The issue of patentability is one of the contentious areas of intellectual property law. In the early period software patents were not generally allowed as a result trade secrets were used to protect the intellectual property. Also software patents were covered under the copyright law. But copyright protection was never held sufficient. But in the last thirty years different court pronouncements have opened the field of patent protection to the software patents. Especially the Supreme Court of the United States in a catena of landmark judgments has extended the protection of patent law to the software industry. The main logic behind the current approach is that new age technologies too need protection as patents are superior to the alternative intellectual property regime of copyright and trade secret. But there is a strong opposition to the granting of patents to the software industry. Their main concern is that recognition of this type of innovation will impede innovation in a big way. The recent decision of the United States Supreme Court in Bilski v Kappos may lead to a spurge in patent applications relating to software patents as the Supreme court had categorically rejected the ‘machine or transformation test’ as the sole test for determining the patent eligibility.
Software patents are very controversial. There has been a lot written about the pro and cons of it. The courts have also struggled to come with a singular approach to deal with this issue. Whereas earlier such patents were not generally granted as they did not fit into the traditional concept of patent protection, with the arrival of the information technology revolution, courts had to take a reasoned approach and started giving protection to software products. At times the court decisions were not consistent and even the legislature did not bother to come out with express statute which could have cleared the air. The recent judgment in Bilski v Kappos will definitely be an important milestone in patent litigation.
DEFINING A SOFTWARE PATENT
There is no universally accepted way to define what is or is not a software patent. In fact, much of the debate around software patents includes arguing over the definition. One suggested definition of software patent is: a software patent is a patent on any performance of a computer realized by means of a computer program.
To understand the courts approach while dealing with applications of software patents it will be useful to discuss the leading cases.
POSITION IN EUROPE AND UNITED KINGDOM
T 0208/84 (VICOM APPLICATION)
In the case the Examining Division had held that the method of digitally filtering a two-dimensional data array (representing a stored image) according to Claim 1 which was submitted to the Examining Division was a mathematical method because at least the characterising part of the claim would only add a different mathematical concept and would not define new technical subject-matter in terms of technical features. It was further considered that such claims concerned only a mathematical way of approximation of the transfer function of a two-dimensional finite impulse response (FIR) filter implemented by direct or conventional convolution. Finally, the Examining Division considered that digital image processing as such was just a calculation carried out on two-dimensional arrays of numbers (representing points of an image) using certain algorithms for smoothing or sharpening the contrast between neighbouring data elements in an array. Digital filtering had therefore to be considered as a mathematical operation.
The Board observed that although the question as to whether a method for image processing is susceptible of industrial application (Article 57 EPC) has not been explicitly raised in the procedure before the Examining Division it seem desirable to consider the issue first before addressing the point of allowability of the claims under Articles 52(2) and (3) EPC. The Board answered the question in affirmative.
It observed that clearly a method for obtaining and/or reproducing an image of a physical object or even an image of a simulated object (as in computer-aided design/computer-aided manufacturing (CAD/CAM) systems) may be used e.g. in investigating properties of the object or designing an industrial article and is therefore susceptible of industrial application. Similarly, a method for enhancing or restoring such an image, without adding to its informational content, has to be considered as susceptible of industrial application within the meaning of Article 57 EPC. One basic issue to be decided in the appeal was, therefore, whether or not such a method was excluded from patentability under Article 52(2) and (3) EPC on the ground that it is a mathematical method as such. There can be little doubt that any processing operation on an electric signal can be described in mathematical terms. The characteristic of a filter, for example, can be expressed in terms of a mathematical formula. A basic difference between a mathematical method and a technical process can be seen, however, in the fact that a mathematical method or a mathematical algorithm is carried out on numbers (whatever these numbers may represent) and provides a result also in numerical form, the mathematical method or algorithm being only an abstract concept prescribing how to operate on the numbers. No direct technical result is produced by the method as such. In contrast thereto, if a mathematical method is used in a technical process, that process is carried out on a physical entity (which may be a material object but equally an image stored as an electric signal) by some technical means implementing the method and provides as its result a certain change in that entity. The technical means might include a computer comprising suitable hardware or an appropriately programmed general purpose computer.
