Research Affiliates and the unpatentable index

In Research Affiliates LLC v Commissioner of Patents [2013] FCA 71 (13 February 2013) a judge of the Federal Court of Australia dismissed an appeal by Research Affiliates LLC against two decisions of IP Australia. I cover the two decisions here and here.

Subject matter eligibility in Australia is based on whether or not an invention is a "manner of manufacture".

The judgment sets out some new approaches to assessing subject matter eligibility for business method claims. These approaches are based on the product of the claimed method, the description of that method in the body of the specification, and the extent of computer implementation.

The patent application

The invention involved securities investing, particularly the construction and use of passive portfolios and indexes. Under passive management or indexing, the securities in a portfolio are weighted by relevant market capitalisation weighting or equal weighting. The securities purchased for inclusion in the portfolio reflect the securites that are represented in a particular index.

The amount of each security that is purchased for inclusion in the portfolio affects the weighting of that security in the index. If the weighting given to a particular security in the index changes, a corresponding amount of the security is bought or sold to adjust the amount of that security held in the portfolio.

A stated disadvantage of market capitalization weighted passive management is that undervalued securities will be underweighted in the index and in the portfolio based on the index. At the same time, any overvalued securities will also be overweighted. A further disadvantage is that a portfolio based on market capitalization weighting follows every market, or market segment, variation.

Claim 1 of the application under consideration read as follows:

1. A computer-implemented method for generating an index, the method including steps of:
(a) accessing data relating to a plurality of assets;
(b) processing the data thereby to identify a selection of the assets for
inclusion in the index based on an objective measure of scale other
than share price, market capitalization and any combination thereof;
(c) accessing a weighting function configured to weight the selected
assets;
(d) applying the weighting function, thereby to assign to each of the
selected assets a respective weighting, wherein the weighting:

(i) is based on an objective measure of scale other than share
price, market capitalization and any combination thereof; and

(ii) is not based on market capitalization weighting, equal
weighting, share price weighting and any combination thereof,

thereby to generate the index.

The product of a method

The Court observed at [14] that a manner of manufacture must be construed as including:

• the practice of making;
• the process of making;
• the means of making; and
• the product of making.

The product of a process simply means something in which the new and useful effect may be observed. The something need not be a thing, in the sense of an article or object. It may be any physical phenomenon in which the effect, be it creation or merely alteration, may be observed.

It's important not to take a narrow view of what constitutes the product of a method, according to the Court at [15]. If a method is purely an idea, that method's product may be mere information, such that the method itself is then not patentable and is not a manner of manufacture. However, if the method or idea results in a new machine or process, or an old machine giving a new and improved result, that new process or result should be regarded as the product of the method and the method is patentable.

Furthermore, a new use of an algorithm may be a patentable invention. Even if there is nothing new about the mathematics of a claimed invention, if its application results in a commercially useful effect there may be a patentable invention.

A mathematical formula as such is not patentable. However if the claim is not for a mathematical formula in the abstract, but a way of using the mathematical formula in a process for producing particular effects, there may be a patentable invention.

Nothing more than data

The Court observed at [65] that a mere scheme, abstract idea or mere information is not patentable. Some physical effect is required. In some cases there will be a component physically affected or a change in state in a part of a machine. take for example:

• the representation of a curve
• the representation of Chinese language characters
• the writing of information to a smart card

In this case the only physical result generated by the method of the invention was a computer file containing an index. The Court observed at [67] that an index is nothing more than a set of data. It is simply information. A set of numbers. No more a manner of manufacture than a bank balance represented as data in a bank's computer, written on a piece of paper, or kept in a person's memory.

When we are talking about a computer implementation, everything is just numbers. I guess what the Court is saying here is that the numbers don't mean anything. They have no relationship with real world tangible objects.

Personally I don't see the 'stark contrast' at [70] between writing particular information on a smart card on the one hand and writing an index to a computer file on the other. Maybe I'm missing something.

Tell us more

I suspect this judgment will be remembered most for the comments on what the description should say.

The Court observed at [68] that:

'While the Specification appears to be intended to create the impression of detailed computer implementation, the Specification says almost nothing about how that is to be done ... The discussion in the Specification provides no substantive detail regarding the implementation of the claimed method. The upshot of the discussion is merely that the method is implemented by a computer, but there is no disclosure of how that is to be done.'

It looks like the Court would have liked to see at [70]:

• how data is accessed in step (a);
• the nature of the processing undertaken in step (b) to identify the selection of assets;
• how the weighting function is accessed in step (c);
• how the relevant measure of scale is chosen in step (d)(i); or
• how the weighting function is applied in step (d) to assign a weighting to each asset.

I thought the sufficiency of the description was a matter for, well, sufficiency of the description. Basing subject matter eligibility on the description rather than the claims seems to be a new approach in Australia.

Mere use of a computer

The Court seems to criticise at [67] the proposition that any computer-implemented scheme would be patentable, merely by reason of the fact that is happens to be implemented by a computer.

The implementation of this method by means of a computer was observed at [72] to be no more than the modern equivalent of writing down the index on pieces of paper. The mere use of a computer necessarily carries with it the writing of information into the computer's memory. This aspect of computer implementation, said the Court, is nothing more than the use of a computer for a purpose for which it is suitable.

The Court concluded at [73] that:

'while new developments in technology might be seen to widen the notion of what is patentable, the modern availability of computers as a standard means of implementing arithmetic or computational processes, which could have been implemented manually in the past, does not carry with it any broadening of the concept of a patentable invention.'

Further steps

Research Affiliates has 21 days to appeal this decision to the Full Federal Court of Australia. If this decision survives an appeal it will be interesting to see how it is interpreted by IP Australia.

[UPDATE: Research Affiliates applied for leave to appeal on 27 February 2013.]


Photo courtesy of author thinkpanama under Creative Commons licence.