Software and business methods patents in Europe
Kirkland & Ellis International LLP, London
Even though the usual view of many companies is that software and business methods patents are not available in Europe, no fewer than 30,000 such patents have been granted at the European Patent Office (EPO) level over the years. This is as a result of the EPO developing a specific test (the technical contribution test) applicable to the definition of an invention when considering a software or business method patent. However, there is an ongoing debate, in particular in view of the proposed directive on the patentability of computer-implemented inventions (Directive), as to whether such patents should be allowed in Europe.
Basic legal position
The basic legal position is defined by Article 52 of the Convention on the Grant of European Patents (EPC):
“(1) European patents shall be granted for any inventions which are susceptible to industrial application, which are new and involve an inventive step.
(2) The following, in particular, should not be regarded as inventions within the meaning of paragraph 1:
(a) mathematical methods;
(b) schemes, rules and methods for doing business, and programs for computers;
(c) presentation of information.
(3) The provisions of paragraph 2 shall exclude patentability of the subject matter or activities referred to in that provision only to the extent to which a European patent application or European patent relates to such subject-matter or activities as such.”
As such, on its face, the EPC appears to prevent the grant of patents on software and business methods.
However, although methods for doing business and programs for computers are “as such” explicitly excluded from patentability, a method may still be patentable even if the claimed subject matter defines or involves a business method or a computer program. A number of key decisions over the last 15 years have defined inventions as including software-related inventions and business methods when such inventions met a "technical character" test.
The EPO first held in 1987, in the Vicom case, that the fact that an invention uses a computer program will not, in itself, exclude it from patentability. In that case, claims to a mathematical method for image processing were allowed. The EPO concluded that the method claimed made a contribution to the art in a field not excluded from patentability under Article 52 of the EPC. The process of enhancing images gave the claims a technical character. In 1998, the EPO held in the IBM case that patent protection for a computer program was available if such program had a technical effect beyond the way it operates the computer. In the Queuing System case, the EPO had found that a patent application for a system involving software for determining the queuing system for serving customers at plural service points was patentable. The EPO concluded that the problem the invention was solving was the means of interaction between the components of the systems (the terminals). This was a technical problem, and the invention had a technical character.
In the Sohei case, decided in 1996, the EPO held that a patent application directed to a computer system for handling financial and inventory management information could be granted. Even though the end use of the invention was a management process, the invention provided a new way of resolving a technical difficulty – a user interface by which input data containing different types of information could be processed. The invention had a technical character. However, in its decision in the Pension Benefits System case in 2000, the EPO held that a method for controlling a pension benefits programme (the method allowed the production of reports on the periodic benefits payments due to the employees enrolled in the scheme) could not be patented. All the features claimed were merely administrative or had an actuarial function and did not involve a technical character.
While European law has not embraced software and business methods patents with the same level of enthusiasm as recent US law, the technical character test developed by the EPO is not that dissimilar to the test adopted by the US Court of Appeal in the seminal case of State Street Bank & Trust Co v Signature Financial Group Inc. In that case, which concerned a patent application directed to a data-processing system for implementing an investment structure, the court held that the practical utility of the subject matter of the invention should be considered and that the determining factor was whether it produced a "useful concrete and tangible result". However, the general US approach is more favourable to software and business methods, as the “tangible result” test of the US Court of Appeal will not necessarily require a “technical character” as defined by the EPO – the EPO focusing more on finding a hard technical issue to resolve. This means that "pure" business methods patents will not be acceptable to the EPO. For example, under US law, if the “tangible result” of the invention is mathematical, this might be sufficient to meet the test of patentability, whereas to the EPO, such a result would not have a “technical character”.
The table above illustrates some examples of what will be considered a technical character.
Based on the case law of the Technical Board of Appeal, the Guidelines for Substantive Examination of the EPO have set out since 2003 a two-part test to determine whether a patent application on software or a business method should be granted, which is currently followed at the examination stage:
(1) The examiner should concentrate on the invention's content to identify whether it, considered as a whole, has a technical character. If not, the application must be rejected.
(2) If the technical character of the invention can be established, the examiner should consider if there is an inventive step:
(a) the examiner must establish the existence of an objective technical problem;
(b) the solution to this problem constitutes the invention's technical contribution to the art; and
(c) if there is such a technical contribution, then the technical character test is satisfied and there is a patentable subject matter.
