FEDERAL COURT OF AUSTRALIA

Watson v Commissioner of Patents [2020] FCAFC 56

ORDERS

THE COURT ORDERS THAT:

1.    The application for leave to adduce additional evidence on the application for leave to appeal be refused.

2.    The application for leave to appeal be refused.

3.    The respondent provide written submissions on costs not exceeding three pages within 7 days.

4.    The applicant provide submissions in reply on costs not exceeding three pages within a further 7 days.

5.    Costs be determined on the papers, unless otherwise ordered by the Court.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

1    The applicant, Mr Watson, seeks leave to appeal from a decision dismissing an appeal from a decision of the delegate of the respondent, the Commissioner of Patents. Leave is required pursuant to s 158(2) of the Patents Act 1990 (Cth). The delegate (under s 101F(1)) revoked Innovation Patent 2017101681 entitled “A Method of Innovation” on the basis that none of the claims was for “a manner of manufacture” within the meaning of s 6 of the Statute of Monopolies 1623 (UK). The primary judge agreed and concluded that all the claimed invention did was to set out an abstract idea, and no more, for a business scheme or model, which, as merely a business idea, was not patentable: D'Arcy v Myriad Genetics Inc (2015) 258 CLR 334 and National Research Development Corporation v Commissioner of Patents (1959) 102 CLR 252 (NRDC).

THE ACT

2    Section 18(1A)(a) of the Act provides, relevantly, that:

… an invention is a patentable invention for the purposes of an innovation patent if the invention, so far as claimed in any claim:

(a)    is a manner of manufacture within the meaning of section 6 of the Statute of Monopolies; …

Section 6 is an exception to the declaration in s 1 of the Statute of Monopolies that all monopolies “are and shall be utterly void”.

THE PATENT

3    The specification to the Patent is entitled “A Method of Innovation” and sets out both a general description of the scheme and a definition of the invention comprising of five claims.

4    Claim 1 is in the following form:

A method of innovation comprising the steps of an organisation engaging with an innovation services provider to innovate, said organisation disclosing aspects of the organisation to said innovation services provider and specifying a financial return to said innovation services provider for said innovation, wherein said innovation services provider describes or defines … said innovation as a corresponding IP right prior to its disclosure to said organisation and the amount of said financial return is determined, at least partially, from the value or benefit or advantage of any sort or any other consideration or value of any kind to said organisation of said IP right.

5    Claim 2 follows a similar form, but is set out from the perspective of the innovation services provider. Each of the claims 3, 4 and 5 depend on claim 1 or claim 2. Claim 3 claims “[a]n IP right description or definition” deriving from “a method of innovation of claim 1 or claim 2”. Claim 4 claims “[a]n agreement relating to said method of innovation or said IP right description or definition … of any one or more of claims 1 to 3”. Claim 5 imposes a limitation upon each of claims 1, 2, 3 or 4 that the IP right description or definition in each of those claims comprises “a patent application”. The inclusion of this phrase “a patent application” is one significant aspect in the context of the present appeal.

6    Part of the argument for Mr Watson depends upon defining the innovation right as being a “registered [patent or other] application”. The claims, however, do not say this. The language does not specify or suggest that an application is registered, let alone filed. Another part of Mr Watson’s argument is that it is a feature of the claim that the innovation services provider (the innovator) acquires ownership of the IP right. But, again, the claim does not say that. Absent specifying in terms that the IP right is to be owned by the innovator, Mr Watson’s claimed method cannot be determinative of ownership, which, depending upon the IP right involved (that is, whether it is copyright, patents, confidential information etc) will be determined on the facts and law of the particular case.

THE PRIMARY JUDGMENT

7    The primary judge had no difficulty in rejecting the argument that there was a manner of manufacture. His Honour referred to examination reports (at [4]) which concluded that the invention was a business model and that decisions, including NRDC and Grant v Commissioner of Patents (2006) 154 FCR 62 and Commissioner of Patents v RPL Central Pty Ltd (2015) 238 FCR 27, established that the claimed invention or innovation could not be patentable.

8    His Honour also noted that the delegate identified five integers in the method of innovation in claim 1:

(1)    an organisation engages with an innovator to innovate;

(2)    the organisation discloses aspects of the organisation to the innovator;

(3)    a financial return to the innovator for the innovation is specified;

(4)    the innovator defines the innovation as an IP right prior to its disclosure to the organisation; and

(5)    the financial return is at least partially based on the value/benefit/advantage to the organisation of the IP right.

