subject. It has also decided to make a report on what other jurisdictions treat the patenting of computer software and business methods.

The recent escalation of knowledge-based economies coupled with globalization has witnessed the increase in the importance of intellectual property and has necessitated the need for effective protection of IP as an integral part of the successful commercialization of inventions, which gainfully contributes, to the performance of the national economy.

Although, the practice of patenting business systems may not be new, the accelerated development of information technology has opened new opportunities that demand the awards of protective patents for the emerging innovations. However, the emergence of many innovations has also brought the question of what should be patented and what should not. The recent action by the Productivity Commission has opened the debate on the patentability of business methods in Australia. The position of the Commission is that business methods should not attract any patent protection in Australia. A brief discussion at how other foreign jurisdictions have addressed this concern would suffice to help the Commission, the innovators, and the public in making informed decisions.

A Brief Discussion of Business Methods

Many countries and legal jurisdictions have problems in granting protection to intellectual property associated with business methods. The University of Newcastle has observed that of Late, there has been an upsurge of patentable matters in courts; nevertheless, the fact that business methods are often combined with abstracts ideas makes it difficult to identify what the patentable subject matter is, especially when the innovation is non-technical.

It must be acknowledged that The last few decades have witnessed a growth of new technologies that have brought accelerated and challenging changes in many countries’ intellectual property rights. The information technology innovations have instigated a global demand for what analysts have described as specialized patent practitioners despite the issues involved being rather subjective and unpredictable1 Business methods patents are viewed as a group of patents that often claim inventive manner of doing business. The information technology is a group of patent that includes what is often referred to as the true business methods patents. According to Davison et al2, the particular class of patents claims mental steps and schemes irrespective of whether they are connected to any physical results or executed by computers or machines. Often the category is characterized by business-related patents, which lay claim to a wide variety of processes through which various business aspects and tasks are performed. Some of the business processes include computer systems, software, machines, and allied devices.

Like other patents, business method patents are used to protect the functional attributes of innovation. Often many government institutions has relied on other forms of intellectual property such as trademarks or copyrights which are often relied on to protect the identifiers associated with the origin of services and goods or trade secrets that are often used to protect business confidences3. It is therefore, legally understood that the business methods patents are a set of standards that the growing innovation enterprise can rely on to protect their creativity. A standard is a legal document that lays out the requirement for specific service, component, item, or system as well as the detailed description of the particular procedures of attaining the product. For instance, the A4 size for paper sheets is a common standard.

Zekos (2006) observes that, as a signatory of the World Trade Organization, Australia is obligated under the Trade-Related Aspects of Intellectual Property Rights (TRIPS)4 treaty to avail patents for all innovations in the area of information technology. The treaty prohibits discrimination by the field of technology. Nevertheless, the treaty allows business methods or systems to be excluded from patenting if they do not meet the criteria of being situated in a given field or area of technology. Thus, different jurisdictions treat patentability of business methods differently depending on the how they are claimed. Nevertheless, as shown below, business processes are considered for patenting in the United States of America, Australia, and Japan while the United Kingdom and the European Union excludes them from patentability5 . It would, therefore, be advantageous if the Australian legislations are in tandem with the other developed jurisdictions but the differing views on the business methods issue present Australia with no clear guidance on the harmonization of the intellectual property law and most particularly, those relating to intellectual property as it appertains to business methods and computer software. Now, it is imperative that a public discussion is undertaken regarding what business methods are and their patentability within the Australian jurisdiction.

A Global Overview on IP on Business Methods

Through the many industrial revolutions, patents played a significant role in the protection of innovation development. In the recent past, the internet has invigorated a new method as a medium for commerce and has joined business methods and software in the quest for facilitating electronic commerce6. Consequently, the software that can produce a technical effect has been accepted as patentable for duration of time. However, the patentability was not initially recognized because formulas and algorithms are not eligible for patenting. Nonetheless, with many businesses seeking patents for business methods, there are entities that are resisting because business methods are not patentable.

History and economic rationale for patent law

The 1623 English Statute of Monopolies is often viewed as the origin of current patent law7. Before then, the Monarchs granted the patents to faithful servants, traders, and merchants. The patents were sold at exorbitant prices leading to the creation of monopolies in some markets. The abuse of the patent letters led to the enactment of the statute of Monopolies as a way of putting to an end to the monarchs’ power to create monopolies8. That power was given to the House of Commons. The statute henceforth became the basis for the patenting practice.