The Board was thus of the opinion that even if the idea underlying an invention may be considered to reside in a mathematical method a claim directed to a technical process in which the method is used does not seek protection for the mathematical method as such. It also held that a claim directed to a technical process which process is carried out under the control of a program (be this implemented in hardware or in software), cannot be regarded as relating to a computer program as such within the meaning of Article 52(3) EPC, as it is the application of the program for determining the sequence of steps in the process for which in effect protection is sought. Consequently, such a claim is allowable under Article 52(2)(c) and (3) EPC.
T 0026/86 (X-RAY APPARATUS)
The case was regarding an X-ray apparatus incorporating a data processing unit operating in accordance with a routine which produces a technical effect in the X-ray apparatus. The X-ray tubes were controlled by the routine so that by establishing a certain parameter priority, optimum exposure is combined with adequate protection against overloading of the X-ray tubes.
The Board held that to decide whether the subject-matter was or was not an invention within the meaning of Article 52(1) EPC, it was necessary to determine whether or not it was a computer program as such and hence fall under Article 52(2)(c) and (3) EPC. Claim 1 related neither to a computer program on its own and divorced from any technical application, nor a computer program in the form of a recording on a data carrier, nor a known, general-purpose computer in combination with a computer program. The subject-matter of Claim 1 was therefore an invention within the meaning of Article 52(1) EPC and patentable irrespective of whether or not the X-ray apparatus without this computer program forms part of the state of the art.
The Board of Appeal rejected the argument that there was no constant technical interaction between the program and the X-ray apparatus but that a technical effect was produced only at the end of a computing operation, so that the conventional X-ray apparatus and the computer program had to be looked at quite separately. It held that when the technical effect occurs was irrelevant to the question of whether the subject-matter claimed constituted an invention under Article 52(1) EPC. The only fact of importance was that it occurred at all.
T 1173/97 (IBM)
The Board of Appeal observed that Article 52(2)(c) EPC give a non-exhaustive list of negative examples, including computer programs. Since this paragraph also mentions activities which are clearly outside the realm of technology, the exclusion of computer programs as such can only be understood as intending to exclude these programs to the same extent as these other activities, which all concern non-technical subject-matter. A “program as such” (excluded from patentability) would therefore in fact be a non-technical program.
Suggesting a narrow interpretation of the exclusion provisions, it reasoned that such an interpretation would also accord with the TRIPS Agreement. Although not directly applicable to the interpretation of the EPC, the Agreement was binding on all its member states and called for an interpretation of the EPC which was compatible with it, in particular Article. The technical character of an invention might result from its field of application, but might equally well result from using information technology to solve a problem in a non-technical field. Like the relationship between a plug and a socket, the technical interface between computer and program, as for example defined in present claims 20 and 21, ensured that the technical character of the method or system was maintained if the computer program was claimed by itself as a product.
Article 52(2)(c) EPC state that programs for computers shall not be regarded as inventions within the meaning of Article 52(1) EPC and were therefore excluded from patentability. Article 52(3) EPC established an important limitation to the scope of this exclusion. According to this provision, the exclusion apply only to the extent to which a European patent application or a European patent relate to programs for computers “as such”.
The combination of the two provisions (Article 52(2) and (3) EPC) demonstrate that the legislators did not want to exclude from patentability all programs for computers. In other words the fact that only patent applications relating to programs for computers as such were excluded from patentability meant that patentability may be allowed for patent applications relating to programs for computers where the latter
were not considered to be programs for computers as such. In order to establish the scope of the exclusion from patentability of programs for computers, it was necessary to determine the exact meaning of the expression “as such”. This might result in the identification of those programs for computers which, as a result of not being considered programs for computers as such, are open to patentability.
Interpretation of “as such”
Within the context of the application of the EPC the technical character of an invention was generally accepted as an essential requirement for its patentability. This was illustrated, for instance, by Rules 27 and 29 EPC. The exclusion from patentability of programs for computers as such (Article 52(2) and (3) EPC) might be construed to mean that such programs were considered to be mere abstract creations, lacking in technical character. The use of the expression “shall not be regarded as inventions” seem to confirm this interpretation. This mean that programs for computers must be considered as patentable inventions when they had a technical character. Such a conclusion seem to be consistent with the three different provisions concerned:
(a) the exclusion from patentability provided for in Article 52(2) EPC;
(b) the general provision of Article 52(1) EPC, according to which European patents shall be granted for any inventions (therefore having technical features) which are susceptible of industrial application, which are new and which involve an inventive step;
(c) the provision of Article 52(3) EPC, which does not allow a broad interpretation of the scope of the exclusion.
