Machine or transformation? Bilski in India

Businesses are in a continual state of change, adapting and responding to the needs of society. With the advancement of technology, businesses have become more complex and highly specialised. In recent years, businesses have needed to adapt to the onset of the information age, which has changed traditional norms of doing business.

Businesses have emerged that combine technology and innovation with more traditional business methodologies. Concurrently, a relatively new class of patents has matured: business method patents that have existed for several years, but have only recently become universally important.

Business method patents deal with new and innovative methods of conducting an economic activity and are regarded as part of a larger family of utility patents.

Patent law has developed over centuries in response to scientific and technological developments that have led to the creation of products that have, in some manner, contributed to the present state of technology.

Patents are generally understood to mean monopolistic rights granted by the state to individuals or inventors to exclusively use and exploit an invention for a limited period of time. As far back as ancient Greece, the importance of such exclusive rights was recognised, and patents, as understood in the modern sense of the word, have existed in various places since then.

A patent has been described as pertaining to “any new and useful art, machine, manufacture or composition of matter and any new and useful improvement on any art, machine, manufacture or composition of matter”. Over the years, a new form of patent has developed, granted to new and innovative methods of doing business.

These patents have been granted in jurisdictions including the United States, Australia, Japan and Singapore. The TRIPS Agreement, which provides signatories with a principle framework for protecting and enforcing intellectual property rights, does not specifically deal with this class of patents.

However, Article 27 states that, “patents shall be available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application...”. This means that if all other criteria are satisfied, even a business model may theoretically be protected by patent law.

In India and China, protecting business methods is difficult. But why is this the case? The principles behind patent law, in general, deal with protecting new inventions or improved machines or articles. Simply put, according to the traditional principle of patentability, an invention can be protected if it results in something tangible and satisfies the patenting criteria.

Most countries specifically prohibit protection for discovery of scientific principles, while ideas are also considered non-patentable until they are tangibly applied. How then, do we justify business methods getting patent protection?

A business method can be understood to mean “a method of operating any aspect of an economic enterprise”. Thus, it clearly does not qualify as a tangible invention. However, should this business method otherwise fulfil the criteria for patentability—that is, novelty, inventive step or non-obviousness, and industrial applicability (utility)—it may be granted protection for being an improvement on the present state of the art.

It is also crucial to note that the TRIPS Agreement specifically says that patent protection must not be limited by industry, by referring to “any inventions, whether products or processes, in all fields of technology”.

Financial patents, for example, pertain primarily to industries such as e-commerce, banking, insurance, etc. To not protect new modes of doing business in those industries, especially when they have tangible results, would be in derogation of the TRIPS mandate to provide patent protection in all industries.

It is also essential to note that financial patents have been granted and recognised in various jurisdictions for several years. One of the first financial patents, granted in 1815, pertained to methods for preventing the counterfeiting of notes.

However, almost all such financial inventions were tied to some tangible article and this became the determining test. If a process, not merely an idea, can be tied to an article or machine, it may be patented. This implied that accounting methods and similar business ideas were not patent-protected.

With the advancement of technology, and the development of e-commerce, the connection of such a business idea or manner of conducting an economic activity with a tangible article has become more and more difficult.

Thus came the era of business method patents, where a manner of conducting business was deemed to be patentable even if it could not be tied to a tangible article and could only be rendered on a computer.

The 1998 US case of State Street Bank v. Signature Financial Group was a landmark, finding that a method of doing business could not be excluded from patentable subject matter. However, the requirement that such business methods lead to an advancement of “technological arts” was maintained until the court rejected it on the grounds that it was a non-statutory requirement.

The position in the US after State Street was that business methods were considered patentable subject matter and were only required to show novelty, usefulness and non-obviousness.

"In order to open doors for as yet unknown classes of inventions, it is essential to not limit the test for patentability."

In India, Section 2(j) of the Patent Law describes an invention as a new product or process that involves an inventive step and is capable of industrial application. Inventive step refers to a feature of an invention that involves a technical advancement or has economic significance, or both, and that is not obvious to a skilled person. It would appear that business methods may also be included in the definition of an invention.

However, Section 3(k) states that no patent can be granted to an application that claims a mathematical or business method, a computer program per se or algorithms. This excludes business methods from the patentability criteria. But business method patents have been granted by the Indian Patent Office, albeit clothed in terms of being “technological advancements”.

Most of these inventions, like those in the US prior to State Street, are tied to tangible articles or are computer-enabled business processes.

In India, the patent office has granted patents to business models, but only those that could be tied to an apparatus to one degree or another. For example, in application number IN/PCT/2002/01358 (now granted Patent No. 201372), a patent was granted to McKinsey & Co. for a method of conducting online bidding transactions. However, this business method was tied to an apparatus, in this case a computer.

The invention dealt with a method of conducting a bidding session through certain hardware, such as a main server and remote terminals of the bidders. The server would accept bids from the terminals and conduct the bidding by analysing the bids. It would relay information back and forth, and conduct transactions according to recognised parameters.

This case demonstrates that a simple method of conducting business would not be sufficient to receive patent protection and must comply with the ‘machine or apparatus test’. The US Supreme Court, in its recent judgment in Bilski v. Kappos, also referred to business methods.

The application dealt with a series of steps involved in hedging risks associated with commodity transactions involving energy. The application had been rejected by the examiner on the ground that: firstly, the steps were not implemented on a specific apparatus and, secondly, the application only manipulated an abstract idea.

In appeal, the examiner’s decision was upheld but only on the latter ground that it did not transform physical subject matter. The Federal Court also rejected the application on the ground that it was neither tied to a machine nor transformed an article into another state (the machine or transformation test).

However, the Supreme Court, while affirming the decision to reject the patent, stated that the machine or transformation test cannot be regarded as the sole test, particularly in today’s information age. In order to open doors for as yet unknown classes of inventions, it is essential to not limit the test for patentability.

Justice Kennedy observed that if the test were to be treated as exclusive, it would affect the patentability of software, diagnostic methods, data compression techniques et al.

Regarding the patentability of business methods, the judges stated that following the ordinary meaning of the term ‘processes’, a business method could qualify, and in the absence of any statutory directive against the same, it must be considered patentable subject matter, in principle.

In Bilski, the application per se, which dealt primarily with the manipulation of an abstract idea, was considered to be unpatentable. However, the judgment has clarified business method patents in India.

This decision is important in the Indian context, since its principles can apply to the Indian situation to a large extent. Despite the existence of Section 3(k), it can be argued that a business method may be patentable in India if it is tied to a machine or apparatus.

Since the US Supreme Court determined that relying solely upon the machine or transformation test would be a narrow interpretation of the law, it will be interesting to see how this argument would work in India.

Anuradha Salhotra is managing partner at Lall Lahiri & Salhotra. She can be contacted: salhotra@lls.in