The origin of the patenting system in the United States of America is traceable to the constitutional provisions that gave power to Congress to support the progress of useful arts and science by offering limited security for some time to inventors and authors to exclusive Rights to their innovation or writings9. Congress, therefore, developed a patent system as enshrined in Title 35 that offered patents for new and useful machine, processes, or composition of matter. The patents, consequently, gave innovators the right to exclude other people from using, making, offering for sale their creations.

The major aim of the patenting system is to protect and safeguard the innovators’ rights to their invention. On the other hand, facilitating and enhancing social and economic growth through the dissemination of technology for the mutual benefit of both the producers and users of the innovative knowledge in an appropriate manner that, ultimately benefits the economic and social welfare10. Often, the discourse on patents is presented in a two-fold argument for patenting: patents as stimulators of technological innovation and secondly as facilitators of the usage of the innovations to their fullest potential.

The theoretical explanation underpinning patents are that it encourages the initial capital outlay in the development of an invention even when faced by uncertain outcomes. Innovators, therefore, find comfort in the protection provided by the patent system, and they enjoy the rights to exclude others, albeit for a specified time, from capitalizing on their invention or investment and appropriating their gains without the innovator’s consent11. The protection is critical in encouraging innovation, and, since the initial investment may be extremely high, in the absence of patent protection, many innovators would be discouraged from investing in research projects, understandably from fear of their inventions being copied without any gain accruing to the inventor.

Consequently, by exercising the right to exclusivity, the patent holders can prevent any competition as regards the patented innovation. Suffice to say, the patent system allows for a limited monopoly to the patent holder to exclusively make, use, or sell the patented product. Essentially, the protection is supposed to allow the inventor enough time to recoup their costs by demanding royalties when their patents are used by other parties12 Additionally, the patent system allows them to offer the products of their invention at a price that is relatively higher than it would be in a competitive environment. Suffice to say; the patent law gives the innovator a limited period where they can practice a monopoly by offering both rewards and incentives for innovations.

Conversely, it has been argued that granting the limited monopoly to the inventors creates negativity through what is referred to as deadweight loss, which, as the argument goes, affects adversely consumer welfare. The advocates of this argument opine that the patent incentives should be seen to present a balance against the negative effects13. Whereas the system may not present balancing functions because it is not necessarily a perfect science, it, as economists have argued, it is a necessary imperfection or evil that is necessary for the improvement of the quality of human life, which, the argument goes, would adversely affect human life in an environment that is devoid of technological innovations. According to this argument, patents are the price that society has to pay to encourage innovators to continue making innovations and sharing the inventions with the society14.

It has been advanced that for patents are going to promote invention without having an adverse effect on competition; it is necessary to impose various requirements on the individuals or organizations who wish to obtain a patent for a given innovation. The conditions are meant to ensure that the governmental authority charged with patenting awards the patents only when it is justified and the accruing rights and benefits correspond to the innovators’ contribution. Consequently, most patent systems applies three standards in the determination of whether a given patent qualifies for the award; the novelty of the innovation, inventive processes, and most significantly, useful application15. Additionally, the innovation must meet the eligibility and disclosure conditions. It must be understood that a patent cannot be given if the patent being sought encompasses matters that have been previously disclosed in another invention or include subject matters beyond what has been described in the patent disclosure.

Evolution of business methods

Now, it is imperative that a closer view is taken regarding what business method is and its patentability. A business method in many legal jurisdictions has been viewed as a rather broad term that attracts various interpretations. Historically, the concept has been considered as unpatentable because it is seen as falling in the general premise that purport that abstract theories and ideas are not patentable16. However, irrespective of such argument, the concept has gained currency in the United States and other countries in the last century.

