Grant v Commissioner of Patents

[2005] FCA 1100

FEDERAL COURT OF AUSTRALIA

Grant v Commissioner of Patents [2005] FCA 1100

INTELLECTUAL PROPERTY – patents – whether a method for structuring a financial transaction designed to protect an individual’s assets against the lawful claims of the individual’s creditors is capable of being the subject of a patent – principles which govern the application of s 6 of the Statute of Monopolies.

Patents Act 1990 (Cth) s 18(1A)

Advanced Building Systems Pty Limited v Ramset Fasteners (Aust) Pty Limited (1998) 194 CLR 171 referred to
Attorney‑General of the Commonwealth of Australia v The Adelaide Steamship Company Limited [1913] AC 781 referred to
International Business Machines Corporation v Commissioner of Patents (1991) 33 FCR 218 cited
National Research Development Corporation v Commissioner of Patents (1959) 102 CLR 252 applied
Re Innovation Patent No 2004100848 in the name of Peter Szabo and Associates Pty Ltd [2005] APO 24 referred to
Welcome Real‑Time SA v Catuity Inc (2001) 51 IPR 327 cited

STEVEN JOHN GRANT v COMMISSIONER OF PATENTS

NSD 930 of 2004

BRANSON J
12 AUGUST 2005
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 930 of 2004

BETWEEN:	STEVEN JOHN GRANT APPLICANT
AND:	COMMISSIONER OF PATENTS RESPONDENT
JUDGE:	BRANSON J
DATE OF ORDER:	12 AUGUST 2005
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.The appeal from the decision of the respondent revoking the Patent be dismissed.

2.The applicant pay the respondent’s costs.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 930 of 2004

BETWEEN:	STEVEN JOHN GRANT APPLICANT
AND:	COMMISSIONER OF PATENTS RESPONDENT

JUDGE:	BRANSON J
DATE:	12 AUGUST 2005
PLACE:	SYDNEY

REASONS FOR JUDGMENT

INTRODUCTION

1. The issue to be determined on this appeal under s 101F(4) of the Patents Act 1990 (Cth) (‘the Act’) is whether a method for structuring a financial transaction, the purported effect of which is to protect an individual’s assets (presumably against the lawful claims of the individual’s creditors), is capable of being the subject of a patent.

2. The applicant has appealed from a decision of the respondent made by her delegate (‘the Delegate’) that the invention the subject matter of Innovation Patent No 2003100074 as proposed to be amended (‘the Patent’) is not a ‘manner of manufacture within the meaning of section 6 of the Statute of Monopolies’ (see s 18(1A)(a) of the Act). Claim 1 of the Patent is as follows:

   ‘1.an asset protection method for protecting an asset owned by an owner, the method comprising the steps of:

   (a)establishing a trust having a trustee,

   (b)the owner making a gift of a sum of money to the trust,

   (c)the trustee making a loan of said sum of money from the trust to the owner, and

   (d)the trustee securing the loan by taking a charge for said sum of money over the asset.’

3. This appeal was argued on the basis that if claim 1 is not the proper subject of a patent, claims 2‑5 will similarly not be proper subjects of a patent.

4. For the reasons set out below I have concluded that the decision of the Delegate is correct and the appeal should be dismissed.

   DECISION OF THE DELEGATE

5. The Delegate observed that the invention the subject of the Patent raised directly the question of whether a patent can be granted in respect of an invention that involves no discovery of a law of nature and no application of technology. 

6. It was argued before the Delegate that the invention was patentable because it concerned a method to create an artificial state of affairs and had economic utility in practical affairs.  This argument was founded on an observation made by the High Court in National Research Development Corporation v Commissioner of Patents (1959) 102 CLR 252 (‘NRDC’).  In NRDC the High Court gave consideration to a new method of ridding crops of weeds by applying chemicals not formerly known to be useful for this kind of purpose.  At 277 the High Court stated:

   ‘… the method the subject of the relevant claims has 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 patentable … It is a “product” because it consists in an artificially created state of affairs, discernible by observing over a period the growth of weeds and crops respectively on sown land on which the method has been put into practice.  And the significance of the product is economic; for it provides a remarkable advantage … for one of the most elemental activities by which man has served his material needs, the cultivation of the soil for the production of its fruits.’

7. The Delegate noted that the concept of manner of manufacture has consistently involved either the discovery of laws of nature or the application of technology based on the laws of nature.  He characterised the invention as being, by contrast, ‘a discovery in relation to the laws of Australia, useful in the affairs of the populace’. 

8. The Delegate was satisfied that the invention had economic utility because many professional advisers are charged with looking after their clients’ assets by making full use of the law.  However, he concluded that the invention did not result in an ‘artificially created state of affairs’ in the sense discussed in NRDC.  He observed:

   ‘The invention resides in the law of Australia.  That law is the creation of Parliament, and of the courts through common law.  At one level one could say that all laws are “artificial” in that … they are the creation of Parliament or of the courts.  Beyond that, the law must be taken as being a deliberate intention of the legislature to provide governance of the population at large.  I think it must be taken that the legislature has enacted the law in full knowledge of all its consequences, and in particular the interaction with other laws of the Commonwealth, including the common law.

