Title – ‘Discuss critically the current international legal position on the patentability of software and business method inventions’.
As a general proposition, the speed at which a true global economy has been assembled over the past 20 years has been the dominant element in the re-ordering of international legal regulations concerning software and business method patents. The central premise of this paper is the that ability to regulate by patent the speed of scientific progress is akin to attempting to score a direct hit on a moving target.
This paper will examine the relationship between global economic forces and patentability, first from the United Kingdom perspective as an example of a national intellectual property protection system. The analysis will then be directed to the European Patent Convention and its regulatory framework, with a comparison drawn between the EPC and other regimes. The supranational patent enforcement structure provided by way of the World Trade Organisation is the final international aspect of the review.
These selected legal frameworks are not intended as an exhaustive summary of international patent law; they establish a useful basis against which the present question may be considered from commercial and public perspectives.
As the following review illustrates, international software and business method patent law is a mixture of legal theory, economic factors, and philosophical preferences regarding the control of ideas and related technologies. The international intellectual property legal order is not so much a finite system as it is a still-evolving organism where certainty of result and clarity of legal purpose are not settled.
- Patents, software and business method inventions generally
The term ‘business method invention’ is a very broad and circumstance driven notion; it is often defined by what it is not, as opposed to what in fact it represents. As a general rule, business method inventions are any design that encompasses economic activities such as buying and selling items, marketing techniques, financial schemes (e.g. pension plan organisations) and gaming strategies.
In the European Union, the historical distinction between patentable and non-patentable inventions was the presence of a technical component in the design or system; business method inventions were therefore inherently non-patentable concepts in Europe.
Software is a similarly broad term that is capable of bearing several meanings. For the purpose of the present review, system software is any software required to support the production or execution of application programs but which is not specific to any particular application. Examples of system software would include a computer operating system. By contrast, application programs include Microsoft Excel© or computer assisted drawing (CAD) programmes; this software includes source code written by humans and executable machine code. Software does not usually include the data processed by programs unless the desired format depends on the use of computers for its presentation, such as multimedia.
Patents and intellectual property protection turns on two fundamental principles, the territorial nature of the protection, and the extent to which a patent holder may permit others through licenses or other agreements to use the protected property. Given that patent law is not harmonised to any significant degree, patent protection is at best a variable and imperfect tool to promote rights associated with software and business inventions. 
As this analysis progresses, it is important to distinguish between the characteristics of patents and those of copyright. Copyright is the protection afforded to intellectual property regarding how an idea may be expressed or controlled. While copyright does not safeguard the idea itself, software copyright usually extends its coverage to the reproduction of software source codes. Patents are the legal protection granted by a country over an invention, its underlying methodology, or its function.
Patent law provides more comprehension protection that that available by copyright, licensing, or other any other safeguards that may be created by a contract over intellectual property. A patent is commercially desirable because as it establishes a legal monopoly over the protected property for the patent holder, adding value to the protected concept.
- The American influence
A critical discussion of international software patent law that does not touch upon the American legal position is akin to not mentioning the proverbial white elephant seated at one’s dinner table. The United States Patent Office historically has been the busiest such institution in the world; American based companies initiate more patents world wide that any other business sector. The United States Supreme Court was the first to legalise software patents and the first major jurisdiction to give explicit recognition to the concept of the business method patent.
American influence has been important but not determinative in these areas; however, the American test for a business method invention patent as whether the subject concept leads to a ‘useful, concrete and tangible result’ is very influential. The American approach may be borne in mind as the UK, European, and World Trade Organisation positions are considered.
- UK patents
Reflecting the biases of the first English patent law, there was a long held reluctance in the UK to permit computer innovation patents. In the 1970s, as computer technology experienced incredible global growth, UK patents were restricted to industrial innovations, machinery, manufactured products, and tangible items.
Patents were not granted in the UK where the subject involved the mathematical expression of a scientific truth such as an algorithm.
Three recent UK patent law decisions are instructive in this regard. The most current and arguably the most important articulation of UK software patent law principles is Aerotel Ltd. v Telco Holdings Ltd. The Court of Appeal considered the deficiencies of both UK and European patent legislation in light of modern global commercial developments. The Court, through Jacobs LJ stated that it had no concern for the intense current political debates concerning software patents, a statement that is difficult to accept at face value given the multinational nature of the case. However, the Court described the fundamental purpose for modern patent protection in clear and unambiguous language:
The patent system is there to provide a research and investment incentive but it has a price. That price (what economists call “transaction costs”) is paid in a host of ways: the costs of patenting, the impediment to competition, the compliance cost of ensuring non-infringement, the cost of uncertainty, litigation costs and so on. There is, so far as we know, no really hard empirical data showing that the liberalisation of what is patentable in the USA has resulted in a greater rate of innovation or investment in the excluded categories. Innovation in computer programs, for instance, proceeded at an immense speed for years before anyone thought of granting patents for them as such.
The Court held that all (emphasis added) potential UK patents should be validated by a two part test expressed in the following terms:
First, determine what the inventor has contributed to the art over and above a computer operating in a new way as a matter of substance and, second, determine whether this contribution lies in excluded matter or, on the contrary, whether it consists in a technical contribution or effect.
