On 6 July 2005 the European Parliament rejected the proposed Directive on the Patentability of Computer-Implemented Inventions by an overwhelming majority of 648 votes. The Commission's immediate response was to state that it would not submit any new draft but the Commission subsequently modified its position to say that it would be happy to discuss any new proposal from the Parliament with the relevant committees. Most observers have little expectation that this will happen.
Does it really matter?
The original intention behind the Directive had been to overcome perceived differences in the way in which the national laws of Member States had interpreted Article 52(2) of the European Patent Convention and the approach taken in the European Patent Office regarding the grant of what are commonly referred to as “software patents”. One of the countries regarded as being out of line was the United Kingdom even though Section 1(2) Patents Act 1977 was intended to implement Article 52(2).
As fate would have it, on 21 July 2005 the English Patents Court handed down two judgments on patentable subject matter that may have produced the result that the original Directive had sought to achieve. Eight days later, the United Kingdom Patent Office published a Practice Notice stating that there was to be an immediate change in the way that the Patent Office examines for patentability and that the new approach was to be very similar to that taken by the European Patent Office. Though the Patent Office acknowledged that both Patents Court decisions were open to appeal it nevertheless thought that its examination practice should change with immediate effect.
Article 52 EPC lists what is and what is not proper subject matter for patent protection. In particular Article 52(2) states:
(2) The following in particular shall not be regarded as inventions within the meaning of paragraph 1:
(a) discoveries, scientific theories and mathematical methods;
(b) aesthetic creations;
(c) schemes, rules and methods for performing mental acts, playing games or doing business, and programs for computers;
(d) presentations of information.
(3) The provisions of paragraph 2 shall exclude patentability of the subject-matter or activities referred to in that provision only to the extent to which a European patent application or European patent relates to such subject-matter or activities as such (emphasis added).
The CPFH decision was an appeal from the Patent Office’s decision to reject two patent applications for interactive betting systems that allowed wagers on the outcome of events operating across a computer network. The emphasis was on reducing processing to a minimum so that a client would have the most up-to-date information before placing a bet even when prices were changing continuously. The objection was that the invention was concerned merely with an improved transactional process over a computer network and therefore fell within the business method exclusion. The Hearing Officer found that the invention did not provide a technical contribution required to make an otherwise excluded invention patentable and that the invention in both applications constituted only non-technical changes to a business method in order to overcome technical problems.
The Deputy Judge (Peter Prescott QC) reviewed the public policy reasoning behind the various exclusions from patent protection. When the EPC was being framed the computer industry thought that patent protection for software was not really needed. It was too cumbersome (prior art searching would be difficult) and that such patents would do more harm than good. In the event, the US software industry had progressed very well without patent protection.
The judgment went on to review the differences in approach between the UK Patent Office and the EPO. The Deputy Judge summarised the UK Patent Office’s position by stating that an examiner would look at the applicant’s claim and ask “what is his technical contribution?” If there was none the application would be rejected; if there was a technical contribution it would be considered against the prior art in the usual way.
In contrast, an examiner in the EPO was said to adopt a two stage process. He looked at a claim and ask himself “does it have any technical features”? If it had none, the application would be rejected for not being a technical invention at all. If there was a technical feature the claim might be an invention for which a patent could be granted. Very little was required by the EPO to constitute a technical invention and then the EPO would go on to ask whether that technical feature was old or obvious and determine whether or there was an inventive step.
Could the distinction actually matter in practice? Would both approaches lead to the same result? The Deputy Judge invited counsel to put forward circumstances where adopting one approach of the other might make all the difference but they were unable to do so. Nevertheless, the Deputy Judge was concerned that that even if even if the two approaches were functionally the same there might be future circumstances where the two tests did produce a different result. Referring to the Dyson case, the Deputy Judge underlined that commercial realities could not necessarily be divorced from the kind of practical outcome that might be thought worthwhile by the skilled addressee. In Dyson, the vacuum cleaner industry was found to be deaf and blind to any solution that did not involve a replaceable bag – a mindset that was based entirely on economics. The skilled addressee could not be separated from the real world and the Deputy Judge had in mind circumstances where making the mental leap of invention required thinking along commercial lines.
He gave the example of the Thermos flask. The vacuum flask had been developed for use in the laboratory at the end of the 19th century and only achieved commercial success as a means to keep food and drink hot or cold once it was protected by a sturdy container. From one point of view it was a clever business idea but not a mechanical invention and the judgement at the time was to revoke the patent as merely claiming a business idea. However, the Deputy Judge wondered whether the case would now be decided differently in light of Dyson. The technical problem of protection was easily solved yet it was not obvious to take the flask from the laboratory and use it to store food. As the Deputy Judge pointed out, the Thermos flask was not a new business method but a new artefact – just as a computer is a new artefact when it is programmed to operate a new business method.
Adopting the EPO two step approach was therefore a safeguard against rejecting something out of hand as a business innovation or some other excluded subject matter because it was thought to be of little technical consequence. Such technical step that could be identified in the claims could then be properly examined for novelty and obviousness which, as Dyson indicated, might have to be considered in a commercial context.
CFPH adopted its own two step approach that took into account the different types of excluded subject matter in Section 1(2) Patents Act 1977. The Patent Office sets out this test in its Practice Note as follows:
(1) identify what is the advance in the art that is said to be new and not obvious (and susceptible of industrial application).
(2) determine whether it is both new and not obvious (and susceptible of industrial application) under the description of an invention in the sense of Article 52 of the European Patent Convention - which section 1(2) of the Act reflects.
