Research Affiliates LLC v Commissioner of Patents [2014] FCAFC 150: Continued Delineation of s 18(1) of the Patents Act 1990

In the decision above, the Full Court of the Federal Court of Australia (Justices Kenny, Bennett and Nicholas) recently had cause to consider the scope of s 18 (1) of the Patents Act 1990 (Cth) (Act), and specifically whether computer implementation of an otherwise unpatentable business scheme is sufficient to bring something within the scope of patentability. 

While the scope of s 18 (1) of the Act has often been the focus of judicial attention, the subject matter of this case was (to use an appropriate word) novel.  Moreover, the ”invention” which was the subject of Research Affiliates’ (Appellant) application (Application) was the type of thing which many applicants may be expected to try to protect in the years to come.  For this reason, the judgment of the Full Court may prove to be highly relevant, especially in circumstances where the High Court has been relatively silent on this topic. 

The Application and the case

The Application was entitled “Valuation Indifference Non-Capitalization Weighted Index and Portfolio”.  The field of the invention was stated to pertain to securities investing and more specifically to construction and use of passive portfolios and indexes.  As the Full Court put it, at [62]:

The invention of the Patent is said to relate generally to the passing and enhanced indexing categories of portfolio management.  The specification states that a securities market index, by intent, reflects an entire market or a segment of a market.  Statistical modelling is sometimes used to create such a portfolio.  The specification described the advantages of passive indexing and the advantages of using market capitalisation weighting as the basis for a passive portfolio, as well as the disadvantages.

The invention was essentially a layering of complex arithmetic formulae which could be performed by a computer to interpret data and create a novel system of indexing a securities market (a tool to perform equations). 

The Appellant was unsuccessful at first instance, where it was held that mathematical equations in themselves were not patentable in isolation, but that an invention may be patentable if the process devised incorporated a more efficient solution to an equation.  The primary judge held the following criteria applied to patent applications for computer programmes:

• there must be a method that produced a product in which a new and useful effect could be observed;
• the application of a computer programme must have produced a practical and useful result (such that more than information is involved);
• an artificial state of affairs must have been produced in the sense of a concrete, tangible, physical or observable effect;
• a  method may have been patentable if it applied the method in a physical device; and
• a mere scheme, an abstract idea or mere information was not patentable.

On appeal, the Full Court looked back to the basic framework of patentability (for the purposes of s 18(1) of the Act) National Research Development Corporation v Commissioner of Patents (1959) 102 CLR 252 (NRDC), in which the following principles were expounded:

• the right question is “Is this a proper subject of letters patent according to the principles which have been developed for the application of s 6 of the Statute of Monopolies?”;
• there will be a ”manufacture” such as might be the subject of a patent and grant of privilege under s 6 of the Statute of Monopolies whenever a process produces, either immediately or ultimately, a useful physical result in relation to a material or tangible entity;
• the method that is the subject of a claim must have as its end result an artificial effect falling squarely within the true concept of what must be produced by a process if it is to be held to be patentable;
• there may be a discovery without an invention, which will fall outside the realm of manufacture’; and
• to fall within the limits of patentability, the process must be one that offers some advantage which is material in the sense that the process belongs to a useful art as distinct from a fine art and that its value to the country is in the field of economic endeavour. 

The Full Court acknowledged that taking it “back to basics” was only of limited utility in a case like this, where the invention in question pertained to a cutting-edge mathematical development (involving computer programming) in the highly-complex field of economics and finance.  For that reason, they looked to the current status of computer programming in patent law in the UK and the USA.  The analysis of that jurisprudence will not be discussed here, however the Full Court did acknowledge (at [59]) that:

…the Australian approach to patentability in respect of intentions such as those considered here, in consistent with that taken in the United States and the UK to the extent discussed above. 

The Appellant’s primary submissions on appeal were:

• the Application incorporated an inventive concept;
• the Application included the use of a computer for the method;
• the method represented a practical implementation of an innovative idea and was not a mere business idea;
• the implementation by a computer satisfied the requirement from NRDC as to the creation of an artificial state of affairs;
• the final product was of economic significance. 

Ultimately, the tension on appeal related to whether or not the resolution of the formulae by a computer, and the resulting creating of a novel form of indexing, amounted to a patentable invention. 

In the end, the Full Court held that:

(at [107]) The work in generating the index and weighting is described in terms of the work of the analyst rather than as some technical generation by the computer;

(at [110]) From the evidence, it cannot be said…that the claimed method and the use of the algorithms involved steps which are foreign to the normal use of computers;

(at [114]) The method of the invention is not one that has any artificial or patentable effect other than the implementation of a scheme, which happens to use a computer to effect that implementation; and

(at [119]) The claims are not to a patentable invention within s 18(1)(a) of the Act.

Lavan Legal comment

This case concerned an Application brought at the edge of what is currently patentable, and it is a certainty that more and more cases like it will be seen in coming years. 

The financial and economic advantages of having a monopoly on technology such as that which was the subject of the Application, could be enormous for patent-holders. 

In spite of that, the goal posts of patentability, and the scope of s 18(1) are not changing as quickly as technology. 

As the Full Court held (at [116]):

It is a question of understanding what has been the work of, the output of, and the result of, human ingenuity, and to apply the principles that have been developed and explained so well in NRDC.  

Potential applicants for patents should, therefore, be very conscious of the degree to which they are going to be able to protect their inventions, their research, and their ingenuity.