Peter Szabo and Associates Pty Ltd
[2005] APO 24
•5 May 2005
ABSTRACTS OF DECISIONS
DECISION OF A DEPUTY COMMISSIONER OF PATENTS
Application : Innovation Patent No. 2004100848 in the name of Peter Szabo and Associates Pty Ltd
Title: Home Equity Release Plan
Action: Examiner’s objections in certification.
Decision: Issued 5 May 2005
Abstract
The invention relates to a ‘reverse mortgage’, where (typically) an aged person part-sells an interest in their home in return for a cash deposit, with settlement occurring after death. In the usual reverse mortgage arrangement, the financier may make an excessive profit in the event of early death. The invention ameliorates this by providing for a rebate in these circumstances, and provides some mathematical expressions for determining the amount of the rebate. The examiner objected that the invention was not for a manner of manufacture. There was no objection to lack of novelty, or lack of innovative step
- For determining whether an invention is a manner of manufacture, 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?”
- The purpose of s.6 of the statute of Monopolies was to encourage development in the fields of science and technology. To be a manner of manufacture an invention must contain some material element that relates to science or technology. This might occur as a result of the application of a discovery of a law of nature, or a principle of science. It might be by way of creation of a new device, chemical entity, electromagnetic field or other entity, or related processes. Or it might make use of some device or entity for some purpose. Failing this, such an invention cannot be the proper subject of letters patent according to the principles which have been developed for the application of s.6 of the Statute of Monopolies.
- The distinction between the fine arts and the useful arts as discussed in the NRDC and Virginia-Carolina decisions is whether or not the invention involves the application or use of science and/or technology in a material manner.
- Mathematical expressions or algorithms may represent properties of the universe in which we live, properties of the number system, or agreed arrangements between people. The important issue is not the presence of an algorithm or formula per se. Rather it is – what does the formula represent?
- It may be conceded that the alleged invention addresses a practical need in the affairs of people – and indeed creates a more equitable outcome compared to the prior art. It may also be conceded that the alleged invention meets the criteria of novelty and innovative step. But this is not enough. The criterion that an invention must be for a manner of manufacture is a real criterion additional to that of novelty and innovative step. The invention must be for “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”. This requires at least some material application of science or technology.
- The claimed invention does not embody in any material manner elements of science or technology. The claimed invention is no more than a prescription of the basis of a contractual agreement between parties, based on mathematical expressions formulated to produce a more equitable arrangement.
- Innovation Patent revoked
PATENTS ACT 1990
DECISION OF A DEPUTY COMMISSIONER OF PATENTS
Re:Innovation Patent No. 2004100848 in the name of Peter Szabo and Associates Pty Ltd, and examiner’s objections in certification.
BACKGROUND
Innovation patent 2004100848 was filed as a divisional application deriving from Innovation Patent 2003100964. That innovation patent was associated with provisional application no. 2003900202 filed on 17 January 2003. I note the applicant has also filed application PCT/AU2004/000051 under the Patent Cooperation Treaty, claiming priority from the same provisional application. The 30-month deadline under the PCT for entering the national phase in relevant designated countries expires (subject to countries providing a longer period) on 17 July 2005. The final date for certification of the present innovation patent is 17 May 2005 (being 6 months after the date of the first examination report).
The examiner has raised an objection that the claims do not define a manner of manufacture within the meaning of section 6 of the Statute of Monopolies. [This objection was also raised during the examination of the parent innovation patent.] After two adverse reports [and 3 adverse reports on the parent application], the applicant requested to be heard. In so doing, they expressly waived the right for 10-days notice of the hearing provided for in Reg. 22.22. I heard the applicant on 5th April. The applicant was represented by Mr C Dimitriadis of counsel, instructed by Mr D Clark of Blake Dawson Waldron. Mr Peter Szabo of the applicant was also in attendance, and was able to provide some useful explanations during the course of the hearing.
THE SPECIFICATION
The field of this invention is financial services. The specification states that the invention “relates generally to a method of releasing equity in real property …… particularly, though not exclusively, to a method of releasing equity in residential property for aged home owners.”
I understand the background to this invention arising in the following indicative manner. For many aged people in retirement, their primary asset is the family home. As a result of inflation in the property market, the worth of the family home can continue to grow after retirement such that the person becomes ‘asset rich’. However the person may be ‘cash poor’ through having little to no income, with the value of their property excluding them from pension entitlements.