The business method exemption in the United States of America Jurisdiction

According to many analysts, the initial reaction to business methods patentability in the United States of America was a rejection by the courts because they held the view that no matter how brilliant a concept is it cannot be the subject of a patent. A case in point is the Hotel Security Checking Company versus Lorraine Company17 where the second circuit court held that an accounting system that was designed to control embezzlement by the hotel waiters did not amount to a patentable matter since it was a business transaction system. According to this argument, it is only the resultant substance that is patentable and not the process. The court decision became the basis of the business method exception policy in the United States of America. The consequence of that perception is that many business methods that would have been patentable were never disclosed to the public and were often kept in-house as an organization’s secrets. Presently, Under the Australian patent law, business methods, and software can be patented. However, The Productivity Commission Report have spoken against the need of such protection, literary taking the country back to the days when the United States of America deemed innovation as unpatentable.

However, with increased technological advancement, the pressure to consider the patentability of technological inventions was heightened. In 1981, the Supreme Court in the United States of America declared that anything that is made by man under the sun is patentable in the Diamond versus Chakrabarty18. In Arrhythmia Research Technology versus Corazonix Corporation, the Court further expanded the breadth of patentable innovations when it declared that a medical instrument attached to an analysis device was patentable. However, although the scope of patentable subject matter was expanded, there was no consideration of whether business methods were patentable. It is however, observed that in the 1990s, there was a shift in the patents perception as it related to technological advancement19. In the re -Alappat case the courts held that the practical application of an algorithm was more than a mathematical abstraction and, therefore, a patentable subject matter20. Today, the United States of America has a harmonized jurisprudence regarding patent enforcement as determined by the Federal Circuit Court of Appeal21. The court was established in 1982 to bring better predictability in the resolution relating to patent appeals.

The international legal provisions in GATT and TRIPS Agreements

Due to the ambiguity presented in the discourse on business methods, the World Trade Organization drafted the Trade-Related Aspects of Intellectual Property Rights TRIPS)22 in 1995 in an attempt to reconcile the global patent regulations by establishing uniform standards. The TRIPS Agreement is a component of the General Agreement on Tariffs and Trade (GATT) whose purpose is to oversee the elimination of trade barriers23. The TRIPS Agreement requires that all signatory jurisdictions allow for the patenting of any innovations in all possible areas of technology24. Thus, the TRIPS Agreement allows for patenting of software as business methods under the ambiance of international law. Unfortunately, the TRIPS recommendations are subject to interpretation.

Patent Regulations in the European Union Jurisdiction

In Europe, an established European Patent Convention (EPC) establishes the rules governing the practice of patenting including the jurisprudence relating to the statutory subject matter. According to the EPC, innovations are required to meet the industrial applicability, be novel, demonstrate an inventive step, and a recognizable technical character25. Although there are exceptions to the patentability of certain computer programs, nonetheless, the EPC recognizes certain computer-related innovations as patentable albeit stopping short of declaring business methods as patentable26. It must, however, be appreciated that the European Patent Office is not a signatory to TRIPS and as such, it is not bound by the TRIPS regulations and neither can it dictate to other nations what is patentable or not. The EPC also leaves the implementation of the patent laws to individual states27. It therefore, means that under the EPC there is approximately thirty-one legal jurisdiction that results in a complex legal environment.

Japanese Patent Law

The patenting law in Japan is administered under the 1959 Japan Patent Law. An innovation applying for the patent in Japan, it is required to follow the statutory subject matter associated with the law of nature, be industrially applicable, novel, and have an inventive step28. Although these requirements agree with those of the European Union and the United States of America, the Japanese standards emphasize on technological presentation. The patent regulations limit patentability by requiring that inventions should not contravene public order, threaten morality, or public health. Thus, the demand for adherence to the above conditions coupled with the requirement for industrial applicability has locked out business methods as patentable29. However, due to pressure from the rapid diffusion of technology, the government has allowed limited consideration of software related innovations and allowed the business method to be patented if it is presented as part of an innovation of a computer program.

Business methods patent in the Canadian Jurisdiction

In Canada, the granting of patents is an exercise that is the exclusive to the Canadian government. The federal patent act is the authority charged with the enforcement and administration of the patenting practice. According to Canadian law, an invention must be novel to qualify for patenting and should not have been disclosed publicly elsewhere in the world. The Canadian law governing the administration of patent follows the legal requirement presented in the case of the united state of America.

