The Federal Court of Australia has found a "new economy patent" valid and infringed, and has indicated that it is likely to uphold the patentability of business processes, finding that business processes should be subject to the same legal requirements for patentability as any other process or method.
Facts
Welcome Real-Time SA (Welcome Real-Time) was the proprietor of Australian Patent No. 712925 directed to a method of implementing merchants' loyalty programs using smart cards. Typically, merchants promote goods or services by offering rewards based on prior transactions, for example, according to the value of goods or services acquired or the frequency of the transactions. Rewards offered may include a price discount or the free supply of goods or services.
According to the patented method, each merchant's loyalty program is dynamically stored in a separate record of a behaviour file in the memory of a cardholder's smart card. Merchants' loyalty programs are added to the behaviour file by a point-of-sale terminal the first time that the cardholder uses the smart card at that merchant's store. Points acquired during transactions with each merchant are maintained in a points file in the memory of the smart card.
A discount coupon is generated if the total number of points contained in the points file exceeds a predetermined value. Catuity Inc. (Catuity) developed a system for electronic purse payments, ticketing and loyalty and incentive programs on a contactless smart card. The system was trialed in 1995 with buses, taxis and retailers in Sydney, and an upgraded system, known as the CiT/Transcard system, was subsequently launched in 1996.
Welcome Real-Time claimed the CiT/Transcard system infringed Australian Patent No. 712925. Catuity denied infringement and sought revocation of the patent notably by arguing that the invention the subject of the patent was not a "manner of manufacture" for the purposes of Section 6 of the Statute of Monopolies, which has been adopted as part of the definition of a patentable invention in the Australian Patents Act 1990.
Catuity argued that the patent covered no more than a method for using well-known integers - a smart card, the memory space on that card, computer programs, printers and readers - to implement familiar kinds of loyalty and incentive schemes for customers.
Decision
In Welcome Real-Time SA v Catuity Inc[1], the CiT/Transcard system was found to have infringed Australian Patent No. 712925. Significantly, Justice Heerey considered that the invention the subject of the patent was indeed a manner of manufacture and was not "generally inconvenience" (part of the test of patentable subject matter in Australia).
Justice Heerey noted the test developed in National Research Development Corporation v Commissioner of Patent[2] requiring that a patentable invention involves a mode or manner of achieving an end result which is an artificially created state of affairs of utility in the field of economic endeavour.
The leading United States decision dealing with the patentability of business processes, State Street Bank Trust Co v Signature Financial Group[3], was also considered. This case concerned a patent for a data processing system for implementing an investment structure. Mutual funds ("spokes") pooled their assets in an investment portfolio ("hub") organised as a partnership.
In State Street it was held that data processing system produced "a useful, concrete and tangible result" and constituted patentable subject-matter. Reliance had been placed on the judicially created "business method" exception to patentable subject matter, but the Court considered that business methods should be subject to the same legal requirements for patentability as applied to any other process or method.
Justice Heerey found State Street to be persuasive, in spite of the differences between United States patent law and the Statute of Monopolies. He noted though that what was disclosed by Australian Patent No. 712925 was "not a business method, in the sense of a particular method or scheme for carrying on a business - for example, a manufacturer appointing wholesalers to deal with particular categories of retailers rather than all retailers in particular geographical areas, or Henry Ford's idea of stipulating that suppliers deliver goods in packing cases with timbers of particular dimensions which could then be used for floorboards in the Model T. Rather, the Patent is for a method and a device, involving components such as smart cards and POS terminals, in a business; and not just one business but an infinite range of retail businesses."
Justice Heerey also noted the observation of Professor James Lahore[4] that business, commercial and financial schemes had never been considered patentable, and that a distinction has been drawn between the discovery of laws or principles of nature and their application to produce a particular practical and useful result.
Justice Heerey found that Australian Patent No. 712925 produced an artificial state of affairs in that cards can be issued making available to customers many different loyalty programs of different merchants as well as different programs offered by the same merchant, all of which is done instantaneously at each retail outlet. Moreover, he considered the result to be beneficial in a field of economic endeavour - namely retail trading - because it enables many merchants to use loyalty programs and thereby compete more effectively for business.
Catuity also argued that the Australian Patent No. 712925 was, within the meaning of the Statute of Monopolies, generally inconvenient as it placed a restraint on traders in developing and operating loyalty and incentive schemes which were "a commonplace way of doing business and had been so for many years in both the real and online worlds". It was said that the Welcome Real-Time was seeking to monopolise a series of known integers for the purpose of a particular kind of loyalty scheme and was thereby preventing other traders from seeking to use those integers or the same composition of them in their own customer loyalty schemes.
However, Justice Heerey noted that it can hardly be a complaint that others in the relevant field will be restricted in their trade because they cannot lawfully infringe the patent, the whole purpose of patent law being the granting of monopoly.
Orders
Justice Heerey's subsequent orders required Catuity to
(a) not infringe Welcome Real-Time's patent,
(b) pay Welcome Real-Time any damages suffered, or alternatively, the profits made by Catuity from the infringement of Welcome Real-Time's patent, and
(c) pay Welcome Real-Time's costs.
Interestingly, the Court not only found the claims of Welcome Real-Time's patent to be valid, but issued a certificate of validity of the claims (under s19 of the Act). The certificate strengthens the patent, and increases the likelihood of an interlocutory injuction being granted against any future potential infringers.
From its press release of 25 July 2001, Catuity seems unlikely to appeal the decision. However, the decision has forced Catuity to incur the expense and delay of changing its product so that it no longer infringes the patent, to close its existing Transcard operations in Western Sydney, and to pay money to Welcome Real-Time.
Importantly, Catuity have been prevented from using Welcome Real-Time's patented smart-card implemented loyalty program in its replacement system. Welcome Real-Time now has the exclusive right to use, or license the use of that program, leaving competitors such as Catuity to adopt arguably inferior, less commercially advantageous systems.
Implications
This decision confirms that business processes realised in a technical environment - in this case "involving components such as smart cards and POS terminals" - are patentable in Australia. Doubt still remains as to whether business, commercial and financial schemes per se are patentable in Australia. Most business process claims should include some technical limitation so that they will define patentable subject matter if future decisions specifically require them in business process claims.
However, given the complexity of most new business processes and the ubiquitous nature of technology in business today, a patent claim drafted to cover the implementation of the business process in a technical environment will frequently provide a de facto monopoly of the business process itself.
FOOTNOTES:
1. [2001] FCA 445 (17 May 2001)
2. (1959) 102 CLR 252
3. 149 F 3d 1368 (1998)
4. (1978) 9 Federal Law Review at 22-23
This newsletter provides a summary only of the subject matter covered, without the assumption of a duty of care by Freehills. The summary is not intended to be nor should it be relied upon as a substitute for legal or other professional advice.
September, 2001
|