In such circumstances, the aged person may need cash for a variety of needs. A younger person may obtain cash by taking out a loan with a financial institution. Such a loan would entail regular repayments over the predetermined term of the loan, which can be serviced as a result of the person being in employment. However an aged person would not be in a position to enter into such loans, as while they have a valuable asset they have no income stream to repay the loan. Financial institutions and banks (and the specification refers to such institutions in the USA and UK) have introduced what is called a ‘reverse mortgage’ to service this situation. The objective of the reverse mortgage is to set up an arrangement where the ‘loan’, and all interest that accrues thereon, is only repayable after the death of the aged person. In that manner, the person has access to cash during the remainder of their life, and repayment is dealt with through the estate.
I interpose here to note that while the specification primarily refers to the situation of an aged person and their death, it also refers to the situation where an aged person wants to settle the mortgage before death. It also notes that the invention may apply to other situations. However for convenience I will hereafter merely refer to the situation of an aged person, with settlement after death.
In setting up a reverse mortgage, the arrangement described is:
- Estimate current value of the house
- Agreement to pass entitlement to a certain proportion of the house to the financial provider (with the transaction not being completed until after death)
- Estimate life expectancy of the aged person
- Pay the owner, in cash, the value of the agreed proportion of the present value of the house – but reduced in value to a net present value as if that amount was paid at the expected date of death.
- Upon death, the financier completes the sale, and is entitled to the proportional proceeds of the sale of the house.
The specification gives as an example the following:
Home worth $500,000 Life expectancy 10 years (75 year old woman) Agreed percentage of asset 30% Estimated growth rate over 10 years 8% compound
On this basis:
Present value of asset being acquired by financier $150,000 Discounted at 8% for the 10 year life expectance, to a net present value $94,900 Acquisition expenses $2,200 Net cash received by aged home owner $92,700
In short, the aged home owner gets an immediate cash amount of $92,700. In return the owner gives up 30% of the value of the property whenever it is sold. Of course it is difficult to predict future interest rate changes and property value increases, but these risks will be factored into the calculations on which the financier is prepared to ‘loan’ the money. Notably the ‘loan’ is not for a predetermined period of time, so that the financier’s money is tied up for an indefinite period.
While the reverse mortgage might be negotiated on a particular set of assumptions, two notable variations can occur. Firstly, the rate of increase in the property value might be significantly greater than the assumed growth rate. In these circumstances the specification refers to the payment (by the financier at settlement) a share of ‘Realised Excess Proceeds’. In a variation of the above example – where sale occurred after 15 years, the figures given are:
Initial value of house $500,000 Initial cash payment (deposit) to owner $ 92,700 Sale after 15 years, assuming value increased at 10% $2,088,624 Financier’s share of sale proceeds $ 626,587 $150,000 compounded at 8% to 15 years $ 475,825
In the example, 50% of the difference between the last two figures is paid by the financier to the estate – presumably by way of a sharing of “unanticipated” profit. In any event, this aspect of reverse mortgages is treated by the specification as being known.
The second variation occurs if death occurs much earlier than anticipated. By way of illustration, in the above example if the aged person died a month after entering the agreement, and the asset was sold at the estimated value of $500,000, the aged person would have received $92,700, whilst the financier is entitled to the 30% share of the sale proceeds – that is, $150,000. The $92,700 cash payment would be seen, in such circumstances, to have been extremely expensive money; and the effective annual interest rate could be extremely large.
The present invention is said to be directed to ameliorating this second variation. The invention provides, in the circumstances of early death or settlement, for there to be an ‘early proceeds rebate’. The specification states:
The principal function of the early proceeds rebate is to ensure that the cost of funds should not be excessive in the case of an early sale of a home.
and
…the cost of funds should not be excessive if house price growth is in accordance with the pricing assumptions and furthermore should not be too low in the event that house price growth has been less than assumed under pricing assumptions. In other words, if the application of the maximum early proceeds rebate causes the cost of funds to fall below a specified minimum rate the early proceeds rebate will be reduced. The early proceeds rebate cannot exceed the initial discount nor be less than zero.
The specification ends with 5 claims. During the hearing I raised certain issues with regard to the scope of claim 1, and the applicant provided a revised claim 1 – with a request that I consider both claims. The two versions of claim 1 are as follows – the second version differing from the first by setting out the mathematical basis on which the early proceeds rebate is calculated.
Version 1
A method of releasing equity in real property, said method comprising the steps of:
· A purchaser paying a vendor a deposit representing a percentage of the purchaser’s share of expected future sale proceeds from the property whereby the vendor releases equity in the property;
· The vendor voluntarily, or their estate after death, selling the property and the purchaser receiving the specified share of the sale proceeds; and
· Where the sale is effected prior to an anticipated date, payments of an early proceeds rebate to the vendor, the early proceeds rebate being a percentage of the difference between the purchaser’s share of the market value of the property, and the deposit.
