Australian Gov't. Body Recommends Banning Software Patents

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By Peter Leung

May 2 — Australia's Productivity Commission wants to exclude business methods and software from patentable subject matter under that country's laws.

The APC's draft report on Australia's “Intellectual Property Arrangements” called for a patent law amendment to explicitly exclude those types of inventions from patent protection.

There is a “clear case” to disallow the patenting of software and business methods because there's evidence that patents in those areas don't encourage new or valuable innovation, the draft issued April 29 said. What's more, such patents can impede competition.

The APC is requesting feedback to the draft report by June 3. Submissions can be made to the APC website at

Little to No Benefit to Society

The report argues that patents on business methods and software are protecting—at best—low levels of inventiveness that don't truly advance technology. It pointed to one study that showed just one of 72 granted business method patents in Australia possibly contributed new knowledge, and three others may contribute new ideas without any new knowledge. The rest of the patents gave no benefit to society, it said.

Such low-quality patents increase uncertainty in the market, harming consumer welfare by discouraging smaller firms from commercializing their own technologies, the report argued. Furthermore, some companies accumulate business method and software patents for the main purpose of increasing the cost of market entry. This phenomenon, the report suggests, is particularly prevalent in the U.S., with non-practicing entities wielding “patent submarines” against unsuspecting companies.

Broad protections for these patents may also be costly to Australia.

Data from the Australian Bureau of Statistics show that Australians pay much more for software licenses to overseas vendors than they receive. Australians paid approximately A$1.2 billion ($919.5 million) in software license fees to overseas companies in 2012-13, while receiving about A$200 million ($153 million). The APC suggests that business method and software patents have contributed to this imbalance, though it acknowledges that other factors, including copyright law, may come into play.

Unclear Lines

Another problem is that it's unclear whether business method and software patents meet the “method of manufacture” requirement of Australia's Patents Act. The courts have attempted to clarify that with a “physical effect” test that begins by assuming that a business method by itself is not patentable. However, an invention meets the requirement if there is a concrete effect, phenomenon, manifestation or transformation. There also has be some “useful product,” physical phenomenon, or effect from the working of the patent.

Worldwide Debate

This issue is not unique to Australia. Both the U.S. and European Patent Office are also wrestling with the patentability of business methods and software.

The APC says Australia's approach has been consistent with that of other jurisdictions, including the U.S.

In both countries, the main source of complication is whether a business method or software patent is a patentable improvement to computer technology, it said. Similarly, Australia's “physical effect” test shares some features with the “machine or transformation” test that the U.S. Supreme Court has said is a “clue” to patentability.

Legal developments in other jurisdictions also appear to have impacted software patent applications in Australia. After the U.S. Supreme Court made it more difficult to get these types of patents in Alice Corp. v. CLS Bank Int'l, 189 L. Ed. 2d 296, 2014 BL 170103, 134 S. Ct. 2347 (U.S. 2014), applications for such patents dropped in Australia as well.

Get Rid of It

Given these uncertainties, the draft report argues that excluding software and business method patents from patent protection would reduce legal uncertainty and prevent companies from using such patents to unfairly reduce competition.

Changing Australia's law would be consistent with that nation's obligations under international treaties, the draft said. Though the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) requires a certain level of patent protection, it notes that several member states have interpreted TRIPS as to not require protection for software and business methods.

To contact the reporter on this story: Peter Leung in Washington at

To contact the editor responsible for this story: Mike Wilczek in Washington at

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