Recently we have had two long-awaited decisions on the patentability of software and business methods. The first was the response of the Enlarged Board of Appeal of the European Patent Office to questions on the patentability of computer implemented inventions (CII) referred by the EPO President, given on 12 May 2010. The second was the decision of the US Supreme Court in the Bilski case, which was handed down on 28 June. The decision of the Court of Appeals of the Federal Circuit (CAFC) in this case was discussed in the April 2010 issue of our Electronics Update. Unfortunately, as discussed below, neither of these decisions has produced real certainty as to the determination of patentability in this difficult area.
EPO Enlarged Board referral
The questions referred by the President were:
1. Can a computer program only be excluded as a computer program as such if it is explicitly claimed as a computer program?
2. (a) Can a claim in the area of computer programs avoid exclusion under Article 52(2)(c) and 52(3) merely by explicitly mentioning the use of a computer or a computer-readable data-storage medium?
(b) If question 2(a) is answered in the negative, is a further technical effect necessary to avoid exclusion, going beyond those effects inherent in the use of a computer or data-storage medium to respectively execute or store a computer program?
3. (a) Must a claimed feature cause a technical effect on a physical entity in the real world in order to contribute to the technical character of the claim?
(b) If question 3(a) is answered in the positive, is it sufficient that the physical entity be an unspecified computer?
(c) If question 3(a) is answered in the negative, can features contribute to the technical character of the claim if the only effects to which they contribute are independent of any particular hardware that may be used?
4. (a) Does the activity of programming a computer necessarily involve technical considerations?
(b) If question 4(a) is answered in the positive, do all features resulting from programming therefore contribute to the technical character of a claim?
(c) If question 4(a) is answered in the negative, can features resulting from programming contribute to the technical character of a claim only when they contribute to a further technical effect when the program is executed?
The Enlarged Board held that the reference was inadmissible because there had not been "different decisions" by two different EPO Appeals Boards, which is required under Article 112 (1)(b) of the European Patent Convention (EPC) for a reference by the EPO President. Their discussion of the meaning of "different decisions" showed that they took a strict view of their role as opposed to that of the Appeals Boards, who have the primary responsibility to interpret the EPC. The Enlarged Board should only be asked to rule when there was at least a divergence, preferably a conflict, between Appeals Board decisions, making it difficult if not impossible for the EPO to make its patent granting practice compatible with the case law of the Appeals Boards.
An important statement by the Enlarged Board was that, in considering whether there has been divergence, due weight must be given to the notion of legal development. Particularly in the field of new technologies, Appeals Boards should take care not to make statements that would prove untenable in a subsequent case, but repeated amendments may be necessary in the course of time if the initial legal solutions of the Boards proved to be mistaken in new situations and ceased to be convincing jurisprudence. Such changes of direction in legal development were a normal part of judicial activity, and were not "different decisions" simply because departures from earlier practice were deemed necessary to find the right solution to a specific case. This statement is relevant to the UK, because a reason given by Jacob LJ in Aerotel v Telco; Macrossan's Application  RPC 7 (Aerotel) for not following the current EPO approach to CII patentability was that there was divergence between earlier and later lines of EPO decisions. Jacob LJ did suggest questions that should be referred to the Enlarged Board; the President at that time refused to do so, and the questions referred by his successor were different from those suggested in Aerotel. The Enlarged Board commented on Jacob LJ's proposed questions, stating that it was somewhat surprising that the referral did not address any of its questions to the validity of this way of judging an inventive step, an issue which was of general interest and the second Aerotel question.