   …

   Furthermore, the law is the foundation upon which our society is built … I do not believe that it is open (or proper) for the Commissioner of Patents to grant monopoly rights over certain aspects of Australian law.  The law is for the populace at large; it is not for the use of one individual to the exclusion of all others who desire to follow the law.’ (original emphasis)

   CONSIDERATION

9. Although the language of s 18(1A) of the Act calls for consideration of whether the invention, so far as claimed in any claim, ‘is a manner of manufacture within the meaning of section 6 of the Statute of Monopolies’, the High Court in NRDC at 269 made it clear that the true question to be answered 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?’

10. In seeking to identify the principles which have been developed for the application of s 6 of the Statute of Monopolies it is not to be overlooked that the High Court in NRDC at 271 also said that ‘any attempt to state the ambit of s 6 of the Statute of Monopolies by precisely defining “manufacture” is bound to fail’.  It would therefore be wrong to see NRDC itself as intending to define a manner of manufacture as, or as including, a method that has as its end result an artificially created state of affairs of economic significance (see [6] above).  The language used by the High Court in NRDC is to be understood in the context of the subject matter under consideration in that case.

11. Before turning to the principles which have been developed for the application of s 6 of the Statute of Monopolies, it is pertinent to recall that the principal purpose of the Statute of Monopolies was to declare grants of monopolies void.  Certain letters patent and grants of privilege giving monopoly rights were excluded from the operation of the statute.  The most significant of these were identified in s 6 which relevantly provided:

    ‘Provided also, and be it declared and enacted, that any declaration, before‑mentioned, shall not extend to any letters patent and grants of privilege for the term of fourteen years, or under, hereafter to be made, of the sole working or making of any manner of new manufactures within this realm, to the true and first inventor and inventors of such manufacturers, which others at the time of making of such letters patent and grants shall not use, so as also they be not contrary to the law, nor mischievous to the state, by raising prices of commodities at home, or hurt of trade, or generally inconvenient.’

12. The Statute of Monopolies reflected the common law’s suspicion of monopolies but recognised that nonetheless monopolies limited in duration might serve the public interest by providing an incentive for inventive ingenuity.  The common law’s suspicion of monopolies was explained in Attorney‑General of the Commonwealth of Australia v The Adelaide Steamship Company Limited [1913] AC 781 at 793 where their Lordships observed:

    ‘At common law every member of the community is entitled to carry on any trade or business he chooses and in such manner as he thinks most desirable in his own interests, and inasmuch as every right connotes an obligation no one can lawfully interfere with another in the free exercise of his trade or business unless there exist some just cause or excuse for such interference.’

13. Section 6 of the Statute of Monopolies was intended to allow the grant of monopolies limited in time where the public benefit derived from the grant of the monopoly might be expected to outweigh the public cost of the resultant interference with free trade.  The same principle underlies modern legislation authorising the grant of patents.  In Advanced Building Systems Pty Limited v Ramset Fasteners (Aust) Pty Limited  (1998) 194 CLR 171 (‘Advanced Building Systems’) at 193‑194 Kirby J observed:

    ‘Legislation for the grant of patents necessarily involves striking a balance between competing, and sometimes conflicting, policy objectives. The Industrial Property Advisory Committee in its 1984 report on patents expressed well the general objective to be attained:

    “Patents are intended to stimulate … innovation by offering the possibility of greater profits than could have been obtained if open competition existed. But the benefits gained from innovation fostered by the existence of the patent system must be balanced against the costs to society caused by the restrictions which patents place upon the use of the inventions to which they relate. For while the purpose of the patent system is to provide an incentive to innovation, patents also create entry barriers which prevent or retard the diffusion of innovation by imitation; that is to say, a patent confers a degree of monopoly power which has inherent anti-competitive effects. It has both social benefits and social costs.”

    Exactly where the balance lies between the benefits and costs is determined by the legislature in the terms of the Act.’

14. A search for the principles which govern the application of s 6 of the Statute of Monopolies involves more than the identification of the classes of invention which have in the past been found to constitute a manner of manufacture.  As has been observed in the authorities, advances in science leading to the development of new technologies render this approach unsound (see, for example, NRDC at 271 and Advanced Building Systems at 194). However, consideration of the classes of invention that have been found to constitute a manner of manufacture within the meaning of the section may help reveal relevant underlying principles.

