Britain and Ireland

The Patentability of Software-related Business Methods - The Irish Perspective

Conducting business transactions online involves the combination of software and business methodology, both of which fall within the traditional exception to patentability under Section 9(2)(c) of the Irish Patents Act 1992. The growth of the Internet and online trading now means that the consequences of patent protection are no longer purely territorial in nature.

The US Federal Court case State Street Bank and Trust Company v. Signature Financial Group Inc. has been viewed as a stimulus for a barrage of patent claims relating to running web sites and providing e-commerce services across the Internet. The most notable of these include a method and system for placing a purchase order by a communications network , a method in apparatus for effectuating bilateral power drive e-commerce , and a method and system for trading new bond issues on-line .

This article will consider the division which exists between the United States and European member states, including Ireland, in relation to the patentability of software and business related methods. It will set out the Irish and European legislative position, provide a comparison with the US legislative position, confirm the current position as regards proposals for reform at European level and finally, recommend a strategy for Irish/EU based traders to adapt in anticipation of such reform.

THE IRISH/EU LEGISLATIVE POSITION

Section 9(1) of the Irish Patents Act 1992 provides that:

"An invention shall be patentable … if it is susceptible of industrial application, is new and involves an inventive step."

Under Section 9(2)(c):

"Any of the following in particular shall not be regarded as an invention within the meaning of sub-section 1:

(c) scheme, rule or method, for performing a mental act, playing a game or doing business, or a program for a computer."

The items specified under section 9(2)(c) are excluded from patentability to the extent to which a patent application or patent relates to that subject matter or activity "as such" . The provisions of section 9(2)(c) have been the topic of much debate, reflecting the on-going discussions and Patent Office experiences in the UK, EPO and in the US.

Similar wording in relation to patentabilty is used under the United Kingdom Patents Act 1977. Both the Irish and UK legislation take their patentability provisions from Article 52 of the European Patent Convention. The Convention governs EPO practice. That Convention was signed by Ireland in Munich on 5th October 1973, but was not ratified in Ireland until May 1992, pursuant to the Patents Act 1992. It is possible to file a patent claim either nationally with the Irish Patent Office, or before the European Patent Office, designating contracting states.

While much current debate in this area focuses on the exceptions to patentability, it is important to bear in mind that every patent application before the Irish Patent Office or the EPO must not only constitute patentable subject matter but also must meet the fundamental requirements, as required by section 9 (1) of the Patents Act 1992. These are that:

1. It is new: not having been disclosed to the public, what constitutes as disclosure normally being regarded as that which would result in something being done which would fall within the scope of the claim
2. It is an inventive step: not obvious to a person skilled in the technology/art taking into account the information available at the filing date
3. It is capable of industrial application: capable of being made or used in industry

The current position in relation to patentability at the European Patent Office remains that a computer implemented invention can be patented if it involves a new and technical contribution to the state of the art. This position is largely followed by the Irish Patent Office. Therefore, if a method or process for doing business can be shown to constitute a technical solution to a technical problem, then it falls within the realms of patentability. It should be noted, however, that in the context of patent applications relating to business methods, an applicant faces significant difficulty in proving the prior art. This is caused in the first place by the fact that methods of doing business have existed for a considerable period. Secondly, a large proportion of methods of doing business are confidential in nature, often constituting trade secrets. Therefore, unless patent offices are properly resourced with comprehensive search facilities, capable of examining specialised business methods, the risk remains that questionable or objectionable patents will get through the net.

THE US LEGISLATIVE POSITION:

Under Title 35 of the US Code 101, a patentable subject matter is defined as:

"Any new or useful process, machine, or manufacture or composition of matter, or any new and useful improvement thereof".

In order to constitute a valid claim, the following criteria must be met:

1. The existence of patentable subject matter
2. The subject matter of the claim must be novel and non-obvious
3. The subject matter of the claim must not be identically disclosed

It should be noted that the US legislative requirements do not expressly exclude "business methods".

Traditionally the US courts have considered abstract ideas to be unpatentable. The reason for such an approach was that such ideas are insufficiently defined or represent too close a link to human thought processes. When one thinks of business methods, automatically there is an association with human thought processes, arguably "abstract ideas". In order for an abstract idea to meet the statutory "useful" requirement, it must be reduced to a practical application. So while not all business methods are necessarily patentable, the US Patent Office has given them a wider scope than the European Patent Office or national EU member state patent offices. This is due to legislative wording and a degree of US judicial activism.