The Enlarged Board went on to look at each of the referred questions and the case law which the referral stated to be the basis for the referral. Although the questions were not answered, the reasons given in each case for holding that the question was inadmissible give a picture of the Enlarged Board's view on the law on CII. On question 1 they stated that the present case law was that a claim in the area of computer programs could avoid exclusion under Articles 52(2)(c) and (3) EPC merely by explicitly mentioning the use of a computer or a computer-readable storage medium, but if a claim to program X was excluded a claim which specified no more than "Program X on a computer-readable storage medium," or "A method of operating a computer according to program X," would always still fail to be patentable for lack of an inventive step under Articles 52(1) and 56 EPC. In relation to question 3, EPO case law was consistent in considering all the features that are claimed and had always avoided approaches which involved weighting of features or a decision which features defined the "essence" of the invention. All the features together had to be considered in determining whether the claimed subject-matter had a technical character. Only once this determination had been made could it be decided which claimed features contributed to that technical character and therefore should be taken into account for the assessment of whether there was an inventive step. Interpreting question 4, "the activity of programming a computer" was probably intended to relate to the intellectual activity of working out what were the steps to be included in a computer program rather than the simple physical activity of entering a program into some computer. There was at least the potential for confusion, arising from the assumption made in some cases that any technical considerations were sufficient to confer technical character on claimed subject-matter. However, although all computer programs had technical effects, since for example, when different programs were executed they cause different electrical currents to circulate in the computer they run on, such technical effects were not sufficient to confer "technical character" on the programs; they had to cause further technical effects. In the same way, although it might be said that all computer programming involved technical considerations since it was concerned with defining a method which can be carried out by a machine, the programmer must have had technical considerations beyond "merely" finding a computer algorithm to carry out some procedure. There were two ways of defining a computer algorithm, either as a pure mathematical-logical exercise or as defining a procedure to make a machine carry out a certain task. It was apparently the intention of the EPC to consider the abstract formulation of algorithms as not belonging to a technical field.
The result of this decision is that the Enlarged Board has effectively endorsed the present approach of the Appeals Board CII case law. The UK case law is clearly different; it will be interesting to see how the UK courts will deal with this in the future. Pending a court decision, it is likely that the UK patent office will continue their present practice of applying the Aerotel steps and rejecting almost all CII applications.
US Supreme Court decision in Bilski
Unlike the EPO Appeals Boards, the US Supreme Court does not have to give a unanimous decision. In this case, although the decision to reject the appeal was unanimous, there were two views of the basis for that decision. The majority opinion was authored by Justice Kennedy with which three other justices agreed in total and Justice Scalia agreed in part. The minority opinion, authored by Justice Stevens (and his last before his retirement), was joined by three other judges, one of whom also wrote a concurring opinion which was joined by Justice Scalia. The issue before the court was the meaning of the word "process" in the US Patent Act (35 USC) section 101 which lists the categories of patentable subject matter as "any new and useful process, machine, manufacture or composition of matter…"
With regard to the "machine-or-transformation" test which the CAFC had said was the sole test for patentability of a process under Supreme Court case law, the court was unanimous that, although this test was useful, it was not exclusive. The minority opinion, after a lengthy examination of the statute and of the case law, was that business methods did not come within the meaning of "process" in section 101 and should be excluded from patentability. However the majority view was that there should be no judicial exclusions from patentability, other than the long established ones of laws of nature, physical phenomena and abstract ideas. The court was concerned not to lay down rules which could adversely affect other new and developing technologies. They looked at the current ordinary definitions of the terms "process" and "method", and decided that there was nothing that would exclude all business methods from patentability. Further, following the State Street decision, Congress had added a provision to the Patent Act that, if a patent-holder claimed infringement based on “a method in [a] patent,” the alleged infringer could assert a prior use defence, for the purposes of which “method” was defined as “a method of doing or conducting business”. While this definition of “method,” could not change the meaning of a prior-enacted statute, a conclusion that business methods were not patentable in any circumstances would render the section meaningless. The majority held that the invention in this case was an abstract idea, as it had the effect of pre-empting use of risk hedging in all fields, and thus excluded from patentability. However, the majority did warn that this decision should not be taken as endorsing any other test the CAFC had used in the past, including the State Street test of whether the invention produced a "useful, concrete and tangible result".
The result of this decision is that, while the majority opinion allows for the possibility of business method patents, it is far from clear what kinds of business methods can be patented in the US. The US Patent and Trademark Office (USPTO) has issued preliminary guidance on the application of this decision; the "machine-or-transformation" test will continue to be used, anything failing that test will be rejected unless it is clearly not an abstract idea. While the applicant will have an opportunity to argue that his invention is not an abstract idea, this is not an easy argument to make and it is likely that anything not passing the "machine-or-transformation" test will be rejected by USPTO. If the claims cannot be structured to meet this test, an applicant faces the alternatives of rejection or an expensive appeals process. There is also likely to be an increase in litigation, as holders of business method patents will be encouraged by the knowledge that any defendant seeking to invalidate the patent will probably have to take the case as far as the CAFC, so will have financial incentives to settle rather than litigate.