When Australian inventor Neal Macrossan sought patent protection for a Web-based program that guides users through the process of incorporating a limited company, the application flew through the Australian Patent Office with ease. However, when Macrossan sought similar protection in the UK, he encountered turbulence.
The UK Court of Appeal, equivalent to the U.S.'s Federal Circuit Court of Appeals, ruled in August that Macrossan's invention was a method for doing business and therefore unpatentable under European law. Not only did the court reject Macrossan's patent, but also drew a line in the sand. The judge who wrote the opinion, Lord Justice Jacob, criticized the Appeals Court for the European Patent Office (EPO) for issuing patents on business methods, and said in no uncertain terms that the UK will never go along with the EPO's interpretation of European patent law.
The decision has refueled the debate over the patentability of business methods and software in Europe. Many experts hope it will spark reform of the EU's fractured patent system--leading to harmonization of member states' interpretations of the law and offering certainty to foreign applicants seeking patent protection in the EU.
"Jacob has laid down some criticism of the EPO and the way they have approached this area," says Stephen Jones, a partner in Baker & McKenzie's London office. "Given that he is a senior judge in the UK who is well known in the IP field, his criticisms may lead to reform."
Lack Of Harmony
Although EU law outlines what can and cannot be patented, each member state interprets the law differently. So while EU law says business-methods are unpatentable, most national courts have carved out some exceptions to that rule following the EPO's lead.
"In general, the EPO has been somewhat lax in granting business-method patents, while the UK and German courts have been much stricter about excluding them," says Rufus Pollock, director of The Foundation for a Free Information Infrastructure, a London-based non-profit organization promoting free competition.
Article 52(2) of the European Patent Convention (EPC), the main EU patent treaty, says "schemes, rules and methods for performing mental acts ?? 1/2 and programs for computers" are not patentable, "to the extent that a European patent application ?? 1/2 relates to such subject matter or activities as such."
Despite this language, the EPO has a tendency to grant patents on new business methods or computer programs if the invention appears to include a "technical improvement."
"If you take the EPO's view, as soon as you bring in something technical in implementing the invention, it ceases to be a business method or computer program 'as such' and it is potentially a patentable invention," Jones says.
For example, in 2002 the EPO found that a new way of highlighting the active player in a football video game that Koninkl Philips Electronics invented was patentable because it involved a technical contribution to existing systems.
In contrast, the UK and German patent offices take a literal interpretation of the Act, refusing to grant any patents that relate to the areas Article 52(2) names. In the 1991 case Gale's Application, the UK ruled a method for calculating square roots quickly was unpatentable, despite the technical innovation involved. In Macrossan, Jacob restated the UK's strict interpretation of the law, writing, "a contribution which consists solely of excluded matter will not count as a technical contribution."
However, experts believe Macrossan's invention would have been patentable had he filed with the EPO.
"If Macrossan had worded his claim differently so that it included a little hardware, which would have been certainly possible for this system, then that would have passed the test in the EPO," explains Alastair McCulloch, a patent attorney in Jones Day's London office.
These varying interpretations create problems for foreign companies drafting patent applications relating to business and software innovations. Even if the EPO grants a patent, each member nation's courts have the authority to uphold or invalidate it.
Pressure For Change
Although Jacob's ruling furthers the divide between the UK's reasoning for rejecting business-method patents and the EPO's willingness to accept them, it may be the impetus for change needed to mend the fractured patent system.
Jacob suggested in his decision that the Enlarged Board of Appeal--a working group the EPO can convene to clarify inconsistencies in the patent law--take up the issue. According to the EPC, the president of the EPO has the power to refer a point of law to an Enlarged Board of Appeal wherever two appellate boards have given different decisions on that question. Although the UK decision, which outlines a series of questions to be considered by the EPO, cannot force an Enlarged Board to decide the issue, given Jacob's status as a respected senior judge in the UK, the ruling may encourage the EPO to take up the issue.
"It is formally no business of ours to define questions to be asked of an Enlarged Board of Appeal," Jacob wrote. "Nonetheless ... we ventured to ask the parties what questions might be posed by the President of an Enlarged Board."
Many foreign inventors are hopeful that if the EPO reconsiders its interpretation of EU patent law, it will move closer to the U.S. model, which, following the landmark 1998 decision in State Street Bank v. Signature Financial Group, allows patents on business methods without the necessity of a technological aspect to the invention. But there are some indications the EPO may take a step in the opposite direction.
One factor that could spur that move is the upcoming change in leadership at the EPO. Currently Alain Pompidou from France serves as president; however, Britain Alison Brimelow will take over in July 2007. Given the UK's hostile stance toward business-method patents, the EPO may shy away from granting them when she assumes control.
On the other hand, the EPO and European courts are under pressure from foreign countries to better conform to the international IP treaty TRIPS (the Agreement on Trade Related Intellectual Property Rights), which does not explicitly exclude business-methods and software from patent protection. In addition, U.S. software companies are lobbying the EPO to loosen its restrictions on software patents.
"The fight has become very public now," Pollock says. "The EPO went a long way toward the U.S. in the 1990s ?? 1/2 yet there is a pretty overwhelming agreement throughout Europe that business process patents are a bad idea."
Slow To Change
Whether or not the Enlarged Board of Appeal takes up the case, what is clear is that Europe is a far cry from adopting the U.S.'s interpretation in State Street.
"If people had hoped that the UK court would have taken a more liberal view, this decision shows that the court is not having that," says Steven Henry, shareholder with Wolf, Greenfield & Sacks. "Europe is taking a fairly unified position, and it is not going to be welcoming to a method of doing business that does not involve a new configuration."
But how Jacob's call for reform might change that standard is still up for debate. Meanwhile, companies will have to navigate carefully around member states' conflicting interpretations.
"There is an acceptance that we need further clarification from a different court," McCulloch says. "But the frustrating thing is that it is not at the end of the road yet."