It is estimated that the US Patent Office has, to date, granted approximately 1,600 business method patents. By comparison, in a recent study , it is estimated that 400 applications for business method patents have been filed at the EPO. Approximately 52% of these were filed by US companies despite the fact that US companies accounted for less than a third of all EPO applications. Less than 20% of business method patents were filed by companies from the UK, Germany and France. Unfortunately, no figures for Irish filings were available, although it is likely that number is small despite a thriving software industry here. The difference of approach which currently exists between the United States and the European Patent Offices has clearly had an effect on European based companies and their attitude to filing patent claims. It is estimated that approximately 20,000 software related patents have been granted in the European Union. However, 75% of these patents are held by non-European companies and arguably it is these companies who are pushing the boundaries of patentability.

It is also worth noting however, that the US Patent Office undertook a review of its practices in mid-2000 in the face of rising criticism of a number of patent grants. This review has led to a tightening up of US practice.

PROPOSAL FOR REFORM OF THE EUROPEAN PATENT CONVENTION

A proposal to amend Article 52 of the European Patent Convention, put forward by the EPO Administrative Council, was considered at a diplomatic conference in Munich, Germany at the end of last year. The proposal suggested enshrining "technology" in the basic provision of substantive European patent law, clearly defining the scope of the EPC and making it plain that patent protection is available to technical inventions of all kinds. Such a reform would involve the deletion of the reference to programs for computers from Article 52(2)(c). The proposal would revise Article 52(1) along the following lines:

"European patents shall be granted for any inventions, in all fields of technology, provided that they involve an inventive step and are susceptible of industrial application" Article 52(2) and (3) would remain as is, save for the removal of 'computer programs' as an excluded subject matter. The business method exception would, however, remain.

Having considered the matter, the conference decided to retain within the exception to patentability, computer programs "as such", pending the outcome of a parallel European Commission consultation on the matter. This consultation encompasses proposals to introduce a regulation for a community patent within the European Union and to produce a directive on patent protection of inventions specifically in relation to computer programs.

It is expected that the matter will be revisited in March and therefore it is worthwhile that all interested parties closely follow any changes that may occur. Having regard to the US PO tightening of its practice, this possible "liberalisation" at the EPO arguably signals the beginnings of a convergence of sorts. However, full convergence in the absence of formal international consensus is unlikely.

Given the legislative similarity, any reform of the European Patent Convention and European Patent Office practice would also clearly impact on the Irish and UK Patent Office practice. A considerable increase in European Patent Office filings was noted subsequent to the implementation of the Patents Act 1992 in Ireland. While this increase has levelled out in more recent years, it can be expected that any further reforms at EPO level will instigate a similar pattern of increased filings. While the timetable for reform is most likely the medium rather than the short term, it is advisable that all companies consider adopting a proper strategy in order to protect themselves from infringement of competitors' patents and make appropriate patent filings to ensure that their intellectual property constitutes a tangible financial asset.

DEVELOPING A STRATEGY

Given the global reach of the Internet, it is important for companies to be aware that patent rights can be used both as an offensive weapon for battling competitors, and a defensive shield for protecting business, quite apart from the inherent value to the business of holding patents. Already a considerable level of litigation has developed in the United States. Recent examples include a US Internet provider obtaining a restraining order, preventing a rival company from using a "floating advertising window" for which a patent was claimed . In addition, an online auction site displayed a notice on its site indicating that it has applied for a patent for thumbnails, a way of browsing items that uses miniature pictures in JPEG format .

While such litigation is predominantly US based, it is possible for patent infringement liability to arise in the following circumstances:

1. Where a foreign company makes, uses, sells or offers for sale, an infringing product in the US
2. Where a foreign company imports an infringing product into the US
3. Where a foreign company employs an infringing method resulting in the importation of goods into the US
4. Where a foreign company employs a patented business method entirely within US boundaries

It is therefore advisable, in light of the considerable divergence which exists between the European Patent Office practice and that of the US Patent Office, and taking into account proposed reform at EU level, that companies should ensure that:

1. All appropriate patent claims are filed for important Internet, financial or software programs
2. All appropriate searches are conducted before important software development is deployed in order to avoid infringement of a competitor's patents
3. An appropriate monitoring system is in place to observe the granting of patents to competitors. This is particularly important given that it is possible under the European Patent Office to file oppositions invalidating patent claims

CONCLUSION.

