Aerotel/Macrossan – What Have We Learnt about the Patentability of Software?

December 16, 2006

The question of the extent to which business methods and computer programs can be patented has been much debated in and out of the courts. The recent Court of Appeal decision of Aerotel/Macrossan[1] is the latest stage in the development of English law in this complicated and highly politicised area.


1.                 The Patents


The Court’s judgment relates to two appeals, heard together.  The first was from Aerotel, an Israeli telecommunications company.  Its patent concerned a telephone system which required callers to credit an account with the company before placing a call.  Aerotel added an extra piece of equipment, a “special exchange”, between the traditional public exchange interface and the carrier.  Callers using their prepaid accounts called the company’s special exchange and inputted an account code, followed by the telephone number they wished to reach.  If the code was verified and there was enough credit in the account, the call was connected. 

The second appeal concerned a patent application by an Australian solicitor, Neal Macrossan, for an automated method of acquiring the legal documents necessary to incorporate a company.  A user of Mr Macrossan’s data processing system was asked a series of questions in stages.  Preliminary answers determined which questions were posed in later stages.  The user’s answers were stored in a database structure and, when sufficient information had been provided, the requisite legal documents were compiled and sent in electronic form to the user.


2.                 The Legislation


The law governing the patentability of business methods and computer programs is found in Article 52 of the European Patent Convention (EPC) (implemented into English law by the Patents Act 1977, s 1(2) (the Act)).  This states that, “European patents shall be granted for any inventions which are susceptible of industrial application, which are new and which involve an inventive step”.  However, Article 52(2)(c) precludes “schemes, rules and methods for performing mental acts, playing games or doing business, and programs for computers” from being regarded as inventions capable of being patented.  This is qualified by Article 52(3), which states that the provisions of Article 52(2) will “exclude patentability of the subject matter or activities referred to […] only to the extent to which a European patent application or European patent relates to such subject-matter or activities as such“.


3.                 The Case Law


The combination of (i) room for interpretation of “programs for computers” together with (ii) the development of technology since the coming into force of the EPC and (iii) the blurring of the distinction between hardware and software has led to some inconsistency in approach, particularly by the European Patents Office.


In reaching its decision, the Court of Appeal undertook a comprehensive review of the relevant case law.  This was principally an analysis of cases before the English courts and the EPO but also extended to French and German decisions as well as an analysis of the position in the United States.  An understanding of this case law is necessary to appreciate where the line is drawn between what is and what is not patentable.


The first significant decision came courtesy of the EPO Technical Board of Appeal in Vicom,[2] which concerned a method of digitally filtering a two-dimensional data array.  The Board observed that what is “decisive is what technical contribution the invention as defined in the claim when considered as a whole makes to the known art.” The Board allowed the patent and considered that making a distinction between embodiments of the same invention carried out in hardware or in software was “inappropriate.”  This was deemed to be a technical embodiment in hardware of a mathematical method and therefore could be patented. This reasoning is rather at odds with subsequent decisions of the Board.


The Court of Appeal decision in Merrill Lynch[3] is usually seen as the starting point of the line of current English case law on this subject. This adopted what was known as the “technical effect with rider” approach to deciding whether an invention was patentable or not and has been followed by subsequent case law right up to the Aerotel/Macrossan decision. The invention related to “an improved data processing based system for implementing an automated trading market for one or more securities.” It was decided that “a data processing system operating to produce a novel technical result would normally be patentable… but it cannot… be patentable if the result itself is a prohibited item.”


In Gale[4] the Court of Appeal decided on a computer program for calculating mathematical problems which was stored on a read-only memory chip. Aldous J said that the ROM claimed could not be considered as a claim to an invention which is no more than an invention relating to disqualified matter. In summary, the court required that the computer program “instructions must embody a technical process which exists outside the computer.”


In Fujitsu[5] the Court of Appeal took the opportunity to clarify the law after two High Court decisions, Wang[6] and Raytheon[7] that appeared to open up a discrepancy between English and European approaches. The patent application concerned a computer method for modelling crystal structures. At first instance, Laddie J had summarised the broad principles of computer program patentability as follows:


·                     the types of subject matter referred to in s 1(2) are excluded from patentability as a matter of policy

·                     the exclusion from patentability is a matter of substance not form

·                     a computer running under the control of one program is prima facie a different piece of apparatus from the same computer when running under the control of another program

·                     it is important to look at what the computer is doing as a matter of substance and whether it is one of the activities defined in s 1(2).


