Let’s Get Physical! Australian Patent Office Wrestles With Method Claims

The Australian Patent Office appears to grappling with the requirement that a physical effect take place in order for a business method to be patentable.  This note sent by Bill Bennett of Pizzeys Patent and Trademark Attorneys raises interesting issues about the need for a “physical effect” as “the touchstone of patentability.”

The APO has issued a decision which has created uncertainty regarding the patentability of business methods.

Until recently, our advice to clients was that business methods were patentable in AU, provided that the claims were limited to execution of the business method in a computer environment.

The APO has now issued the Iowa Lottery decision in which the Deputy Commissioner of Patents concludes (at para 17) that:

I do not believe there is any authority in Australian law for the proposition that the mere identification of a physical effect is sufficient for patentability. (underlining added)

The decision can be viewed here:

The above reference to “physical effect” is a reference to the precedential decision of the Full Federal Court in the Grant case.  In 2006, the Full Federal Court concluded in the Grant case (at para 32) that:-

A physical effect in the sense of a concrete effect or phenomenon or manifestation or transformation is required. In NRDC, an artificial effect was physically created on the land. In Catuity and CCOM as in State Street and AT&T, there was a component that was physically affected or a change in state or information in a part of a machine. These can all be regarded as physical effects. (underlining added)


Thus, the Full Federal Court in Grant found that “physical effect” is the touchstone of patentability.  It is especially noteworthy that the Full Federal Court expressly referred with approval to cases where a business method was implemented in a computer environment such that performance of the method resulted in a “change of state or information” in a part of the computer.

We find it very difficult to reconcile the Deputy Commissioner’s statement in Iowa Lottery with the precedential statements of the Full Federal Court in Grant.  The apparent discord between the Deputy Commissioner’s view and legal precedent may ultimately only be clarified by further appeals to the Federal Court by patent applicants denied claims to business methods.

Until such time that the law is further clarified, our practical advice to applicants is to draft and claim inventions in the context of being a method of operating a computer (as opposed to being a business method which happens to be implemented in a computer).  Such description and claims should focus heavily on the changes in state or information which occur within the computer and should make these features central to the invention.  For cases which have already been filed in AU, we suggest re-drafting, within the limits of allowable amendments, to focus heavily on the changes in state or information that occur within the computer.

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One Response to Let’s Get Physical! Australian Patent Office Wrestles With Method Claims

  1. I am not sure that there is anything new or particularly controversial about this decision. Taking an otherwise unpatentable process (in this case a method of managing a prize pool in a lottery operated over multiple jurisdictions) and implementing it on a digital computer, without any additional new contribution or benefit over and above mere automation, is not sufficient to confer patentability.

    I believe that the Deputy Commissioner is correct: there is no authority for the proposition that simply identifying some physical effect brought about by a claimed method, no matter how incidental to the actual process (such as a mere change in internal state of a computer), is sufficient to confer patentability. The “approval” of the Full Federal Court in Grant extended only to a statement that in four prior cases (two of which were the US State Street and AT&T decisions) “there was a component that was physically affected or a change in state or information in a part of a machine” (at paragraph [32]).

    Reconciling this statement with the Iowa Lottery decision is not at all difficult: we conclude that a physical effect is a necessary, but not always sufficient, requirement for patentability.

    It is notable that this is the second decision issued this year by Deputy Commissioner Phil Spann in which he has rejected claims directed to a “business method” on subject matter grounds, by looking to the substance of the process rather than simply applying a “physical effect” threshold test. (The first was the Invention Pathways decision, issued back in July.)

    The message seems clear enough. For a computer-implemented business method to pass muster, the computer had better be doing something more than performing trivial storage and manipulation of information relating to non-physical (i.e. abstract) matters such as financial or legal arrangements.

    As the Full Federal Court pointed out in Grant: ‘For claimed computer programs, the courts looked to the application of the program to produce a practical and useful result, so that more than “intellectual information” was involved.’

    Since the Deputy Commissioner’s approach in both Invention Pathways and Iowa Lottery is to look to the underlying substance of the claimed process, I am not sure that recasting an unpatentable claim as “a method of operating a computer” would be helpful.

    Further commentary on both Invention Pathways and Iowa Lottery can be found on the Patentology blog:

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