It is clear that the importance of patent protection in the Internet environment is likely to increase. It is therefore advisable for businesses to monitor the progress of suggested reforms outlined in this article. With the aid of expert advice, it would be prudent to develop an appropriate patent policy to address the risks which exist in the global Internet marketplace and to utilise any opportunity which may exist through patent protection, to add value to the business as a whole.

By Mark Rasdale and Pearse Ryan, who are both solicitors in the e-Commerce and Technology Group at Arthur Cox, Dublin

All Rights Reserved.

1. 149 F.3d 1368 (Federal Court 1998) cert. denied 119 Supreme Court 851 (1999).
2. Amazon US Patent 5,960,411.
3. Priceline US Patent 5,794,207.
4. MuniAuction US Patent 6,161,099
5. Section 9 (3) patents Act 1992.
6. Published in Autumn 2000 by Olswang Solicitors London and Oxford University.
7. NetZero and Juno.
8. EBay.com

"Innovate to Succeed"

A very successful morning meeting at the Savoy

Innovation was the key theme during the half-day meeting on reform to the European patent system at the Savoy on 8 February. It was also at the centre of the characteristically witty and controversial lunch-time speech by our guest speaker, Mr Justice Laddie (see separate report). In deciding how to change the current patent system in Europe, we must, he said, not shy away from difficult decisions. Nor should we have regard to concerns about job security among judges or lawyers - or indeed others who believe their livelihoods may be in danger as a result of some of the proposed reforms. The system is there to encourage industry to innovate, and to keep Europe as a leading world economy. That, and that alone, must be the driving force behind the reforms.

This echoed the message that had already been delivered in the presentations and debate at the morning meeting. Nigel Jones, chair of the EC/Laws Committee, emphasised the importance of innovation, in his introductory remarks, and that theme was picked up in the subsequent presentations by the panel of expert speakers from across Europe.

Liz Coleman, Deputy Director at the Intellectual Property Policy Directorate of the UK Patent Office, began with an update on the reforms which had been discussed at ministerial and diplomatic conferences in Paris, London and Munich over the last few years. The original initiative came from the French Government, responding to concerns about the lack of interest among French industry in the European patent system. Liz explained the achievements which had been made so far, particularly in relation to reducing the cost of translations, but also emphasised the significant amount of work that remains to be done before all the issues will be resolved. She had been responsible for organising the London ministerial conference in October last year, and was therefore very well placed to explain in detail all that had been achieved. She also updated the audience on the changes that had been agreed (and those which had not - for example in relation to patenting software) at the Munich conference on reform to the European patent convention in November of last year.

Liz was followed by Anthony Howard of the Directorate General for the Internal Market at the European Commission in Brussels. Anthony began by explaining that, since he had been seconded from the UK Patent Office to the Commission last September, he had been working on the draft regulation by the Commission to establish and operate a single community patent system. The Commission's objectives had been to establish a unitary and autonomous patent system which was affordable and provided legal certainty. He explained the progress that had been made to date (including at the Nice intergovernmental conference in December of last year), and identified the likely timetable for progress towards adoption of the regulation. Much remains to be done, including dealing with the procedures for the proposed new single court of first instance, but the EU's heads of state had said that the initiative had to be given priority, and that they wanted the regulation adopted by the end of this year. From a practical perspective, with numerous countries due to join the EU in July next year, agreement must, he felt, be reached by then.

The session after the coffee break succeeded in its objective by provoking discussion of some of the more controversial issues contained in the proposed reforms. The debate was preceded by presentations from Thierry Sueur, Vice President, Intellectual Property at L'Air Liquide, and President-elect of LES International, and Christian Osterrieth from LES Germany. Thierry explained why a single community patent was critical to the future success of businesses in Europe. He picked up the theme of innovation, emphasising the need for reform in order to encourage innovation, and the strategic role patents play in the economy. Recognising the slight difficulty of conveying this message in a conference based in London, he felt that "one currency, one patent" was an appropriate battle cry for those in favour of the reform.

Christian Osterrieth explained the challenge he had been given by the chairman in speaking out against reform. He emphasised that he was, in fact, in the majority who favoured reform. However, there were difficult issues that needed to be addressed; and he proceeded to give a helpful outline of what these were - deliberately designed to provoke debate. Users of the highly efficient and cost-effective German patent litigation system were concerned about the additional cost and complexity (and inconvenience) that might be caused by their having to go to a single court, based outside Germany, and using procedures with which they and their advisers were not familiar. There were also difficult issues concerning assessment of damages.