The Court of Appeal supported this approach and agreed that the invention was not patentable since it was merely software for displaying crystal structures more quickly. Aldous LJ distinguished the application from that in Vicom, where the technical contribution was provided by the generation of the enhanced display. In Fujitsu, the molecules were displayed more quickly but this was not held to be patentable.


Currently, the most helpful EPO Technical Board of Appeal decisions are those in IBM Corp/Document Abstracting and Retrieving[8], Pension Benefits[9] and Hitachi.[10] In the first, the invention had to be “a new way of operating a computer in a technical sense.”


In Pension Benefits, a computer programmed to carry out the unpatentable method was deemed outside the categories of Article 52(2) since it was a physical object. This appears to fly in the face of the reasoning in Gale and Fujitsu (though the Board had no duty to take notice of English decisions of course) and open the door for software loaded on a storage medium such as a ROM chip. However, the application was eventually rejected on the grounds of obviousness.


In Hitachi, a computer when programmed to conduct a business method was not excluded by Article 52(2). The Board adopted a wide interpretation of “invention” and stated that “a method involving technical means is an invention within the meaning of Article 52(1) EPC.” Therefore the invention in this case was neither a computer program nor business method as such and no further technical contribution was necessary.


4.                 Macrossan – Patent Office Approach


Whilst Hitachi was being debated by the EPO Technical Board, the UK Patent Office was considering Neil Macrossan’s patent application. The examiner concluded that the invention provided no technical contribution and that it related to a method for doing business and a program for a computer.  It was also noted that, since the invention purported to achieve automatically that which had previously been carried out manually, it was also excluded from patentability as a method for performing a mental act.


5.                 Aerotel/Macrossan – Court of Appeal & the Four-stage Test


When Mr. Macrossan’s application reached the Court of Appeal, it had been joined by the Aerotel appeal. The Court supported Mann J’s first instance decision that the Macrossan’s application was excluded from patentability. To reach this conclusion, the Court used a four-stage test which should now form the basis of all analysis.


(i)                 The starting point is to properly construe the claim.

(ii)               Then, it is necessary to identify the actual contribution it is alleged the invention makes to the prior art.

(iii)              Having done this, the question is whether the contribution falls solely within the excluded subject matter.

(iv)             A caveat to all this is to check whether the actual or alleged contribution is actually technical in nature.


It is the last two stages that will generally cause the most difficulty.


The principal reason Macrossan’s patent was not upheld was that the invention was solely a method of doing business, in this case something that the solicitors were paid to do (incorporate companies). 


However, importantly the patent was also revoked on the grounds that it related to computer software as such.  The Court of Appeal said (at [73]):


We turn to the “computer program as such” objection.  Here Mann J and the hearing officer were unanimous in saying the exclusion applied and we agree.   Applying the structured test, again there is no difficulty over step 1.  Step 2 – what is the contribution? – is again straightforward.  It is to provide a computer program (in practice probably an interactive website) which can be used to carry out the method.  The hardware used is standard and is not part of the contribution.   Step 3 – is the contribution solely of excluded matter? – is again easy.  The contribution is just the devised program up and running.  Step 4 – is that contribution technical? – is again easy.  No.  So the exclusion applies.


Aerotel’s patent was upheld as not excluded because the system as a whole was new.  (The “system” claim being construed to be a claim to a physical device consisting of various components.)  The system could have been implemented using conventional computers and telephone switching equipment, but the crucial point in the case was that the arrangement of these components was novel.  Therefore, the system overall was a new piece of hardware.  This was also described as creating “a new overall combination of apparatus using known types of apparatus – and use that combination for [Aerotel’s] method“.[11]


The contrast between the facts of the Aerotel and Macrossan cases is illustrative in that it shows (roughly) where the line is drawn between what is patentable and what is not.  In Aerotel the patentee’s contribution lay in the new equipment he had devised.  In Macrossan, the contribution was in what standard computer equipment did under the control of computer software.


Macrossan’s patent application also failed because the contribution was only in getting the devised program up and running and this was not considered “technical” by the Court of Appeal. 


In relation to Aerotel, the Court of Appeal rather glossed over this step (saying it was “clearly technical”).  However, this follows inevitably from the Court’s finding that the Aerotel patent’s contribution was a new piece of hardware.