Version 2 {with a drafting alternative in brackets}
A method of releasing equity in real property, said method comprising the steps of:
· A purchaser paying a vendor a deposit representing a percentage of the purchaser’s share of expected future sale proceeds from the property whereby the vendor releases equity in the property;
· The vendor voluntarily, or their estate after death, selling the property and the purchaser receiving the specified share of the sale proceeds; and
· Where the sale is effected prior to an anticipated date, computation {calculation}of an early proceeds rebate to the vendor, the early proceeds rebate being derived from the lesser of a property index amount and an interest index amount computed {calculated} according to respective formulae:
A(1+B)n – C(1+D)t; and
E–C(1+F)t ,Where A is a number representing the purchaser’s share of the market value of the property when the deposit is paid, B is a number representing an assumed property growth rate when the deposit is paid, C is a number representing the deposit, D is a number representing the vendor’s target maximum cost of funds, E is the purchaser’s share of the actual sale proceeds, F is a number representing the vendor’s target minimum cost of funds, n is a number representing the period in years from the payment of the deposit to sale of the property, t is a number representing the period in years from payment of the deposit to the purchaser receiving their share of actual sale proceeds, and wherein the computed early proceeds rebate is not greater than (A-C) and is not less than zero.
In construing these claims it is important to recognise that there are two ‘sales’ involved. The first is the initial notional sale of a part interest in the property, where the financier pays the property owner a ‘deposit’; that sale is not completed until after death. The second sale, after death of the owner, is a ‘real’ sale – to a person different from the financier.
The specification of the parent Innovation Patent includes, as a preferred embodiment, a sample Contract which embodies the principle of the present invention (at pages 14 to 26). Interestingly the present specification does not include this sample contract. Despite this, it is readily apparent from the present description that the invention fundamentally relates to the terms under which a financier is prepared to provide cash. And to the extent that such terms are usually given effect by way of a contract, the invention relates to the basis on which terms in a contract might be set.
SUBMISSIONS
The only issue for consideration is whether the present invention relates to a manner of manufacture as defined by s.6 of the Statute of Monopolies. While the examiner has referred to several documents in his examination report, no objection of lack of novelty, or lack of innovative step, are pressed. Similarly, to the extent that the NRDC decision (which I will discuss below) refers to economic considerations, I am of the view that this invention is of economic value – in the sense that it relates to a product that is traded in a commercial environment.
The examiner objected to the present claims relying upon my decision in re Grant 62 IPR 143. In support of this objection, and in response to a challenge from the applicant, the examiner cited some laws of the state of Carolina in the USA that regulates Reverse Mortgages. However it is fair to say that, unlike Grant, the present invention does not rely on the existence of laws having overlapping and potentially conflicting effect.
The applicant argued that the present invention was distinguished from Grant on the basis that the invention did not rely upon a ‘legal loophole’. To the extent that Grant indicates a need for there to be some element of technology involved, the applicant argued that this was incorrect. But if it was correct, the technology was said to reside in the mathematical expressions used to determine the basis of the rebate.
Further, while not raised at the hearing, the applicant might argue that the invention was a ‘vendible product’ as per Morton’s rules, noting that the specification refers to the preferred embodiment as the ‘HELP product’. That is, the result of the invention was a product that was being commercially sold.
Subsequent to the hearing, the patentee provided further submissions on the issue of manner of manufacture, consequent upon the discussion that occurred at the hearing.
THE NRDC DECISION
Central to any discussion of the issue of manner of manufacture is the decision of the High Court in NRDC 102 CLR 252. In Grant I observed (para 25) that “The history of the development of 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.” The patentee argued that Grant was effectively decided on a different basis, and noted the discussion in NRDC bridging pages 263 and 264 where it states:
‘It only confuses issues’ the learned Justice said, ‘to introduce such terms as ‘the work of nature’ and the ‘laws of nature’. For these are vague and malleable terms infected with too much ambiguity and equivocation. Everything that happens may be deemed ‘the work of nature’…..
with the clear inference that my assertions about the discovery of laws of nature or the application of technology based on the laws of nature were not well founded.
In considering the requirement for a manner of manufacture, the High Court noted that the phrase ‘manner of manufacture’:
… defines the word “invention”, not by direct explication and in the language of its own day, nor yet by carrying forward the usage of the period in which the Statute of Monopolies was passed, but by reference to the established ambit of s.6 of that Statute. The enquiry which the definition demands is an enquiry into the scope of permissible subject matter of letters patent and grants of privilege protected by the section. It is an enquiry not into the meaning of a word so much as to the breadth of the concept which the law has developed by its consideration of the text and purpose of the Statute of monopolies.
The High Court noted that it was a mistake to interpret the definition by focussing on the word ‘Manufacture’, and stated that 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?