Patent systems and innovation

Whereas the theoretical justification for the patents rights stems from utilitarian incentives for intellectual property, the rewarding of innovators for their labor and skills as well as stimulating other would-be innovators to further their efforts. However, the argument can be extenuated by several observations. The investors may not always be driven by monetary factors, in some jurisdiction, the government-supported research and development programs offer better incentives compared to the limited property rights but most significantly, the granting of patents rights may not be the only way that an inventor can appropriate commensurate benefits to their innovation investments. Often, many innovators reap their rewards by introducing the product to the market albeit secretly and by the time competition has caught up, the innovator has recouped the investment. Nonetheless, granting patents rights continue to be a strong instrument in encouraging innovation particularly when significant investments are required to come up with the innovation, when it is an open secret, or when, as often happens, the imitation is easy.

Problem Associated With Patenting Business Methods

Many countries have problems in accepting the protection of intellectual property relating to business methods. Lately, there has been an upsurge of patentable matters; however, the fact that business methods are often combined with abstracts ideas makes it difficult to identify what the patentable subject matter is, especially when the innovation is non-technical30. Secondly, the business methods have become scattered across the art and, therefore, training the examiners capacity to identify the prior art. Thirdly, there is little prior art since most many software arts are recent innovations and there are few precedents set. There is also a dearth of qualified examiners.

Critics of business methods often claim that the problem is the broad scope that is presented as encompassing the art. Often, the patent claims are drafted broadly because of the need to cover not just the innovation but also to protect possible future variations. Many drafters of the claims often ignore relevant prior art, while some times the broad scope makes it impossible to discern what is involved in the claim31. The danger, therefore, is that if the excessive scope of the claims is allowed, some business methods patents may end up controlling entire business activities and locking out other interested inventors entering the industry without the risk of infringement of patent rights.

The University Of Newcastle Recommendations

Whereas the normal protection period by the patent rights is twenty years, the University of Newcastle would like to submit that, as the debate on the patenting of business methods and software is undertaken, a consideration of reducing the period covered by the patent for various reasons. The software development life cycle is short, and so is the business methods and associated software, and finally, the software, the internet, and business methods evolve out of competition rather than laboratory activity focused on the discovery of a novel invention32. Often, some of the patents claims are not based on the real invention by on crafty tweaking of an existing patented product. The need to develop a legal framework that can unify the protracted issues associated with patenting of IP in Australia has to be recognized. There are diverse approaches that have been undertaken by various jurisdictions; however, a comprehensive discourse among the interested parties should be able to identify what issues need to be legislated33. IP has to be viewed in the context of invigorating and encouraging innovation and not to hinder it. Having made the above observation, The University of Newcastle would like to submit this report and hope that it professionally informs the committee of the current position of patent law in other legal jurisdictions and how they treat the patenting of innovations and more so, those of computer software and business methods. Of note are the positions taken by the United States of America and the European Union because they seem to offer different perspectives on the patenting of business methods albeit being in agreement on the patenting law in general. However, the bottom-line should be guided by the need to encourage innovation and not to stifle it.

Works Cited

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Pittard, Marilyn J., Ann Louise Monotti, and John Duns, eds. Business Innovation and the Law: Perspectives from Intellectual Property, Labour, Competition and Corporate Law. Edward Elgar Publishing, 2013.

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Zekos, 4

5Moir, Hazel. Patent policy and innovation: do legal rules deliver effective economic outcomes? Edward Elgar Publishing, 2013.

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9 Rai and Jagannathan, 2

Rai, and Jagannathan, 2

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Davidson 128

Davidson 128

Rai, and Jagannathan, 6

Davidson, 132

Rai, and Jagannathan 8

Moetteli, 3

19 Waelde, Charlotte, et al. Contemporary Intellectual Property: Law and Policy. Oxford University Press, 2013. 69.

Moetteli, 3

21 (Moetteli, 4

22 Waelde, 87

Waelde, 89

24 Moetteli 3

Clark, E. Eugene. Cyber Law in Australia. Kluwer Law International, 2010, 92

Moetteli, 3

Rao and Guru, 52

28 Waelde et al. 544

29 Waelde et al. 545

Waelde, 489

Waelde, 502

Rai, Rajnish, Kumar, and Srinath Jagannathan. “Do Business Method Patents Encourage Innovation?” BC Intell. Prop. & Tech. F. 2012 (2012): 1-1.

Moir, Hazel VJ. Patent policy and innovation: do legal rules deliver effective economic outcomes? Edward Elgar Publishing, 2013.