The main problem for the interpretation of said exclusion was therefore to define the meaning of the feature “technical character”, in the present case with specific reference to programs for computers.
Technical character of programs for computers
The Board observed that for the purpose of interpreting the exclusion from patentability of programs for computers under Article 52(2) and (3) EPC, it was assumed that programs for computers could not be considered as having a technical character for the very reason that they were programs for computers. This meant that physical modifications of the hardware (causing, for instance, electrical currents) deriving from the execution of the instructions given by programs for computers could not per se constitute the technical character required for avoiding the exclusion of those programs. Although such modifications might be considered to be technical, they were a common feature of all those programs for computers which have been made suitable for being run on a computer, and therefore could not be used to distinguish programs for computers with a technical character from programs for computers as such. It was thus necessary to look elsewhere for technical character in the above sense: It could be found in the further effects deriving from the execution (by the hardware) of the instructions given by the computer program. Where said further effects had a technical character or where they caused the software to solve a technical problem, an invention which bought about such an effect might be considered an invention, which could, in principle, be the subject-matter of a patent. Consequently a patent might be granted not only in the case of an invention where a piece of software manages, by means of a computer, an industrial process or the working of a piece of machinery, but in every case where a program for a computer was the only means, or one of the necessary means, of obtaining a technical effect within the meaning specified above, where, for instance, a technical effect of that kind was achieved by the internal functioning of a computer itself under the influence of said program.
In other words, on condition that they were able to produce a technical effect in the above sense, all computer programs must be considered as inventions within the meaning of Article 52(1) EPC, and might be the subject-matter of a patent if the other requirements provided for by the EPC were satisfied. Said technical effect might also be caused by the functioning of the computer itself on which the program was being run, ie by the functioning of the hardware of that computer.
Thus the board concluded that having technical character meant not being excluded from patentability under the “as such” provision pursuant to Article 52(3) EPC. This meant that a computer program product having the potential to cause a predetermined further technical effect was, in principle, not excluded from patentability under Article 52(2) and (3). Consequently, computer program products were not excluded from patentability under all circumstances.
The case was remitted to the first instance for further prosecution on the basis of the appellant’s request, and in particular for examination of whether the wording of the present claims avoided exclusion from patentability under Article 52(2) and (3) EPC, taking into account the fact that a computer program product was not so excluded under all circumstances.
POSITION IN THE UNITED STATES
United States had a chequerd history of providing patent protection to software patents. Leading Supreme Court judgments have made the lead in showing the way of dealing with the issue. United States courts are generally the first in the whole world in developing leading issues in technology and the law.
GOTTSCHALK V BENSON
Respondents filed in the Patent Office an application for an invention which was described as being related “to the processing of data by program and more particularly to the programmed conversion of numerical information” in general purpose digital computers. They claimed a method for converting binary-coded-decimal (BCD) numerals into pure binary numerals. The claims were not limited to any particular art or technology, to any particular apparatus or machinery, or to any particular end use. They purported to cover any use of the claimed method in a general purpose digital computer of any type. Claims 8 and 13 were rejected by the Patent Office but sustained by the Court of Customs and Patent Appeals. The question was whether the method described and claimed is a “process” within the meaning of the Patent Act.
A digital computer, as distinguished from an analog computer, is that which operates on data expressed in digits, solving a problem by doing arithmetic as a person would do it by head and hand. Some of the digits are stored as components of the computer. Others are introduced into the computer in a form which it is designed to recognize. The computer operates then upon both new and previously stored data. The general purpose computer is designed to perform operations under many different programs.
The representation of numbers may be in the form of a time-series of electrical pulses, magnetized spots on the surface of tapes, drums, or discs, charged spots on cathode ray tube screens, or the presence or absence of punched holes on paper cards, or other devices. The method or program is a sequence of coded instructions for a digital computer.