Following this, there is a discussion of Morton’s Rules, of which the High Court states (at page 276):
It is, we think, only by understanding the word “product” as covering every end produced, and treating the word “vendible” as pointing only to the requirement of utility in practical affairs, that the language of Morton J.’s “rule” may be accepted as wide enough to convey the broad idea which the long line of decisions on the subject has shown to be comprehended by the Statute.
The essential question is – what is proper subject matter for the grant of a patent? In the present case the patentee argues that:
it is sufficient that the invention involves “an end produced” or a “state of affairs” which is artificially created, in the sense that it is a result that did not naturally exist in the recognised field of endeavour prior to the development of the invention.
If the patentee is correct in this, I observe that the ambit of patentable subject matter is considerably greater than traditionally accepted. For example, a typical contract for the provision or performance of services provides for an artificially created state of affairs (the relationship between the parties only exists as a result of the contract). And the contract is an economic endeavour as its purpose is the provision of services for reward. Accordingly contracts as routinely used in business affairs would be proper subject matter for the grant of a patent – with the only reason for rejecting patentability being novelty and inventive step.
The approach taken by the patentee reflects a passage in the NRDC decision that refers to artificially created state of affairs. I note that ‘artificial’ is defined in the Macquarie dictionary to mean ‘made by human skill and labour (as opposed to natural)’. Taken in isolation, an artificially created state of affairs is anything that is not natural – so that any endeavour by man would be proper subject matter for a patent. But clearly this is not the case.
Factually, the NRDC decision was concerned with an agricultural process against a background where such processes were held as non-patentable. The argument that had been used by the Commissioner to reject patentability was based on the so-called Morton’s rules [G.E.C. (1942) 60 RPC 1 at 4]:
In my view a method or process is a manner of manufacture if it:
(a) results in the production of some vendible product; or
(b) improves or restores to its former condition a vendible product; or
(c) has the effect of preserving from deterioration some vendible product to which it is applied.
The NRDC decision arose out of the Commissioner’s contention (supported by a line of UK precedent) that a weed-free tract of land was not a vendible product as required by Morton’s rules. Whilst overturning the Commissioner’s decision, the High Court nevertheless approved of Morton’s rules, subject to some important qualifications. Firstly, it noted with regard to the concept of a ‘vendible product’ (at page 275):
…. The underlying idea seems to be the same as that which Evershed J suggested in Rantzen’s case [(1946) 64 RPC at 66], where he spoke of the expression “vendible product” as laying proper emphasis upon the trading or industrial character of the processes intended to be comprehended by the Acts – their “industrial or commercial or trading character” as Lloyd-Jacob J himself described in Re Lenard’s Application [(1954) 71 RPC 190 at 192]
Then the court discusses the nature of a product (at page 276), with particular reference to the materiality of a product:
… if a process is to be a “manufacture”, the tenor of the passage {from Elton and Leda Chemicals (1957) RPC 267} seems to be that what is meant by a “product” in relation to a process is only something in which the new and useful effect may be observed. Sufficient authority has been cited to show that the “something” need not be a “thing” in the sense of an article; it may be a physical phenomenon in which the effect, be it creation or merely alteration, may be observed: a building (for example), a tract or stratum of land, and explosion, an electrical oscillation. It is, we think, only by understanding the word “product” as covering every end produced, and treating the word “vendible” as pointing only to the requirement of utility in practical affairs, that the language of Morton J’s “rule” may be accepted as wide enough to convey the broad idea which the long line of decisions on the subject has shown comprehended by the Statute.
In my view this language shows that the High Court had in mind things that involved what I would call the application of science or technology, and the unpredictable extent of the application of science and technology in the future. I see no intention in this decision to expand patentable subject matter to all endeavours of mankind – just an elaboration of Morton’s rules so that they are relevant to new areas of application of science and technology.
On page 277 the court provides a discussion specific to the facts of the case, which again highlights the fact that the court was dealing with issues of science and technology:
Notwithstanding the tendency of those decisions, the view which we think is correct in the present case is that the method the subject of the present 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. This view is, we think, required by a sound understanding of the lines along which patent law has developed and must necessarily develop in a modern society. The effect produced by the appellant’s method exhibits the two essential qualities upon which “product” and “vendible” seemed designed to insist. 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, indeed to the lay mind a sensational advantage, for one of the most elemental activities by which man has served his material needs, the cultivation of soil for the production of its fruits.
I think it is a mistake to take the phrase ‘an artificially created state of affairs’ out of its context in the NRDC decision. In NRDC, the High Court was dealing with the question of whether a weed-free tract of land was an artificially created state of affairs. The phrase is used in the context of the proper interpretation of Morton’s rules. Historically, Morton’s rules were formulated at a time when most inventions were mechanical, chemical, or electrical. Since that time (and, indeed, since the NRDC decision) there are many new fields of technology – such as biotechnology and computing – that properly give rise to patentable inventions. I would describe the underlying concept of Morton’s rules as requiring the application of science or technology in some material manner. And the import of NRDC vis-à-vis Morton’s rules is about avoiding inappropriate fetters arising from terms like ‘vendible product’ that arise when science or technology is applied to new areas of endeavour. It is in this context that the phrase ‘artificially created state of affairs’ has relevance. It is artificial through the application of science or technology – not through the mere involvement of human endeavour in any manner or form.