The debate, which followed covered a wide range of issues, and everyone left for the pre-lunch drinks much the wiser on what the proposed reforms are, what their current status is, and where and when progress is likely to be made - and having made a very useful contribution to the debate on these topics.

Our thanks to all the speakers for an informative and lively meeting.

Report by Nigel Jones

LES B&I Council Members - Christopher Hyatt - A Profile

Christopher became a member of the Council of LES in 1990, and Honorary Treasurer in 1992 when Renate Siebrasse took up the new post of Consultant Director of Administration. He is Contracts & Licensing Manager for SR Pharma - and also, very part-time, for RolaTube Technology Ltd.

He is now on what he likes to think of as his third career, and making plans for his fourth. As an RAF officer he read engineering at Cambridge. After a short time as aircrew, later tours included Kenya and the USA, where he rose to the rank of wing commander.

In 1978, anticipating major manpower contractions in the services, he left the RAF, passed through London Business School as a Sloan Fellow, and became MD of the English subsidiary of AB Bahco, the Swedish tool company. He subsequently moved to Honeywell A & D (UK) in a marketing role. It was here, while supporting US product managers on licensing visits to the UK, that Christopher discovered a predilection for licence and contract negotiation and started his own licensing career by moving to Defence Technology Enterprises in 1986 where he discovered the existence of intellectual property rights, and became a member of LES.

He was one of the original "DTE ferrets" in the Admiralty Research Establishment, Portsdown. Since then, Christopher has worked largely in the world of academic IP, with University College London, Birkbeck College and King's College London. He has also worked independently as a licensing consultant, with clients including the Welsh Development Agency and Procurement Services International. His two current companies are both start-ups in which he was fortunate enough to be "in at the birth".

He has lived for the last 20 years in the Shires, near Banbury, with his wife, two dogs, and a son who has recently left home. He commutes daily to London, and in his "spare" time is building up his fourth career, dealing in early English porcelain.

South African Government Legislation Worries Pharmaceutical Companies

The world's leading pharmaceutical companies are currently locked in a legal battle with the South African Government in a case that could profoundly influence the supply of patented pharmaceutical products to poor countries. The Pharmaceutical Manufacturers' Association of South Africa (PMA), which represents a group of 39 local and international drug companies, has brought an action in South Africa to prevent the implementation of new legal provisions which it claims are unconstitutional and undermine its members' intellectual property rights.

On 5 March, a three-year long dispute finally came to a head as case number 4183/98 reached the High Court in Pretoria. The case revolves around legislation passed by the South African Government which, among other things, would permit parallel importation and the supply of cheap generic versions of patented pharmaceutical products. The Medicines and Related Substances Control Amendment Act 1997 would, if adopted, allow the South African Health Department to obtain otherwise 'unaffordable' medicines at significantly reduced prices from unlicensed suppliers or by parallel importation. The Government claims that this is necessary to ensure wider access to healthcare, pointing to the growing Aids crisis in South Africa and the current lack of availability of anti-retroviral treatments.

The PMA, which obtained an injunction blocking implementation of the new legislation pending a decision in the present case, argues that the disputed provisions would lead to infringement of its members' patent rights, and are in breach of South Africa's international obligations under the TRIPS agreement. The new law would effectively scrap recognition of patents for pharmaceutical products in South Africa, according to the PMA. The PMA further believes that the law contravenes South Africa's constitution, placing too much power in the hands of the Health Minister to decide whether or not a drug is 'affordable', and providing insufficient opportunity for manufacturers to defend their position.

The PMA's stance has evoked widespread criticism from international aid organisations and Aids charities. Médecins Sans Frontières and Oxfam, for example, have issued statements condemning the actions of the PMA which they believe are preventing the supply of affordable drugs where they are needed most. Demonstrations have been staged outside the High Court in Pretoria and across the globe in support of the South African Government, and the PMA is coming under increasing political pressure to drop the case. However, the drug companies argue that they are merely defending their intellectual property rights and that effective patent protection is essential to safeguard their huge investment in pharmaceutical research and development. Furthermore, they say that medicines are already sold in the Third World at reduced costs in comparison to the price in developed countries.

Whilst the multinational pharmaceutical firms are keen to ensure that their patent rights are observed in the emerging markets of the developing countries, they are not enjoying the adverse publicity that this case has generated. Since the case began, a number of leading drug manufacturers, including Merck and Bristol-Myers Squibb, have announced significant price reductions in Africa for their anti-retroviral Aids treatments, with others set to follow suit.