The Supreme Court observed that the patent sought was on a method of programming a general purpose digital computer to convert signals from binary coded decimal form into pure binary form. A procedure for solving a given type of mathematical problem is known as an “algorithm.” The procedures set forth in the claims were of that kind i.e. they were a generalized formulation for programs to solve mathematical problems of converting one form of numerical representation to another. From the generic formulation, programs may be developed as specific applications. The conversion of BCD numerals to pure binary numerals can done mentally through use of the foregoing table. The method sought to be patented varied the ordinary arithmetic steps a human would use by changing the order of the steps, changing the symbolism for writing the multiplier used in some steps, and by taking subtotals after each successive operation. The mathematical procedures could be carried out in existing computers long in use, no new machinery being necessary. And they could also be performed without a computer.
After referring to its earlier authorities like MacKay Co. v. Radio Corp., Reilly v. Morse, The Telephone Cases, Cochran v. Deener, Smith v. Snow , and Waxham v. Smith , the Court concluded that if the patent be granted in the case in practical effect that would be the result if the formula for converting binary code to pure binary were patented in this case. The mathematical formula involved here has no substantial practical application except in connection with a digital computer, which mean that if the judgment below was affirmed, the patent would wholly pre-empt the mathematical formula and in practical effect would be a patent on the algorithm itself. If these programs were to be patentable, considerable problems would raise.
DIAMOND V. DIEHR AND LUTTON
The claimed invention was a process for molding raw, uncured synthetic rubber into cured precision products. The process used a mold for precisely shaping the uncured material under heat and pressure and then curing the synthetic rubber in the mold so that the product will retain its shape and be functionally operative after the molding was completed.
Respondents claimed that their process ensured the production of molded articles which were properly cured. Achieving the perfect cure depend upon several factors including the thickness of the article to be molded, the temperature of the molding process, and the amount of time that the article is allowed to remain in the press. It was possible using well-known time, temperature, and cure relationships to calculate by means of the Arrhenius equation when to open the press and remove the cured product. Nonetheless, according to the respondents, the industry had not been able to obtain uniformly accurate cures because the temperature of the molding press could not be precisely measured thus making it difficult to do the necessary computations to determine cure time. Because the temperature inside the press had been viewed as an uncontrollable variable, the conventional industry practice had been to calculate the cure time as the shortest time in which all parts of the product will definitely be cured, assuming a reasonable amount of mold opening time during loading and unloading. But the shortcoming of this practice was that operating with an uncontrollable variable inevitably led in some instances to overestimating the mold-opening time and overcuring the rubber, and in other instances to underestimating that time and undercuring the product.
The Supreme Court held that a physical and chemical process for molding precision synthetic rubber products falls within the §101 categories of possibly patentable subject matter. That respondents’ claims involved the transformation of an article, raw uncured synthetic rubber, into a different state or thing. The respondents’ claims described in detail a step-by-step method for accomplishing such beginning with the loading of a mold with raw uncured rubber and ending with the eventual opening of the press at the conclusion of the cure. Industrial processes such as this were the type which had historically been eligible to receive the protection of patent laws.
Conclusion regarding patentability of respondents’ claims was not altered by the fact that in several steps of the process a mathematical equation and a programmed digital computer were used.
Distinguishing Gottschalk v Benson and Parker v Flook, the Court held that the respondents in the present case did not seek to patent a mathematical formula. Instead, they sought patent protection for a process of curing synthetic rubber. Their process admittedly employed a well-known mathematical equation, but they did not seek to pre-empt the use of that equation. Rather, they sought only to foreclose from others the use of that equation in conjunction with all of the other steps in their claimed process. These included installing rubber in a press, closing the mold, constantly determining the temperature of the mold, constantly recalculating the appropriate cure time through the use of the formula and a digital computer, and automatically opening the press at the proper time. If the computer use incorporated in the process patent significantly lessens the possibility of “overcuring” or “undercuring,” the process as a whole did not thereby become unpatentable subject matter.
STATE STREET BANK & TRUST CO. V. SIGNATURE FINANCIAL GROUP, INC.