This is further reinforced by the observation on page 271:
The truth is that any attempt to state the ambit of s.6 of the Statute of Monopolies by precisely defining “manufacture” is bound to fail. The purpose of s.6, it must be remembered, was to allow the use of the prerogative to encourage national development in a field which already, in 1623, was seen to be excitingly unpredictable. To attempt to place upon the idea the fetters of an exact verbal formula could never have been sound. It would be unsound to the point of folly to do so now, when science has made such advances that the concrete applications of the notion which were familiar in 1623 can be seen to provide only the more obvious, not to say the more primitive, illustrations of the broad sweep of the concept. {my emphasis added.}
By way of further illustration, and having regard to the primary test from NRDC of whether the alleged invention is a proper subject matter according to the principles which have been developed for the application of s.6 of the Statute of Monopolies, it is useful to set out the subject matter of manner of manufacture cases before the courts. In the following table I provide an indication of the nature of the subject matter for most of the decisions referred to in the NRDC decision, as well as a range of other decisions dealing with the question of manner of manufacture.
Case Subject matter Case Subject matter Hartley’s Patent (1777) 1 WPC 54 Fire-proofing by the application of metal plates Boulton v Bull (1795) 2 H Bl 463 Steam engine Hornblower v Boulton (1799) 8 TR 95; 101 ER 1285 Steam engine R v Wheeler (1819) 2B & Ald 345; 106 ER 392 Method of drying and preparing malt Forsyth v Riviere (1819) 1 WPC 95 Method of discharging firearms Hall v Jarvis (1822) 1 WPC 100 Improving the texture of lace Crane v Price (1842) 1 WPC 393 Use of anthracite in a blast furnace Electric Telegraph Co v Brett (1851) 10 CB 838; 138 ER 331 Method of giving duplicate electric signals Elias v Grovesend Tinplate Co (1890) 7 RPC 455 at 468 Machinery used in manufacture of tinplate Moser v Marsden (1893) 10 RPC 350 Improvements in gig mills Pirrie v York Street Flax Spinning Company (1894) 11 RPC 429 Method of spinning wet yarns Cooper’s Application (1902) 19 RPC 53 Leaving a space across the page of a newspaper to allow it to be folded Alsop’s Patent (1907) 24 RPC 733 Bleaching flour Hickton’s Patent Syndicate v Patents and Machine Improvements Co Ltd (1909) 26 RPC 339 Improvements in levers and go-through lace machines A.F’s Application (1913) 31 RPC 58 Use of a well-known substance as an insecticide W’s Application (1914) 31 RPC 141 Coloured or marked Navigation buoys Re BA’s Application (1915) 32 RPC 348 Use of urea nitrate as a fertiliser Hamilton-Adams’s Application (1918) 35 RPC 90 An agricultural process C’s Application (1920) 37 RPC 247 Music notation, distinguishing notes by shape and colour The D Company’s Application (1921) 38 RPC 397 Using a hydrocarbon fuel in an engine R’s applilcation (1923) 40 RPC 245 Index book divided into sections and having a special key index Re CGR’s Application (1924) 42 RPC 320 Improvements in Fertilizers AEW’s Application (1924) 41 RPC 529 Odometer Official Ruling 1926A (1926) 43 RPC i Board games – where only novel feature apart from the rules of the game is the markings on the board Johnson’s Application (1930) 47 RPC 361 Colouring of fertilisers to distinguish them Re Application by rau Gesellschaft (1935) 52 RPC 362 Selective cultivation of lupin seeds Re Johnson’s Application (1938) 55 RPC 4 Waterproof fabrics Maeder v Busch (1938) 59 CLR 684 Permanent waving of human hair Fishburn’s Application (1940) 57 RPC 245 Ticket with information printed in a particular layout Re Application by GEC (1942) 60 RPC 1 Fire extinguishing medium for incendiary bombs Re RHF’s Application (1944) 61 RPC 49 Extracting mineral oil from an oil-bearing deposit ESP’s Application (1945) 62 RPC 88 Layout of contiguous houses in a row Re Applications by Cementation Co Ltd (1945) 62 RPC 151 Preventing/Extinguishing subterranean fires Re Application by Bovingdon (1947) 64 RPC 20 Fumigation with an aerosol containing benzene hexachloride Re Appllication by Rantzen(1947) 64 RPC 63 Modulating an electric signal Reitzman v Graham-Chapman and Derustit Ltd (1951) 68 RPC 25 Electrolytic method of separating rusted parts Standard Oil Development Co (1951) 68 RPC 114 Improving a tract of land by applying a herbicide P’s Application (1924) 41 RPC 201 Printed sheet for use in a reflex machine, where the printing is backwards Littlewoods Mail Order Stores Application (1954) 71 RPC 185 Printed forms for use by the organiser of a home shopping club Re NV Philips Gloeilampenfabrieken’s Application (1954) 71 