October 27, 2006

Software Industry prepares for key UK patent ruling this Friday

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London, 27 October 2006 – Today the UK Court of Appeal is expected to hand down its judgement in the cases of Macrossan’s Application and Aerotel vs. Telco. These cases are of vital interest to anyone concerned with the ongoing debate over the patentability of software and business methods in the UK and Europe.

Both of the cases at issue concern patents in the area of software and business methods and so the appeal presents a historic opportunity for the UK courts to reaffirm the clear exclusion of these areas from the scope of patentability as well as to send an important signal to legislators and patent officials at the European level.

Rufus Pollock, Director of FFII-UK said,

  • “We hope that the Court of Appeal will uphold the decisions of the judges at first-instance who found against the patents in both cases. We also hope that they will take this opportunity to clearly reaffirm the exclusions of software and business methods that exist in the European Patent Convention.

    This is particularly important for two reasons. First, innovation in the software and business sector both in the UK and across the EU must be protected from the damaging effects that patents would engender if allowed in these areas. Second, given the degree of controversy surrounding these matters in recent years it is crucial that Courts make it clear what the situation is.”

Contact Information

Rufus Pollock
Director, FFII-UK
+44 (0)7795 176 976
rufus.pollock _at_ ffii.org.uk

Background information

  1. Software and Business Method patents in Europe
  2. The patents in question
    1. Aerotel
    2. Macrossan

1. Software and Business Method patents in Europe

  • Computer programs and “rules, schemes, and methods for doing business” are specifically excluded from patentability under Article 52 of the European Patent Convention (1973), “to the extent that [an application] relates to such subject-matter or activities as such”.

  • The rule is “fudged” (Sir Robin Jacob, Stephen Stewart Memorial Lecture, 1996), to allow hardware when programmed to be patentable in some circumstances – if the application can be shown to represent a contribution to an area of technology beyond that areas specifically excluded.
  • The United States goes much much further, allowing patentability for anything which produces a “concrete, useful and tangible result”. This rules in the patenting of new programming techniques, computer implementations of business methods, and even it seems this week, new accounting strategies for tax minimisation.

  • The European Patent Office goes a little further than UK courts, generally allowing patents on new computer methods if there is an identifiable “technical” improvement. In contrast to the UK, such improvements need not be related to technological areas beyond those excluded by Art 52. Thus a general patent application for a faster method for calculating square-roots (Gale’s Application), which was ruled out in the UK, would probably be allowed by the EPO; whilst a new way of the highlighting the active player in a football video game, allowed in a recent EPO decision, would probably not be allowed by the UK. The UK approach can be seen to give software developers a “safe harbour” of subject matter, where they can make improvements without having to worry about possible patent risk.
  • In 2002 the European Commission launched a Directive to confirm the EPO approach across the whole of the EU. The Directive was strongly supported by many of the world’s largest software and industrial companies, and much of the patent legal establishment. But the Directive was strongly opposed by a majority of individual developers and smaller software companies who felt that patents would be a much greater threat than any benefit, and that large companies would hold all the trumps if it came to court cases. Some of the campaign and testimony sites from this time can still be found on the internet, such as:

The proposal was ultimately rejected overwhelmingly by the European Parliament in July 2005 (by 648 votes to 14)

  • Following the rejection of the European Directive, there has been a spate of cases about software and business method patentabilty in the UK High Court, mostly challenging UK Patent Office decisions to reject applications. The High Court has consistently confirmed the UK approach, and upheld the Patent Office in every instance.
  • However, High Court decisions do not establish binding precedents on other High Court cases while decisions by the Court of Appeal do bind lower courts. This week’s decisions will be the first time the Court of Appeal will have ruled on the questions of software and business method patentability since 1997, and are expected to give a definitive statement of the UK law in this area – either supporting the run of existing UK court decisions; or decisively striking out in a new direction.

2. The patents in question

In both cases, the patents in question relate to new software operating on conventional, known hardware; where the novelty rests entirely in the business or administrative logic being implemented.

1. Aerotel’s Patent

  • Aerotel’s patent is GB 217 1877, based on the state of technology in January 1985. It claims the making of telephone calls using prepayments. The essential idea is to have a telephone exchange which keeps a record of clients’ credit. Clients can then dial into the exchange, and have their calls completed for as long as they have credit to pay for them. It is accepted that the method would have been readily implemented using an electronic control exchange of a kind that had been available in Britain from the 1970s. Only the novel business logic programmed into the exchange is new.

  • Aerotel has sued Telco for patent infringement. However, in the High Court, Judge Lewison granted Telco’s application for summary dismissal, and revoked the patent, finding that it did indeed describe no more than a method of business. ([2006] EWHC 997 (Pat))

2. Macrossan’s Application

  • Macrossan’s application is EP1346304 / GB 2388937 / application GB314464.9 It has been described by one software contractor as an absolutely conventional “fill-in-the-blanks website that picks the right docs based on guided answers, then fills them in appropriately and disgorges them wherever required”. The only new idea was to apply this to the documents needed to incorporate a company.

  • Macrossan’s patent application was rejected by the UK Patent Office. In the High Court, Macrossan appealed against this rejection, but the appeal was dismissed by Judge Mann, finding that although not specifically a business method, it was a method of performing a mental act by a computer. ([2006] EWHC 705 (Ch))
  • Macrossan has also applied for a European Patent, which could still be granted for countries in Europe outside the UK. The European application has not yet been decided by the EPO.

Summary

  • It seems likely, on current caselaw, that both patents would probably today be rejected by the EPO as not containing anything novel beyond new administrative or business logic, with solely administrative and business consequences. But the approach taken by the Court of Appeal will be seen as an important commentary on EPO practice, and may significantly affect future developments.
  • At stake is not only what the Court of Appeal decides, but how it decides it. Even if both patents are dismissed, software developers will be looking particularly closely at whether the Court reaffirms the UK’s traditional more restrictive and more literal reading of Article 52, or whether its argumentation follows the more permissive reading of the EPO.

About the FFII

The Foundation for a Free Information Infrastructure (FFII) is a not-for-profit association registered in twenty European countries, dedicated to the development of information goods for the public benefit, based on copyright, free competition, open standards. More than 850 members, 3,500 companies and 100,000 supporters have entrusted the FFII to act as their voice in public policy questions concerning exclusion rights (intellectual property) in data processing.

FFII-UK is the UK branch of the FFII.