9    Mr Watson submitted to the primary judge, as he did on this application, that the objective to be achieved was a reduction in the cost and risk borne by an organisation in defining an innovation as an IP right by transferring that responsibility to the innovator whose financial return is calculated by reference to the value of the right to the organisation. This would necessarily be by agreement between the parties. It is hard to see that this would not be by way of a contract between the parties, but Mr Watson disagrees with this characterisation. Little turns on that point and it is unnecessary to consider it further here.

10    Mr Watson argued, drawing on NRDC, that the significance of the product was that it provided an advantage. The purpose was to provide an alternate to the traditional means by which clients of limited resources engage intellectual property professionals. Here, the intellectual property professional, being the innovator, would innovate or define an invention for the client and convert it into property in the form of a recognisable right without the requirement for the organisation to pay ordinary commercial fees for those services as and when the services were rendered over a period of time. Those fees instead are derived from the value or benefit of the innovation to the organisation and payable to the innovator at a later time.

11    His Honour discussed the principles in the leading cases already mentioned and also referred to the decision of the Full Court in CCOM Pty Ltd v Jiejing Pty Ltd (1994) 51 FCR 260 where Spender, Gummow and Heerey JJ (at 265) said that “intellectual conceptions become patentable only to the extent that they have been embodied in technical applications”. They repeated the expression of Professor Lahore in “Computers and the Law: The Protection of Intellectual Property” (1978) 9 Federal Law Review 15 (at 22-23) that “business, commercial and financial schemes … which are mere records of intelligence” have “never been considered to constitute a patentable invention”. That statement was also adopted in Grant by Heerey, Kiefel and Bennett JJ (at [14]). Their Honours went on to say (at [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. By contrast, the alleged invention is a mere scheme, an abstract idea, mere intellectual information, which has never been held to be patentable, despite the existence of such schemes over many years of the development of the principles that apply to manner of manufacture. There is no physical consequence at all.

12    Therefore, in Grant, Mr Grant’s asset protection scheme was not patentable because it was mere intellectual information concerned with providing working directions and a scheme. A useful product was missing from the alleged invention.

13    The primary judge also examined the more recent cases of Research Affiliates LLC v Commissioner of Patents (2014) 227 FCR 378, where Kenny, Bennett and Nicholas JJ said (at [10]) that “the mere taking of sequential steps may represent only a collocation of integers rather than a new combination” and that “[m]ethods may involve ingenuity and imagination … which ‘could well warrant the description of discoveries. But they are not inventions ([Grant] at [34])’”. His Honour also referred to RPL (at [96]-[[98] and [101]-[102]).

14    His Honour concluded (at [26]) that the method in claim 1 was nothing more than a description of a business method for an organisation to engage an innovator in a contractual relationship to produce a result being an IP right, for an undefined consideration. His Honour said it was a description of how to negotiate a vague and imprecise arrangement and provided no identifiable remuneration structure. Further, it seeks to assert a monopoly over the engagement of an innovator, being an intellectual property professional to “innovate” on behalf of an organisation for an undefined reward, possibly payable upon the innovator creating and disclosing an identifiable IP right that may be of benefit to the organisation.

15    After observing (at [27]) that such field of activity has never been the subject of a patent or statutory monopoly granted by force of a patent, his Honour said that to allow such a claim to form the basis of a monopoly would have a chilling effect generally on innovation and the engagement of intellectual property professionals.

16    The primary judge had difficulty with the fact that one would not know until the innovator had performed the assignment whether or not any IP right could be created. The method of the invention so claimed would have to be followed to its end point before a person would know whether or not the initial engagement of the innovator fell inside or outside the monopoly claimed in the Patent, depending on whether at the end of his or her work, the innovator produced an IP right of value to the client organisation. Such uncertainty would create a “chilling effect” on all intellectual property professionals who did not have a licence from Mr Watson because they would be at risk of infringing the Patent if they followed the supposed method and succeeded in producing a useful result, namely, an IP right for an organisation.

17    His Honour also observed (at [28]) that the idea of providing remuneration on the basis of success was nothing new. Nor was the combination of such a method of remuneration with the engagement of an innovator to produce an IP right. Such a process did not give the method any characteristic of being a manner of manufacture. All that claim 1 and claim 2 provided was an abstract scheme or idea that involved a “collocation or combination of well-known steps”, that did not produce any material or tangible product.

