Method of Innovation Unpatentable Business Method.


The delegate of the Commissioner of Patents revoked an innovation patent for a method of innovation holding that it was an unpatentable business method. It is convenient to set out the relevant integers of the claim in question:

  1. an organisation engages with an innovator to innovate;
  2. the organisation discloses aspects of the organisation to the innovator;
  3. a financial return to the innovator for the innovation is specified;
  4. the innovator defines the innovation as an IP right prior to its disclosure to the organisation; and
  5. the financial return is at least partially based on the value/benefit/advantage to the organisation of the IP right.

According to the delegate, this was nothing more than a “mere business scheme” that outlined the nature of consideration due to one party for the rendering of innovative services to another. In other words, the delegate held the the claim defined an unpatentable business method.

Mr Watson, the patentee, appealed from the decision of the delegate in Watson v Commissioner of Patents [2019] FCA 1015

As expected, the court referred to a number of well-known precedential decisions including National Research Development Corporation v Commissioner of Patents (1959) 102 CLR 252 (NRDC), Grant v Commissioner of Patents (2006) 154 FCR 62 (Grant), Commissioner of Patents v RPL Central Pty Ltd (2015) 238 FCR 27 (RPL), CCOM Pty Ltd v Jiejing Pty Ltd (1994) 51 FCR 260 (CCOM), D’Arcy v Myriad Genetics Inc (2015) 258 CLR 334 (Myriad) and Research Affiliates LLC v Commissioner of Patents (2014) 227 FCR 378 (Research Affiliates).

Mr Watson said that NRDC and Grant supported a conclusion that the IP right consisted of an “artificial state of affairs”. He said the subject of the claims was “something that can be made by man…or at the least [was] some new mode of employing practically his art and skill”, and therefore amounted to an observable phenomenon. To Mr Watson this phenomenon was the practical employment of the skill of the innovator in conceiving an innovation for the organisation, consisting of an IP right. He said that the IP right was a “useful product” that had been artificially created. The broad principle established by NRDC is that the product has to have a value to the country in the field of economic endeavour, or some advantage that is material in the sense that it belongs to a useful art, as distinct from a fine art. It must be a product and something that is, in effect, of value or vendible.

In Myriad, the Court said that NRDC “did not prescribe a well-defined pathway for the development of the concept of “manner of manufacture” in its application to unimagined technologies with unimagined characteristics and implications.” Rather, a case-by case methodology is required. Thus, there may be cases in which the court “will decide that the implications of patentability of a new class of invention such that the invention as claimed should not be treated as patentable by judicial decision.” Also in Myriad, the Court referred to six principal factors that may be relevant in determining whether the exclusive rights created by the grant of a patent should be extended to a particular class of claim by judicial decision. These included whether:

  • there would be a chilling effect on activities beyond those covered by the exclusive rights granted to the patentee;
  • the extension would enhance or detract from the coherence of the law relating to inherent patentability;
  • law making would be required, which should be done by the legislature.

In this regard, the Court in Myriad held that “the purpose of the Act would not be served by according patentability to a class of claims which by their very nature lack well-defined boundaries or have negative or chilling effects on innovation“.

In CCOM, it was noted that a recurrent theme is that “intellectual conceptions become patentable only to the extent that they have been embodied in technical applications”.

In Grant, the Court held that Mr Grant’s asset protection scheme was not patentable because it was mere intellectual information concerned with providing working directions and a scheme. Their honours concluded that: “[i]t is necessary that there be some “useful product”, some physical phenomenon or effect resulting from the working of a method for it to be properly the subject of letters patent. That is missing in this case.”

In Research Affiliates, the Court held that an investigation into inherent patentability could not be made “by a mechanistic application of the criterion of artificiality or physical effect. Rather, the determination must be made on an understanding of the claimed invention itself, as a matter of substance, not merely form“.

Rares ACJ was of the opinion that the method of the above claim is an unpatentable business method and is “nothing more than a description of a business method for an organisation to engage an innovator in a contractual relationship to produce a result, being an IP right, for an undefined consideration. In substance, it is a description of how to negotiate a vague and imprecise arrangement, and provides no identifiable remuneration structure.”

According to his honour, that field of activity has never been the subject of a patent or statutory monopoly granted by force of a patent. He said that the allowance of such a claim would have a chilling effect both generally on innovation and the engagement of intellectual property professionals. One would not know, until the innovator had performed the assignment, whether any IP right could or would be created. In other words, the method of the invention would have to be followed to its end point before person would know whether the initial engagement of the intellectual property professional or innovator fell inside or outside the monopoly claimed in the patent. That would depend on whether, at the end of his or her work, the innovator produced an IP right of value for the client.

Mr Watson had contended that the useful physical result in relation to a material or tangible entity was the creation of an IP right. His honour held that this argument was specious. No specific right or product is necessarily created by following the method and its outcome is entirely dependent on the actions and volition of two persons, the innovator and the organisation.

His honour pointed out that, after the disclosure of the IP right, following the claim, at most, the innovator and organisation are to agree on a reward. That is no agreement at all (Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 – an “agreement” to agree about the price is incomplete and unenforceable because it does not provide any certainty of outcome.) Thus, the claims lacked well-defined boundaries and were not patentable.