6.                 Reference to the Enlarged Board of Appeal


The Court of Appeal comes out strongly in favour of increased co-operation between the national courts of EU Member States in Aerotel/Macrossan.  It chose to work “directly from the source” when deciding to assess the merits of the parties’ cases based on the exact provisions of the EPC rather than those of the Act (described as “pointlessly” using different wording to the EPC).  Jacob LJ cited the need for European patent judges to try to be consistent with one another, particularly in relation to the interpretation of national laws implementing the EPC.  In what appears to be a concerted effort to promote the need for harmonisation across the EU in this complex and, to date, uncertain area of law, the Court carried out a comprehensive review of existing, domestic jurisprudence, and considered the approach towards patentable inventions in jurisdictions outside of Europe, such as the US. 


As part of its judgment, the Court of Appeal set out a series of questions for the EPO Enlarged Board of Appeal.  The purpose of the Enlarged Board is “to ensure uniform application of the law” (Article 112 EPC).  It will normally take a decision only when the decisions of the EPO’s Boards of Appeal are contradictory or when an important point of law arises in relation to the EPC.  Technically, only the Boards of Appeal and the President of the EPO can refer a question to the Enlarged Board.  This was acknowledged in the Court’s judgment by Jacob LJ, who stated that although, “the time has come for matters to be clarified by an Enlarged Board of Appeal”, the President of the EPO was “entirely free to ignore all we say”.  He expressed a hope in the spirit of co-operation between national courts and the EPO, however, and posed the following questions for the Enlarged Board:


(i)                 What is the correct approach to adopt in determining whether an invention relates to subject matter that is excluded under Article 52?

(ii)               How should those elements of a claim that relate to excluded subject matter be treated when assessing whether an invention is novel and inventive under Articles 54 and 56?

(iii)              And specifically:

(A)              Is an operative computer program loaded onto a medium such as a chip or hard drive of a computer excluded by Article 52(2) unless it produces a technical effect, if so what is meant by “technical effect”?

(B)              What are the key characteristics of the method of doing business exclusion?


In respect of these questions, we await a response but it is heartening that the English courts are trying to push the agenda towards harmonisation with Europe.


7.                 Summary Judgment


It is interesting to note that the Aerotel decision was an appeal from an application for summary judgment.  The High Court granted summary judgment and revoked the patent.  Although this was reversed on appeal, the grounds for reversal were on the merits of the case, not that it was inappropriate to decide the issue on a summary basis.  This was notwithstanding that a major part of Aerotel’s case (both before the judge and on appeal, although it is not referred to in the judgment) was that it was not appropriate to decide this type of issue summarily.[12] 


8.                 UK Patent Office Guidance


The UK Patent Office has produced a useful practice note on patentable subject matter following Aerotel/Macrossan (  It also goes on to illustrate by way of four case studies of previously refused applications how the new test might be applied (  In each case the applications are similarly refused – showing that the test is a consolidation and clarification of previous decisions rather than the creation of new law.


There has, however, been some consternation among patent agents in relation to the Patent Office’s position on claims to a computer program (or a program on a carrier) and whether they should be allowable when claims covering the use of that particular program, would be allowed.  The Office’s position is that, if the first step decides what the monopoly is, and the monopoly does not go beyond the program, the contribution is also unlikely to go beyond “a program for a computer”. On this basis it will be hard for claims to programs in themselves (or programs on a carrier) to pass the third test.


9.                 Conclusion


The Aerotel/Macrossan decision has made considerable progress towards clarifying the question of patentable subject matter.  We also have guidance from the Patent Office.  The test itself is clear although not always easy to apply in practice.  For total clarity we await further help from the EPO.  For the computer industry, the best advice is to focus on the system rather the software from the point of view of patenting their inventions.


Jason Rix is an Associate at Allen & Overy. He would like to acknowledge the assistance of Kathryn Carlisle and Tim Austen.

[1] Aerotel Ltd v Telco Holdings Ltd and others; Re Macrossan’s Application [2006] EWCA Civ 1371

[2] Vicom Systems Inc’s application (Decision T208/84), [1987] Official Journal EPO 14

[3] Merrill Lynch’s Application[1989] RPC 561

[4] Re Gale’s Application [1991] RPC 305

[5] Fujitsu Ltd’s Application [1997] RPC 608

[6] Wang’s Application [1991] RPC 463

[7] Raytheon [1993] RPC 427

[8] IBM Corp/Document Abstracting and Retrieving, EPO Technical Board of Appeal T22/85

[9] Pension Benefits, EPO Technical Board of Appeal (2000) T0931/95

[10] Hitachi, EPO Technical Board of Appeal (2004) T258/03

[11] Aerotel/Macrossan decision at [56].

[12] Additionally, Macrossan was an appeal from the Comptroller, where again there is no technical evidence.  However, as in Aerotel, the Court of Appeal had no difficulty deciding the issue summarily.