18    The primary judge described as specious Mr Watson’s argument that because an IP right may be produced, the invention produced a useful physical result. In fact, he said the claims amounted to no more than assertions of a method or scheme that might possibly produce a result. His Honour also described as “specious” the argument that the invention expresses a method to arrive at a price. His Honour noted that the claims said nothing about how the price was to be calculated and leaves further negotiation in the hands of the parties. The reward was no more than a fee to be agreed based on indeterminate criteria. His Honour said that this would produce a further “chilling effect” on those involved in providing innovation services and those seeking out those services on a fee–based reward or on a result or other contingency basis because all those persons would infringe if the innovator succeeded in producing an IP right that the organisation wanted and agreed to pay for, but would not, if that outcome did not occur, even if the innovator did create an IP right, but it was of no value or use to the organisation or the two could not agree on the reward.

PROPOSED DRAFT GROUNDS OF APPEAL

19    The proposed draft grounds of appeal were to this effect:

    First, that the primary judge erred in finding that the method was an abstract scheme, involving a collocation or combination of well-known steps that did not result in a material or tangible product.

    Secondly, the primary judge erred in determining that any result of the method was illusory; that the claims lacked well defined boundaries and were not patentable; that the patent would produce a chilling effect; and that claim 1 and claim 2 required contractual obligations.

    Thirdly, the primary judge erred in failing to consider the circumstances inherent in the invention. The IP right created would be owned by the innovator. Therefore, inherent in the invention was the creation of two tangible products, one being the IP rights or innovation generated and the second being the financial return for the use of those rights by the organisation arrived at by the mechanism.

AN APPLICATION TO RELY ON FRESH EVIDENCE

20    Mr Watson sought to adduce fresh evidence on the application. That was said to be justified on the basis that, at [27], the primary judge said that the field of activity has never been the subject of a patent or statutory monopoly granted by force of a patent (the Observation). The field referred to was the field discussed at [26] of his Honour’s reasons, to which reference has been made, but is set out again for convenience:

In my opinion, the method in claim 1 is nothing more than a description of a business method for an organisation to engage an innovator in a contractual relationship to produce a result, being an IP right, for an undefined consideration. In substance, it is a description of how to negotiate a vague and imprecise arrangement, and provides no identifiable remuneration structure. The claim seeks to assert a monopoly over the engagement of an innovator (being an intellectual property professional) to “innovate” on behalf of an organisation for an undefined reward, possibly payable upon the innovator creating and disclosing an identifiable IP right, that may be of benefit to the organisation.

21    What was sought to be relied upon in his leave application were hundreds of pages of patent documentation to disprove, by way of challenge, the content of the primary judge’s Observation. Mr Watson claimed that there was no evidence before the primary judge which would warrant the Observation and, to the contrary, there were many such patents in the field. It was also explained that the evidence was not available at trial because the Observation advanced by the primary judge was based upon the Commissioner’s submissions filed only a short time prior to the hearing.

22    We rejected the application to adduce new evidence on a number of grounds. Aside from the extraordinary unworkability of examining numerous patents and patent specifications to determine:

(a)    whether they disprove the Observation by his Honour; and

(b)    whether or not each of those patents was in fact valid,

the proposition on which the Observation is based has always rested at the heart of the dispute between the parties. It is the premise behind the reasoning given by the delegate for rejection of the Patent as containing no manner of manufacture.

23    Had the material been relevant and admissible, which it is not, it should have been relied upon at first instance as there was ample opportunity to do so after the delegate’s ruling. We stress, however, that it would, in any event, be of no assistance in determining the validity of this Patent as the mere fact that various patents have been applied for or granted by no means proves that they are valid. As such, the exercise in examining such patents would have been quite pointless. No other proper basis for relying on fresh evidence on the application (or any appeal) was identified. Leave to adduce fresh evidence was therefore refused.

MR WATSON’S ARGUMENTS

24    Mr Watson stresses the importance of both the IP right and the financial return, arguing that a necessary step in the method of the claims is the description of the innovation as a corresponding IP right in a preferred form. As a result of the innovator performing the process of creating the innovation and registering it prior to disclosure, the innovator owns the IP right instead of the organisation owning it. Mr Watson argued that the primary judge did not recognise the importance of this consideration and further that his Honour erred in concluding that a contract would be required, contending instead that the need for a contract would only arise at the time of negotiating the remuneration of the innovator.

25    Mr Watson relied on Grant (at [26]), where the Full Court said that:

We do not consider that the question here is whether a business system, in the sense of a system for use in a business, is or is not patentable. Patent protection is afforded to an invention that complies with the requirements of the Act, including manner of manufacture. The fact that a method may be called a business method does not prevent it being properly the subject of letters patent: see Catuity at [125]-[126].