It should be noted, however, that the approach of the EPO is not being followed in all EU member states and that even if a patent is granted by the EPO, there is a fair chance that it will be rejected at the national level in at least certain member states, in particular the UK. Without a European directive on the issue, national courts are taking different approaches as to what is a technical character.
Proposed Software Patent Directive
The proposed Directive currently reflects the common position agreed in May 2004 by the Competitiveness Council and, if adopted, will provide that a "computer-implemented invention" is patentable subject to the usual conditions for patentability, one of the conditions being that the invention must involve an inventive step.
It is through a new definition of what will amount to an inventive step which will apply to computer-implemented inventions that the Directive will exclude from patentability inventions that merely involve a computer program and do not provide effects beyond the normal physical interactions between a program and a computer or network. The Directive will stipulate that, in order for an inventive step to exist in a computer-implemented invention, such invention must make a technical contribution. A technical contribution will be defined as a contribution to the state of the art in a technical field which is not obvious to a person skilled in the art. The technical contribution will need to be assessed by consideration of the differences between the scope of the patent claims considered as a whole and the state of the art. The test for patentability set out in the Directive will, to a large extent, codify the approach developed by the EPO. However, the Directive does not address business methods and it is unclear whether the Directive (if adopted) will mean the end of the current practice of the EPO with respect to business methods having a technical character.
The Directive will specifically recognise that certain acts permitted under Directive 91/250/EEC on the legal protection of computer programs and considered exceptions to the broad ambit of copyright protection will not be affected through the protection granted by patents over a computer-implemented invention. This means that the decompilation of a computer program to achieve interoperability, as well as observing, studying or testing the functioning of a program in order to determine the ideas and principles which underlie any element of the program if done while running a program that has been properly licensed, will continue to be permitted as a matter of European law. This exclusion in the Directive will ensure that acts currently considered lawful under European copyright law will continue to be permitted even if broader patent protection is afforded to computer-implemented inventions both at the European and member state levels.
The Directive also acknowledges that it is without prejudice to the application of European competition rules, that is, Articles 81 and 82 of the Treaty of Rome. The common position has gone one step forward to reassure concerns expressed over competition law implications and has amended the draft Directive to refer specifically to the current rules against the abuse of a dominant position. The law as set down by the European Court of Justice in the Magill and IMS Health cases should therefore remain the same. This means that if a party is in a dominant position, it will not be able to rely on patent protection under the Directive and refuse to grant a licence if such refusal results in preventing the establishment of a new product for which there is potential consumer demand and such refusal is not justified by objective considerations.
Many opponents of the Directive have commented that there is no good reason to expand the scope of patentability to computer-implemented inventions since, in any event, those inventions can be protected by copyright. They would advocate a reversal of the EPO's current approach.
While there have been substantial amounts of oppositions filed against software and business method-related patents at the EPO level, there have been almost no reported cases of infringement actions before the European courts. This is in sharp contrast to the US where a number of high-profile patent infringement actions have been decided. However, one case decided in 2002 by the English Court of Appeal is of interest since it addresses a question common to many business-related inventions: that is, where essential elements of an invention are performed in different jurisdictions.
In Menashe Business Mercantile Ltd v William Hill Organisation Ltd, William Hill operated a computer-based gaming system where the host computer was based outside the UK and end users within the UK connected to the system using software installed on their personal computers. William Hill in the UK supplied the software in question. The plaintiff argued that once an end user within the UK connected to the offshore host computer via the internet, the system fell within their European patent and was an infringement. William Hill argued in defence that it could not infringe the patent as the host computer was outside England, and that UK patent law required infringement to take place in the UK. While William Hill accepted that its supply of software was within the UK and that the software was an essential element of the invention, it denied that it was a supply for putting into effect the invention within the UK, as that would require the combination of the host computer and the end users' computers to be wholly within the UK. The Court of Appeal held that one could not avoid infringement of a patent in the UK by siting one element of the system outside the UK.Because of the lack of litigation over software and business methods patents in Europe, one important area that remains unexplored is that of prior use defences against a claim for infringement. The US patent legislation has been amended to include specific defences for business methods patents; however, none of the EU member states’ laws or the proposed Directive address this issue. A defendant in Europe should nonetheless be able to rely on a prior use defence by applying the statutory provisions requiring absolute novelty and the case law developed in traditional patents as to what amounts to a prior use.