RPC 192 A new form of Poinsettia Elton v Leda (1957) 74 RPC 267 Dispersing fog Cobianchi’s Application (1953) 70 RPC 199. Pack of cards for Canasta Kelvin & Hughes’s Application (1954) 71 RPC 103 Special chart for Air Navigation Re Lenard’s Application (1954) 71 RPC 190 Pruning clove trees Re Virginia-Carolina Chemical Corp’s Application [1958] RPC 38 Process for destroying nematodes in soil Re American Chemical Paint Co’s Application [1958] RPC 47 Defoliating cotton plants before harvesting Swift’s Application [1962] RPC 37 Passing an enzyme through a carcass shortly after death Slee v Harris [1966] RPC 194 Computer when programmed (Method without the computer not allowed.) Hillier’s Application [1969] RPC 267 Layout for installation of utilities:
‘the issuance of instructions to a gang of workmen to dig excavations and lay conduits as indicated on a plan of a site cannot of itself constitute any development in a useful art….’Pitman’s Application (1969) 86 RPC 646 Teaching pronunciation of language. Arrangement of printed words had a ‘mechanical’ purpose Badger Company’s Application [1970] RPC 36 Method of mechanically designing and forming a visible drawing illustrating a piping system Gever’s Application [1970] RPC 91 Data processing apparatus Joos v Commissioner (1972) 126 CLR 611 Treatment of keratinous material – such as hair and nails Rhode’s Application [1973] RPC 243 Speedometer with an additional kinetic energy scale Burrough’s Corp (Perkin’s) Application [1974] RPC 147 - Method involving use of apparatus modified as programmed;
- Computer programs embodied in physical formI.T.S. Rubber Limited’s Application [1979] RPC 324 Blue squash ball Moore Business Forms Inc (1979) 49 AOJP 2521 Stationary with background bands of different colour International Business Machines Corp v Commissioner of Patents 22 IPR 417 Drawing a smooth curve on a computer screen:
(Claim construed as being confined to the operation of computers)Welcome v Catuity 51 IPR 327 Loyalty program using a smart card
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 – see, for example, Cooper’s Application, Fishburn’s Application, Pitman’s Application and Rhodes Application in the above table. Also I.T.S. Rubber Limited’s Application, and Moore Business Forms Inc, where the inventions (a squash ball of a particular colour; a printed form having background bands printed in particular colours) were based on properties of human optical perception.
Another consideration that arises is the distinction between useful art and fine art. At page 275 of NRDC, the High Court states:
The point is that a process, to fall within the limits of patentability which the context of 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.
citing with approval Re Virginia-Carolina Chemical Corporation’s Application (1958) 75 RPC 35 at 36.
The reference to fine art needs to be carefully understood. For example, a painting displayed in the National Art Gallery (that is, a piece of fine art) could conceivable be painted on a particular type of canvas, using special paints and dyes. Thus while the painting (being fine art) is not patentable, the canvas, paint and dyes are all inherently proper subject matter for a patent. Similarly a musical score will typically be printed on paper with ink – both of which are per se proper subject matter for a patent. That is, there is a difference between fine art and the material (if any) used to convey the fine art – and that difference is fundamental to the issue of patentability. The passage from Virginia-Carolina referred to in NRDC states (in discussing a number of criteria that came to be adopted as offering a convenient rule of thumb guide):
A second category (printed sheets and the like) was the subject of a Law Officer’s Direction in 1899 upon which Patent Office practice has since been based. In the course of time, the principle that the intellectual or visual content of a paper or card related to the fine and not the applied arts, and was accordingly outside the statutory definition of invention has been extended to cover additional articles e.g., cinematographic films and gramophone records, which differ only in the means whereby information is conveyed to the brain. Even where such information is of importance in describing or defining an operation to be performed on some apparatus it cannot be regarded as part of the performance itself and qualify as a manner of manufacture. If, however the marks as such are described to operate through appropriate means automatically to fulfil a commercial purpose, whether the means are mechanical, optical or electrical, they can properly be regarded as an integral part of a manner of manufacture and as such fit subject matter for patent claims.