United States Court of Appeals Federal Circuit
Signature was the assignee of a patent which was entitled “Data Processing System for Hub and Spoke Financial Services Configuration.” The patent was generally directed to a data processing system (the system) for implementing an investment structure which was developed for use in Signature’s business as an administrator and accounting agent for mutual funds. In essence, the system, identified by the proprietary name Hub and Spoke®, facilitates a structure whereby mutual funds (Spokes) pool their assets in an investment portfolio (Hub) organized as a partnership. This investment configuration provides the administrator of a mutual fund with the advantageous combination of economies of scale in administering investments coupled with the tax advantages of a partnership.
State Street and Signature were both in the same business. State Street negotiated with Signature for a license to use its patented data processing system described and claimed in the patent. When negotiations broke down, State Street brought a declaratory judgment action asserting invalidity, unenforceability, and non infringement in Massachusetts district court, and then filed a motion for partial summary judgment of patent invalidity for failure to claim statutory subject matter under § 101. The motion was granted and appeal followed.
CAFC held that the transformation of data, representing discrete dollar amounts, by a machine through a series of mathematical calculations into a final share price, constituted a practical application of a mathematical algorithm, formula, or calculation, because it produced “a useful, concrete and tangible result” — a final share price momentarily fixed for recording and reporting purposes and even accepted and relied upon by regulatory authorities and in subsequent trades. It observed that the district court had erred by applying the Freeman-Walter-Abele test to determine whether the claimed subject matter was an unpatentable abstract idea. The Freeman-Walter-Abele test was designed by the Court of Customs and Patent Appeals, and subsequently adopted by CAFC to extract and identify unpatentable mathematical algorithms in the aftermath of Benson and Flook. The test was:
“First, the claim is analyzed to determine whether a mathematical algorithm is directly or indirectly recited. Next, if a mathematical algorithm is found, the claim as a whole is further analyzed to determine whether the algorithm is “applied in any manner to physical elements or process steps,” and, if it is, it “passes muster under § 101.””
After Diehr and Chakrabarty, the Freeman-Walter-Abele test had little, if any, applicability to determining the presence of statutory subject matter. However, after Diehr and Alappat, the mere fact that a claimed invention involve inputting numbers, calculating numbers, outputting numbers, and storing numbers, in and of itself, would not render it non statutory subject matter, unless, of course, its operation did not produce a “useful, concrete and tangible result.
IN RE BILSKI
The applicants (Bernard L. Bilski and Rand Warsaw) filed a patent application for a method of hedging risks in commodities trading. The patent application described a method for providing a fixed bill energy contract to consumers. Under fixed bill energy contracts, consumers paid monthly prices for their future energy consumption in advance of winter based on their past energy use. The monthly prices remained the same no matter how much energy they then use. Thus, consumers saved money relative to others if, for example, a given winter was unusually cold and they used an unusually large amount of energy for heating. On the other hand, consumers paid more than others if a winter was unusually warm and their energy use was lower than average. Method claim 1 of the patent application claimed a three-step method for a broker to hedge risks for purchaser-users of an input of a product or service (termed a commodity). The risk could be quantified in terms of dollars (termed a “risk position”).
The patent examiner rejected all 11 of the claims on the grounds that the invention is not implemented on a specific apparatus and merely manipulates abstract idea and solves a purely mathematical problem without any limitation to a practical application, therefore, the invention is not directed to the technological arts. The applicants appealed the rejection to the Board of Patent Appeals and Interferences which affirmed the rejection. The applicants appealed the rejection to the Federal Circuit. The case was argued before a panel of the court but the court then ordered an en banc rehearing sua sponte.
The en banc court concluded that prior decisions of the Supreme Court were of limited usefulness as guides because they represented polar cases on the abstraction and concreteness spectrum. It held that the legal test which can be culled from the Supreme Court decisions was : “A claimed process is surely patent-eligible under § 101 if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.”
The Court that the machine-or-transformation test was a two-branched inquiry; an applicant may show that a process claim satisfies § 101 either by showing that his claim is tied to a particular machine, or by showing that his claim transforms an article. Certain considerations were applicable to analysis under either branch. First, as illustrated by Benson, the use of a specific machine or transformation of an article must impose meaningful limits on the claim’s scope to impart patent-eligibility . Second, the involvement of the machine or transformation in the claimed process must not merely be insignificant extra-solution activity . As to machine implementation, as applicants themselves admitted that the language of claim 1 did not limit any process step to any specific machine or apparatus, it held that the claims were not patentable. Because the applicable test to determine whether a claim was drawn to a patent-eligible process under § 101 was the machine-or-transformation test and applicants’ claim failed that test, the decision of the Board was affirmed.