15. In Re Innovation Patent No 2004100848 in the name of Peter Szabo and Associates Pty Ltd [2005] APO 24 (‘Szabo’), a decision of the Deputy Commissioner of Patents issued 5 May 2005, the Deputy Commissioner at [38] identified the subject matter of most of the manner of manufacture cases referred to in NRDC as well as in certain other decisions dealing with the same question.  The table prepared by the Deputy Commissioner includes 59 decisions.  At [39] he observed:

    ‘What is readily apparent from this table is the general involvement of science and technology in patent cases.  Indeed, this is particularly illustrated by reference to the so‑called “Ticket cases”, where mere presentation of information does not constitute a manner of manufacture, whereas an arrangement that serves a “mechanical purpose” is a manner of manufacture …’ (citations omitted)

16. It is clear that a manner of manufacture need not result in the production of a ‘product’ in the sense of a physical thing.  It is sufficient, as the High Court pointed out in NRDC at 276, that a new and useful effect may be observed in something such as a building, a tract or sub‑structure of land, an explosion or an electrical oscillation. A method and device for the operation of ‘smart cards’ may be a manner of manufacture (Welcome Real‑Time SA v Catuity Inc (2001) 51 IPR 327). The application of a mathematical formula to achieve the production of an improved curve image on a computer screen may be a manner of manufacture (International Business Machines Corporation v Commissioner of Patents (1991) 33 FCR 218).

17. I conclude that a principle which has been developed for the application of s 6 of the Statute of Monopolies is that the notion of what is patentable must remain flexible in order for patent law to keep pace with scientific and technological developments.

18. However, the invention the subject of the Patent is unrelated to any new scientific or technological development.  The novelty that attends the contention that the invention is patentable does not derive from the nature of the invention.  There is nothing novel in the concept of structuring a financial transaction to achieve a desired outcome such as the protection of financial assets.  Yet it seems that there is no reported case in which it has previously been argued that a method of structuring a financial transaction may be the subject matter of a patent.  Presumably methods (or inventions) of this kind have previously been assumed to fall within the ambit of the authorities that hold that financial schemes and schemes of operation that are mere records of intelligence are not patentable (see J Lahore ‘Computers and the law: the protection of intellectual property’ Federal Law Review, vol. 9, 1978, pp 15-41).

19. It may be that a principle has been developed for the application of s 6 of the Statute of Monopolies that patent protection is only available in respect of inventions which reflect scientific or technological developments.  I interpolate that if a principle so expressed has been developed it may give rise to debate as to the true boundaries of science and technology; for this reason the principle may prove to be of little more assistance than the presently accepted dichotomy between useful arts and fine arts.  It may also be that a narrower principle has or will be developed that patent protection is not available for any invention that consists of a method of applying the law.  I need not reach a concluded view here about either of these possible principles.  This case can, in my view, be decided on another ground.

20. The principle which has been developed for the application of s 6 of the Statute of Monopolies that seems to me to be critical in this case is the principle that an invention should only enjoy the protection of a patent if the social cost of the resulting restrictions upon the use of the invention is counterbalanced by resulting social benefits.  This principle is derived from the theoretical justification for the grant of a patent; that is, the assumed value of inventive ingenuity to the economy of the country.  The monopoly granted by a patent to an inventor is assumed to serve the public interest both by rewarding, and thus encouraging, inventive ingenuity and by ensuring the disclosure to the public of a new article or process.  As the High Court observed in NRDC at 275:

    ‘a process, to fall within the limits of patentability which the context of the Statute of Monopolies has supplied, 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 — that its value to the country is in the field of economic endeavour.’ (citation omitted)

21. The Deputy Commissioner did not think that there could be any argument about the invention the subject of the Patent being of economic utility because of the number of financial advisers in society charged with looking after their client’s assets.  This was, in my view, to adopt the wrong approach to the question of whether the method has ‘value to the country in the field of economic endeavour’ within the meaning of the above excerpt from NRDC.  The economic utility identified by the Deputy Commissioner is not a utility of value to the country; it is a utility of value only to those whose assets are ultimately protected – and possibly to their professional advisers.  The performance of the invention will not add to the economic wealth of Australia or otherwise benefit Australian society as a whole.  For this reason, in my view, the invention the subject of the Patent is not 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.

22. Moreover, the law of Australia assumes that the public interest is served by individuals paying their debts as and when they fall due.  The Bankruptcy Act 1966 (Cth) reflects a legislative policy that creditors may ultimately have recourse to a debtor’s assets should the debtor not otherwise be able to pay his or her debts. The invention of a ‘method for protecting an asset owned by an owner’ within the meaning of claim 1 of the Patent is thus the invention of a method by which the owner may be insulated from the operation of laws intended to serve the public interest.  In my view, this is an additional reason why the invention the subject matter of the Patent is not 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.  A court of law must assume that the performance of the invention will not advance the public interest but merely advance private interests.  The social cost of conferring on the invention the protection of a patent would therefore not be counterbalanced by any resultant benefit to the public.

    CONCLUSION

23. For the above reasons I conclude that the invention the subject of the Patent is not a proper subject of letters patent according to the principles that have been developed for the application of s 6 of the Statute of Monopolies.

24. The appeal from the decision of the respondent revoking the Patent will be dismissed with costs.

I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Branson.

Associate:

Dated:             12 August 2005

Counsel for the Applicant:	S Goddard and C Cochrane
Solicitor for the Applicant:	Griffith Hack
Counsel for the Respondent:	D Catterns QC and S Lloyd-Jones
Solicitor for the Respondent:	Australian Government Solicitor
Date of Hearing:	20 June 2005
Date of Judgment:	12 August 2005