Menashe Business Mercantile Ltd v. Hill is an equally instructive 2002 decision of the Court of Appeal, as the reasons for judgement underscore the fluidity of modern computer based commercial applications and the difficulty to apply traditional enforcement methods, in the context of the relationship between UK and European community patent law. The plaintiff Menashe commenced an action seeking UK enforcement of a patent issued by the European Patent Office regarding his interactive gambling software. The defendant Hill claimed that as the host computer required to operate the software system was located outside of the UK, there could be no breach of the Menache patent. The Court held that in this case, jurisdiction over the patent ‘lay with the punter’ – where gambling activities occurred by means of UK computer access, Hill violated the patent and the UK courts could enforce the patent.
The decision referenced as CFPH’s Applications, 2005 is a useful summary of how the UK and European Patent offices approach both software patents and business inventions; the Court strikes a blow for pragmatism in its conclusion that there will likely never to be a comprehensive definition of ‘invention’. Accordingly, the court suggested that difference in the approaches of the UK and European patent offices should have little effect on how patents are enforced in most cases.
The complexity of each of the noted cases underscores an important barrier to enforcement – the current patent system serves only those who can afford to litigate a patent claim.
- European Patent Convention (EPC)
The European Union is the second most active patent registration regime in the world. EPC Article 52(1) sets out the general rule: European patents will be granted for any inventions that include a ‘technical character’. Conversely, the patentability exclusions described in Article 52(2) include traditional business methods that have no invention or technical component. However, a number of concepts that combine technical and non-technical components have been approved for European patent, including an x-ray machine with a software component and other computer related devices.
The language of EPC Articles 52 and 53 when taken together has resulted in significant confusion with respect to the availability of software patents. The articles stated that ‘as such’ computer programmes are excluded from patentability, yet as of 2005 over 40,000 software –related patents had been granted by the EPO in a host of technology fields. When coupled with differing rules enacted in each of the EU member nations, software patent laws in Europe are decidedly ambiguous.
Europe has been an ideological battleground pitting commercial software developers against the advocates of Open Source Software (OSS) over the question of whether software should be patented at all. The OSS proponents (a world wide constituency) regard software patent laws as an inhibition to true technological progress. In July, 2005 the European Parliament rejected a legislative proposal that would have expanded the ability of software developers to obtain patent protection for their inventions. Given the size and influence of the European market, the European rejection of tighter software patents may be an indicator of a larger global trend to make software generally more accessible and conversely, less amenable to patent protection..
Since 1977, patents issued by the European Patent Office have enforceable through the patent legislation of member countries; Menashe is an example. EPC Article 64 provides that the national law is the only enforcement mechanism for an alleged patent violation. It is submitted that without harmonised European enforcement, a truly effective patent system is impossible; given the importance of software development, the persistence of the present system suggests that the software industry is not entirely troubled by the patchwork European law in this regard. This European legislative deficiency mirrors those of the global software and business method patent arena.
- World Trade Organisation (WTO)
With more than 150 member countries and a host of trade agreements and protocols that touch upon wide areas of international commerce, the WTO occupies a position of apparent importance in international software patent regulation. The foundation WTO initiative is TRIPS, the Trade Related Aspects of Intellectual Property Rights, ratified January 1, 1995.
TRIPS is an initiative that represents the culmination of a series of multi-lateral intellectual property agreements concluded by the WTO membership. TRIPS has been heralded as the blueprint for handling international intellectual property disputes.
In light of the European developments noted above, coupled with the resounding failure of earlier WTO initiatives, it is exceedingly doubtful that TRIPS will become an accepted software patent legislation standard.
The ability of the WTO to enforce TRIPS must also be considered in light of how modern international commercial forces are often transnational entities and not the traditional nation state. No significant enforcement action has been successfully undertaken pursuant to the TRIPS protocols since its enactment.
- What the future holds
It is submitted that the current state of international software and business method patents is a natural consequence of the speed that underlies both the function of the global economy and technological development. A coherent and enforceable international patent structure may be laudable, but the speed and inherent flexibility of innovation operating independent of any government restriction appears to have spawned a new world order where rules exist as guidelines only. As Europe and the WTO struggle to resolve the patentability of “simple” computer software applications, science is relentlessly forged ahead with biotechnical and genetic software questions that will pose even more perplexing regulatory issues.
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Cahill, Lisa Sowle “Biotech & Justice: Catching up with the New World Order” (2003) The Hastings Center Report Vol. 33, 1
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FOLDOC (Free On-Line Dictionary of Computers), Imperial College http://foldoc.org/index.cgi?query=software (Accessed January 28, 2007)
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Table of Cases
Aerotel Ltd. v Telco Holdings Ltd.  EWCA Civ 1371
Commissioner of Patents v. Harvard College  SCC 77 (S.C.C.),
Computer-Related Invention/Vicom, Decision T 208/84 EPO (OJ 1987, 14)
Diamind v Diehr (1981) 450 U.S. 175
Koch & Sterzel, Decision T 26/86 EPO (OJ 1988, 19)
Menashe Business Mercantile Ltd v Hill  EWCA Civ 1702
State Street Bank and Trust v Signature Financial Group (1998)149 F.3d 1368 (Fed. C. A.)
Table of Statutes
European Patent Convention
UK Patent Rules, 1995
UK Patent Act, 1977
WTO / Trade Related Aspects of Intellectual Property
 Ius Mentis http://www.iusmentis.com/patents/businessmethods/epc/, 1
 Software definition by FOLDOC, http://foldoc.org/index.cgi?query=software
 The Open Source debate is one beyond the scope of this paper. See Raymond, Eric The New Hacker’s Dictionary (Cambridge, Mass: MIT Press, 1991); also Guadamusz, Andres ‘Open Science: Open Source Software Licenses and Scientific Research’ BILETA April, 2005
 World Trade Organization <http://www.wto.org>