In considering such statements, regard must always be had to how technology has subsequently evolved. For example, the subject matter of the patents discussed in IBM v Commissioner 22 IPR 417, Welcome v Catuity 51 IPR 327, and Genetics v Kirin-Amgen 41 IPR 325 was inconceivable at the time of the NRDC and Virginia-Carolina decisions, yet the boundary of what is patentable naturally has to be considered in the context of such current technology. In my view, the distinction between the fine arts and the useful arts is essentially a distinction between mere ideas (either as such, or as presented in some material form) and the application of those ideas in a technological context or purpose.
In particular, I consider the distinction between the fine arts and the useful arts as discussed in the NRDC and Virginia-Carolina decisions is whether or not the invention involves the application or use of science and/or technology in a material manner. For example, a vase is potentially an item of fine art. A vase made of particular materials selected for their physical effects would undoubtedly constitute a manner of manufacture. However a vase characterised by being aesthetically pleasing is not per se patentable subject matter through being merely fine art (although this may not be the case if the shape of the vase was based on a relevant studies of human physiology or psychology that led to a discovery that a vase with certain shapes was inherently aesthetically pleasing.)
I think this relationship is also inherent in the patentability of board games (which involves a relationship between a board and the rules of the game) and software (which is patentable subject matter so long as it is associated with a computer either explicitly, or by clear inference [as in IBM v Commissioner of Patents])
It is clear that it would be folly to attempt a precise definition of what is patentable subject matter. However it is also clear that the purpose of s.6 of the Statute of Monopolies was to encourage development in the fields of science and technology. This might occur as a result of the application of a discovery of a law of nature, or a principle of science. It might be by way of creation of a new device, chemical entity, electromagnetic field or other entity, or related processes. Or it might make use of some device or entity for some new purpose. Failing this, such an invention cannot be the proper subject of letters patent according to the principles which have been developed for the application of s.6 of the Statute of Monopolies.
I should add that the mere presence of science or technology in a claimed invention may not sufficient. For example, a method for the acquisition of a house that involved the step of ‘build the house’ – with all other steps setting out contractual relationships – would not in my view be sufficient. There would need to be some materiality in the inter-relationship between that element and the remaining features of the claim. In this regard I particularly note the relationship between a board for a board game and the rules for playing the game; and a computer and its software – both of which are (prima facie) manners of manufacture.
My views expressed above relate to the proper interpretation of the meaning of ‘manner of manufacture’. I am aware that in the practice of the European Patent Office there is a requirement for the presence of a “technical effect”. This requirement is of no direct relevance to interpreting the scope of manner of manufacture as used in the Patents Act 1990; however I do note that it is broadly consistent with the concept that patents for inventions relate to science and technology.
Peripherally, I note that the involvement of science and technology as an inherent part of manner of manufacture is also reflected in the requirements for registration as a patent attorney. Under sections 201(1) and 202 of the Patents Act 1990, registered patent attorneys have certain exclusive rights associated with inter alia preparing patent specifications. The qualifications required to be registered as a patent attorney are provided for by regulation 20.3 and Schedule 6. Schedule 6 currently specifies a degree or diploma ‘in a field of technology that contains potentially patentable subject matter.’ In 1991, Schedule 6 required a degree or diploma ‘in a branch of engineering or science’. Regulation 20(1) under the Patents Act 1952 required a degree ‘in a course approved by the Board in a branch of engineering or science’. The issue of technical qualifications was also discussed in the June 1996 Review of the Regulatory Regime for Patent Attorneys, at section 6.5 – where it was argued that the requirements should be expanded to include any science or engineering degree, but (in clear distinction) no technical qualification was required for a trade mark attorney.
I also observe that the history of manner of manufacture has been one of evolution (with periods where the legal interpretation of manner of manufacture did not keep up with the development of technology). Historically, business schemes and plans were generally considered to be non-patentable subject matter. [e.g. Wards Application (1912) 29 RPC 79, R’s Appln (1923) 40 RPC 465, Littlewoods Mail Order Stores’ Appln (1954) 71 RPC 185] The advent of computers has changed this, with the technology provided by computers providing the vehicle for patentable inventions involving processes used in business administration and the like. It would seem that some would argue that if a computer programmed to perform a business process is patentable – with all novelty residing in the software – that the business process per se should be patentable without requiring the presence of a computer (or any other element of technology). However this conclusion is premised on the concept of manner of manufacture not requiring the application of science and/or technology – merely an ‘artificially created state of affairs’ of any form.
MATHEMATICAL EXPRESSIONS / ALGORITHMS.
The patentee argues that the relevant element of technology in the present invention (should I find this to be a requirement) is the use of the mathematical expressions as illustrated in version 2 of claim 1 above.