26    The emphasis on some kind of material advantage being achieved was referred to in Research Affiliates (at [102]) and reference to a new class of claim, which involves an extension of the concept of manner of manufacture, was made by the High Court in Myriad.

27    Further, it was argued that the invention had a useful effect in that it solved a number of technical problems, namely, the problems of:

(a)    an organisation seeking to improve its business processes and/or innovate without significant upfront expenditure;

(b)    improving business processes and systems without in-house innovation teams;

(c)    comparing different proposals for innovation without significant expenditure; and

(d)    paying for IP protection from the revenue associated with the improvements gained by that IP protection.

28    Mr Watson accepted that there are other methods of deferring costs for IP services as the primary judge noted, but he argues the invention is a new method of solving these problems, and on that basis is useful and patentable.

CONSIDERATION

29    The parties do not differ on the content of the law. The main focus of Mr Watson’s argument is the application of the law by the primary judge to the facts in question.

30    It may be accepted that

    the concept of manner of manufacture has been developed by the courts in accordance with the common law methodology: Myriad (at [5], citing NRDC (at 269));

    establishing manner of manufacture is a question of characterisation based upon the substance of the invention: Myriad (at [6], [87]-[88] and [94] and common law reasoning by analogy);

    to approach the matter otherwise would be contrary to the deliberate legislative intent to leave manner of manufacture flexible: CCOM (at 289B-289E);

    the notion of an artificial effect of economic utility should be taken as a guide rather than a rigid formula based on a mechanistic approach and satisfying that formulation may not be a sufficient answer in all cases: Myriad (at [20]-[24]);

    a mere abstract idea or scheme is not within the “established ambit” of s 6 of the Statute of Monopolies: Grant (at [16], [22]-[24), Myriad (at [124]); and

    in the recent Full Court cases that have considered the patentability of inventions involving computers, (Research Affiliates and RPL and Encompass Corporation Pty Ltd v InfoTrack Pty Ltd [2019] FCAFC 161), the Full Court has focused upon the computer’s role to ascertain whether the claimed invention involved “something more” than an abstract idea or scheme: Research Affiliates (at [116]), RPL (at [96]) and Encompass (at [99]-[102]).

31    Although Mr Watson relies on NRDC, his claim is quite different. NRDC involved a practical application of the ideas of “eradicating weeds from crop areas” (at 261). The artificial effect was physically created on the land. It included a technical innovation. In Grant, the abstract idea of the claimed invention fell outside the ambit of patentability as the notion of asset protection produced no artificial effect. Indeed, the substance of the scheme in Grant is analogous to Mr Watson’s claimed invention. Problems solved by the claim, as claimed by Mr Watson, are in fact business or financial issues potentially faced by an organisation, not technical problems solved by the claimed method. At most, the claimed invention is a business innovation, not a technological or technical innovation.

32    The plurality in Myriad (at [29]) observed that the purpose of the Act “would not be served by according patentability to a class of claims which by their very nature lack well defined boundaries or have negative or chilling effects on innovation”. Nonetheless, it cannot be accepted that claim 1 falls within a new class of innovation. Claim 1 of the Patent is nothing more than a description of a business method and, in substance, a description of how to negotiate a vague and imprecise arrangement which provides no identifiable remuneration.

33    His Honour did not err in concluding that:

    the method in claim 1 and claim 2 is merely an abstract scheme or idea involving a collocation or combination of steps, which do not result in a material or tangible product referring to the language in Grant (at [30]) and Research Affiliates (at [115]-[116] and [119]). It is no more than assertion of a method or scheme that might produce a result and one in which “no specific right or product is necessarily created by following the method” (at [30] of the primary judgment); and

    the reward referred to in the Patent is no more than a fee to be agreed based on indeterminate criteria that appear to involve the formulation of a subjective value judgment by the organisation of the IP rights’ worth to it, “independent of the actual value of the IP right itself”.

34    The claim is a description of an idea, said to be new, as to how parties might go about organising their affairs in relation to the creation of an intellectual property right and payment for it. There is no greater specificity or substance in the claim than that.

35    In relation to claim 2, even if the arrangements did not require a contractual relationship in the first instance, there is nothing in his Honour’s reference to contractual relationships which affects the correctness of his conclusion.

CONCLUSION

36    For the reasons above, the appeal would have no prospect of success. Leave to appeal will be refused. The parties will be heard on costs.

Associate:

Dated:    30 March 2020