BILSKI V. KAPPOS
In re Bilski was taken to the Supreme Court which delivered its opinion on 28 June 2010. The Supreme Court observed that section 101 specified four independent categories of inventions or discoveries that are eligible for protection: processes, machines, manufactures, and compositions of matter. The Court observed that §101 patent-eligibility inquiry was only a threshold test. Even if an invention qualified as a process, machine, manufacture, or composition of matter, in order to receive the Patent Act’s protection the claimed invention must also satisfy “the conditions and requirements of this title.”§101. Those requirements include that the invention be novel, §102, non obvious, §103, and fully and particularly described, §112.
Under the Court of Appeals’ formulation, an invention was a “process” only if: (1) it was tied to a particular machine or apparatus, or (2) it transformed a particular article into a different state or thing. The Supreme Court had more than once cautioned that courts should not read into the patent laws limitations and conditions which the legislature has not expressed. In patent law, as in all statutory construction unless otherwise defined, words should be interpreted as taking their ordinary, contemporary, common meaning. The Court had read the §101 term “manufacture” in accordance with dictionary definitions and approved a construction of the term “composition of matter” consistent with common usage. Adopting the machine-or-transformation test as the sole test for what constitutes a “process” (as opposed to just an important and useful clue) violate these statutory interpretation principles. Section 100(b) provide that the term ‘process’ means process, art or method, and include a new use of a known process, machine, manufacture, composition of matter, or material. The Court held that it was unaware of any ordinary, contemporary, common meaning, of the definitional terms “process, art or method” that would require those terms to be tied to a machine or to transform an article.
The Supreme Court concluded that the Court of Appeals had incorrectly concluded that the Supreme Court had endorsed the machine-or-transformation test as the exclusive test. It held that the machine-or transformation test was not the sole test for deciding whether an invention was a patent-eligible “process.” Section 101 preclude the broad contention that the term “process” categorically exclude business methods.
Though petitioners’ application was held not categorically outside of §101, yet it did not made it a “process” under §101 automatically. Petitioners in the case had sought to patent both the concept of hedging risk and the application of that concept to energy markets. Under Benson, Flook, and Diehr these were held not patentable processes but attempts to patent abstract ideas. The claims explained the basic concept of hedging and reduce that concept to a mathematical formula. This was held to be an unpatentable abstract idea, just like the algorithms at issue in Benson and Flook. Petitioners’ remaining claims, broad examples of how hedging could be used in commodities and energy markets, attempted to patent the use of the abstract hedging idea, then instruct the use of well known random analysis techniques to help establish some of the inputs into the equation and were also held unpatentable.
Thus the present condition prevailing in the United States is that software patents can be allowed provided they satisfy the requirements of the patent law.
SOFTWARE PATENTS IN INDIA
After the patents (second amendment) in 2002, the scope of non patentable subject matter in the Act was amended to include the following: “a mathematical method or a business method or a computer program per se or algorithms”.
Thus it is a computer program ‘per se’ that are not allowed as they are subject matter of copyright in India. The reason for not considering the software as patentable subject matter was to avoid duality of protection available to software. But subject matter of copyright can be only their literal presentation of software which includes coding decoding or algorithm form and more precisely it is their algorithms form that the Indian Patents Act does not consider the patentable subject matter. To avoid application of Section 3 (k) of the Indian Patents act, in the claims few hardware components must be shown to form the essential part of the invention and some form of interdependence should be shown between the software and hardware components.
Courts of different jurisdictions are grappling with the issue of software patents. News ways are being suggested to understand the exclusion of abstract ideas. As more and more software are allowed patent protection, anxieties continue over the effect of such patents on the future of the knowledge economy. But there are certain benefits of patent protection. The disclosure requirement by a patent specification has the potential to mitigate the trade secrecy that has plagued the industry for long. Also it should be kept in mind that companies spending billions of dollars would require sufficient protection of the intellectual assets. But in the same time it should not be lost sight of the fact that the twenty years duration of patent protection may unnecessarily impede the growth of such a rapidly evolving industry. Thus the widespread claims that software patents are harmful to the society can be tested in days to come.