Mathematics is fundamentally a language by which various issues can be expressed. In this respect one can identify a vast range of mathematical expressions which represent properties of the world in which we live. Some illustrative examples are:
E = Mc2 – Einstein’s relationship between mass and energy
PV = nRT– the Ideal Gas Law representing the relationship between pressure, volume and temperature of a gas.
– Newtonian gravity
All these equations are ways of representing the properties of the universe in which we live. And when someone discovers a hitherto unknown property of the universe (e.g. the optimum conditions for a chemical reaction), it may well be best represented by such mathematical expressions. It seems to me that inventions can properly rely upon such mathematical expressions as providing the relevant element of science or technology.
A second set of mathematical expressions relates to the properties of the number system. Some examples are:
a slowly converging series expression to derive the value of p
where e is the base of the natural logarithm
a series expression for the sine of an angle
Such expressions are often vital in the application of mathematics to the discovery of the properties of the universe – by providing the necessary tools. But I doubt that such expressions by themselves would provide the necessary element of science or technology.
A third use for mathematics is to represent the basis of agreements between people. For example, a financier will usually want to charge interest on money lent so as to make a profit. The amount repayable might be expressed as:
- simple interest, or
- compound interest
But such formulae are no more than a representation of the agreement between people of the basis for which business is to be conducted. In principle they are quite arbitrary; they have relevance only because people agree to do business on this basis. As such, I do not consider that such expressions by themselves provide the necessary element of science or technology
The issue of algorithms in patent claims can be a source of controversy. In my view, the important issue is not the presence of an algorithm or formula per se. Rather it is – what does the formula represent? Does it represent a property of the universe in which we live [which, in my view, was the case in (for example) Diamond v Diehr 209 USPQ 1 (1981)] Does it represent the basis on which things are designed to occur in a man-made device [as in IBM v Commissioner of Patents 22 IPR 417]? Or does it do no more than represent the basis on which people agree to conduct their affairs?
In the present case, the expressions used involve two approaches to computing the extent of inequity in the case of early sale, with the final result being the lesser value. At the hearing I asked why it should be the lesser value (which obviously would favour the financier). Why not the maximum (which would favour the ‘borrower')? Or an average? It was apparent that the choice was in fact quite arbitrary – beyond ensuring the financier maximised their gain whilst providing an element of greater equity in the arrangement.
In my view the mathematical relationships in the present invention do not relate to any of the properties of the universe in which we live. They do no more than set out the basis for offering a contractual arrangement between persons. And that arrangement, whilst having a rationale, is in fact quite arbitrary – the real consideration being whether the contractual offer would be seen as being attractive enough given the need of a relevant person to obtain access to cash.
The applicant sought to argue that, as expressed in version 2 of the claim, the presence of ‘computed’ or ‘calculated’ was sufficient to bring in the notion of technology – should that be required. In arguing this, they sought to draw analogies with IBM v Commissioner 22 IPR 417 –arguing that on a proper construction of the claim these words would bring with them the context of a computational environment. In the IBM case, Burchett J referred to the rules of construction as set out in Décor Corp Pty Ltd v Dart Industries Pty Ltd (1988) 13 IPR 385 at 400, and went on to state:
“If the present specification is read as a whole, it seems to me that there is a necessary inference confining claim 1 to the operations of computers.”
However in the present case there is no reference in the specification to the use of computers, let alone any description that by implication limits the invention to the use of computers or the like. Accordingly there is no basis to limit the scope of the claim to some form of computer implementation, or to construe the terms ‘computed’ or ‘calculated’ in such a manner. And this is apart from the issue of whether any such limitation in the present case would have sufficient materiality to the claimed invention as to render it a manner of manufacture.
DECISION
The claimed invention – in any of the versions of claim 1 – does not define a manner of manufacture. The mathematical relationship that gives rise to the invention does not relate to a property of the universe in which we live, or to the application of a law of nature. The claimed invention as a whole does not embody in any material manner elements of science or technology – including sciences such as psychology and human behaviour. The claimed invention is no more than a prescription of the basis of a contractual agreement between parties, based on mathematical expressions formulated to produce a more equitable arrangement.
It may be conceded that the alleged invention addresses a practical need in the affairs of people – and indeed creates a more equitable outcome compared to the prior art. It may also be conceded that the alleged invention meets the criteria of novelty and innovative step. But this is not enough. The criterion that an invention must be for a manner of manufacture is a real criterion additional to that of novelty and innovative step. The invention must be for “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”. In my view this requires at least some material application of science or technology. This is not present in any version of the invention claimed. Furthermore I am unable to ascertain any relevant subject matter in the specification, such that the claims might be amended to overcome the objection. Accordingly I revoke the Innovation Patent.
D Herald
Deputy Commissioner of Patents5 May 2005
Patent attorneys for the patentee : Blake Dawson Waldron
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