The case has been adjourned for several weeks to give the PMA time to prepare further arguments, following the judge's decision to allow the Treatment Action Campaign, a South African Aids advocacy group, to become a party to the proceedings as an amicus curiae. The court is set to reconvene at the end of April.

Should the court decide in favour of the Government, then the adoption of the new legislative provisions would undoubtedly have a significant effect on commercial licensing of patented pharmaceutical products in South Africa. Moreover, many of the other developing and least-developed nations would almost certainly introduce similar laws to 'override' restrictions on the manufacture and import of patented medicines in certain circumstances. Licensing agreements would have to take account of the effect of any new legislation on the production and supply of pharmaceuticals with the possibility of Third World governments negating patent-holders' rights in cases of emergency or if the patented products are deemed unaffordable.

Michael Douglas
Wilson Gunn M'Caw, (Bioscience Unit)

Burns Supper a Great Success - despite the weather!

Snow threatened to dampen the fire of the LES Scottish Branch 2nd annual Burns Supper, but our speaker, story teller, piper and majority of attendees fought through the weather to ensure that this meeting went with its customary bang.

Held on the 6th February and not on Burns Day to avoid duplication of events, the snow caused a very small number of call-offs but unfortunately these included the President LES Britain and Ireland - Chris Goodman and his colleague Ian Buchan from Eric Potter Clarkson. We hope to be able to welcome them to a future event, though it may not be as colourful as this one.

On arrival we were greeted by the highland dress piper who braved the elements outside The Caledonian Ale House (some of you may know it from rugby internationals) to pipe in the guests and who then proceeded to "address the haggis" in a stimulating and, to some of our non-Scottish guests, alarming fashion. This was followed by our entertainer, who wove a variety of interesting facts and fiction about Burns and Scotland in general into a fascinating between-course tapestry.

Our guest after-dinner speaker, Campbell Laird, of Tayburn Limited gave a "spirited" and informative presentation on the importance of branding with particular reference to the drinks industry, a topic very close to our heart, and debated whether or not Burns himself could be considered a brand. Campbell presented a very clear idea of what he believed constituted such a brand and where and why Robert Burns would fit with this concept. This provided an unusual slant to the branding discussion, which fitted exceptionally well with the evening overall. Guests were then free to mingle and network, always an important part of the Scottish Branch meetings. We hope to continue with our Burns Supper meetings next year and would be delighted to welcome more of you from south of the border or over the water to join us.

Report by Monica Flynn

New Members

Council has been pleased to welcome the following new members to the Society:

• Ms Carey Adams, Financial Administrator/IP Manager, Queen Mary's College, University of London;
• Miss Laura Barratt, IP Officer, TWI Ltd; Mr Ranjit Borar, Director, Global Technoscan, India;
• Mr Simon Cohen, Partner, Taylor Joynson Garrett;
• Dr John Davies, Director R&B Office, Queen Mary's College, University of London;
• Mr Robert Anderson, Solicitor, Lovells;
• Mr Andrew Beale, Director, Swansea IPR Centre;
• Mr Graham Burnett-Hall, Solicitor, Lovells;
• Miss Nicola Dagg, Solicitor, Lovells;
• Dr Simon Draper, director of Business, NIAB;
• Ms Mary-Ellen Field, Director, Brandsecure; Mr David Haigh, CEO, Brand Finance Plc;
• Mr Simon Helm, Solicitor, CMS Cameron McKenna;
• Mr Colin Hunsley, BTG International Ltd;
• Mr David Knight, Partner, Lochners Technology Solicitors;
• Mr Thayne Forbes, director, Brand Finance Plc;
• Dr Roger Harrison, VP, Director of Licensing & Transactions, BTG International;
• Mr David Hulston, QED, Intellectual Property;
• Mrs Janet Innes, Intellectual Asset Associate, Scottish National Blood Transfusion Service;
• Mrs Sue Orum, company Executive, Meiosis Ltd;
• Dr George Rahim, Global Alliance Manager, Roche Products Ltd;
• Ms Samantha Rochford, Contracts Manager, ITRI Ltd;
• Mr Nigel Stoate, Solicitor, Taylor Joynson Garrett;
• Mr Stuart Whitwell, Director, Brand Finance Plc;
• Mr James Robertson, Partner, Stephenson Harwood;
• Mr Paul Scholefield, Partner, Hammonds; Mr Travers Symons, Trainee Solicitor, Stephenson Harwood;