CPFH summarises the position by inviting one to ask whether the invention under consideration represents an advance in technology. In the event, the Deputy Judge found that the technical problem had been overcome by developing a new method of betting rather than any new technical solution to a problem. The technical feature of the invention was to take information from a variety of sources and synchronise that information as best as possible before offering the bet. It was not considered new to gather information from different sources and synchronise it before making a decision. Rather, the innovation was in adjusting the parameters of the bet to accommodate for the diversity and timing of the information. Any innovation in the form of the bet would be an innovation in a method of doing business.
While the Patent Office acknowledged that Halliburton dealt primarily with issues other than patentable subject matter, Pumfrey J did address whether he supposed invention was excluded as being a program for a computer. Though Halliburton did not express its approach in the same was as CPFH the Patent Office regarded the judgment as reaching a similar conclusion in light of Pumfrey J.’s comment that “the contribution the inventor makes must lie in technical effect and not merely in excluded subject matter”. Pumfrey J went on to consider whether a patent claim whose contribution was merely in excluded subject matter could be rendered patentable by adding an industrial step and concluded it could in that particular case. In its Practice Notice the Patent Office is at pains not to interpret this as meaning that adding on such a step will always or even usually render a claim patentable and that to do so would be inconsistent with much UK and European case law which has consistently held that a non-patentable invention cannot be rendered patentable simply by claiming it in a different guise. Halliburton does nevertheless show that there can be circumstances in which the way a claim is expressed can affect its substance.
Finally, the Patent Office gave notice to future applicants that it would not always be necessary for an examiner to carry out a search before concluding that the invention would fail the second step of the CFPH test.
If the Computer Implemented Inventions (CII) Directive intended to achieve the harmonisation that now seems to be brought about in the Patent Office’s Practice Notice, why did the CII Directive fail? From the UK perspective, it would seem that two judgments have achieved what European institutions could not in almost ten years of consultations and legislative procedure. However, this ignores the reasons behind the downfall of the CII Directive and it remains to be seen whether new battles remain to be fought in the future.
The requirement to harmonise the law was identified in the European Commission's 1997 Green Paper on the Community Patent and the Patent System in Europe, which expressed an urgent need to remove apparent ambiguities and lack of legal certainty arising from the different ways in which Member States and the European Patent Office implementing laws governing patents for computer software.
The Green Paper was followed by an extensive consultation exercise between the Commission and the European software and IT industries. The IT sector was thought to be highly important to the development of the European economy and effective protection for intellectual property rights was regarded as fundamental in stimulating technological development. The Directorate-General also commissioned a specific study to assess the impact of legislation for the grant of software patents on small and medium-sized enterprises (SMEs) and whether there was benefit in bringing European law more closely in line with the practice in the US and Japan.
In February 2002 Commission published its Proposal for a Directive on the Patentability of Computer-implemented Inventions. The Commission had adopted a neutral approach in that it both avoided extending the scope of patent protection for software while resisting the call to exclude patent protection entirely.
The Proposal also reflected a wish to ensure that copyright remained the principal protection for computer software. The Commission’s SME study had revealed that many smaller software and IT companies were uncomfortable with or uncertain about the protection offered by patents. This was not just due to uncertainties over infringement and the definition and excluded subject matter but also because of the cost and the time taken to secure protection (if granted). Specific concerns were expressed by the Open Software movement who saw software patents. However, as a number of contributors to the debate observed, open software had flourished in recent years and the proposed Directive sought only to maintain the status quo.
However, at the first reading in the European Parliament on 24 September 2003, MEPs introduced a large number of amendments proposed by opponents of software patents. The open software community had organised a most effective campaign. The amendments changed the whole thrust of the Directive and had the potential almost to remove patent protection for inventions relating to digital technology. For example, the amendments to Article 3 provided that data processing was not to be considered a field of technology and that innovations in that field of data processing were not to be considered as patentable inventions. Article 4 included a paragraph stipulating that patent protection was no longer to be available when known hardware was under the control of a computer program that operated in a new way. Articles 7 and 9 proposed new defences to patent infringement that could render even existing patents unenforceable.
The revised text was so far from the Commission’s original intentions that preparations for the second reading required something different from the usual legislative process. Usually a first reading is followed by a co-ordination procedure culminating in an inter-governmental “Political Agreement” that reflects a position that has usually been agreed beforehand. This time, the Commission used the inter-governmental stage to reign in some of the more excessive amendments brought in on first reading. In the event, the Political Agreement was not achieved until May 2004 and then only by a slim qualified majority because a number of countries either voted against or abstained from the new proposals. The delay had been compounded by the time taken to translate the new proposals for the Political Agreement into the twenty languages required by the recently enlarged EU and also by mounting opposition to the revisions to the amendments within Member States. The resistance was again the product of very effective lobbying by the Directive’s opponents who were able to focus their efforts at European and Member State level. Even after the Political Agreement was settled, increased campaigning at national level led to debates in national parliaments that began to undermine positions already adopted by Member States in the Political Agreement.
A Common Position for the second reading was not reached until March 2005 and only then after understandings were reached that the legislation required further work during the second reading. However, the Common Position was now much closer to the original Proposal put forward by the Commission that had broadly been welcomed by the IT and software industry. Despite placatory provisions such as compulsory licensing, the Directive foundered in July.
It is at least to be welcomed that the gap between English law and the approach taken by the European Patent Office has been reduced. Whether opponents of software patents rest content or prepare to fight another day remains to be seen.
First published in the September 2005 issue of Patent World.
 CFPH LLC’s Application  EWHC 1589 Pat; Halliburton Energy Services Inc v Smith International (North Sea) Ltd and others  EWHC 1623 Pat