Australian Patent Office rules that insurance plan is not patentable
Discovery Holdings Limited  APO 56
The Australian Patent Office has decided that an invention relating to a life insurance plan, which included insurance coverage for the parents of the person whose life was insured, was not patentable because there was no physical effect produced by the claimed invention.
To be patentable under Australia’s Patents Act 1990, an invention must be a “manner of manufacture”,1 which Australian courts have previously held to require (among other things) the creation of some “physical phenomenon or effect”. In this decision, it was held that a transfer of legal rights or making of a payment in the life insurance plan did not provide such a phenomenon or effect, and that the insertion of computer-related features peripheral to the invention’s central purpose did not assist.
This decision is one in a string of recent Patent Office decisions2 in which computer-related features in claims have been discounted for being “peripheral and subordinate” to the “substance” of the claimed invention in determining manner of manufacture, and is a reminder to patent applicants to prepare applications with reference to physical effects that are central to their inventions.
Claimed invention and examiner’s objections
A South African financial services company, Discovery Holdings Ltd, applied in 2007 for a standard Australian patent to protect their method and system for managing a life insurance plan.
Examination of the patent application commenced in 2010 when claim 1 was a method claim without computer-related features. The Examiner objected to this claim for not being a manner of manufacture because the working of the method did not result in “some physical phenomenon or effect”, as required by the Full Federal Court in Grant v Commissioner of Patents.3
In the Grant decision, a method of protecting an asset using a trust was found to lack a manner of manufacture because it did not “produce any artificial state of affairs, in the sense of a concrete, tangible, physical, or observable effect”. In Grant, the court reasoned that a “physical effect in the sense of a concrete effect or phenomenon or manifestation or transformation is required”.
In a response to the Examiner, the applicant argued that the pending claims comprised a manner of manufacture according to the tests in Grant because:
Taking a plain English meaning of the terms [in the pending claims], it is difficult to conceptualise how the making of a payment could be considered as anything other than concrete, tangible, physical and observable. The result is observable in the sense that an observing party can identify that a payment has been made, and the result is tangible, in the sense that there is a real-world occurrence involving physical transfer of physical funds.
Insertion of computer-related features
Subsequently, computer-related features were introduced into claim 1. The Examiner then relied on Invention Pathways to discount these features. The matter was sent down for a hearing after the fourth Examination Report.
The two independent claims considered at the hearing were:
1. A computer implemented method of managing a life insurance plan, the method including:
receiving a premium from an insured life;
on occurrence of an insured event to the insured life, paying out a predetermined amount to the insured life; and
on occurrence of an insured event to a parent of the insured life, paying out a predetermined amount to the insured life.
5. An electronic system for managing a life insurance plan includes:
a memory for storing:
information relating to premiums received from an insured life; and
information relating to parents of the insured life; and
a processor disposed in communication with the memory, the processor being adapted to:
receive data indicating the occurrence of an insured event to the insured life, and in response thereto to effect the paying out of a predetermined amount to the insured life; and
receive data indicating the occurrence of an insured event to a parent of the insured life, and in response thereto to effect the paying out of a predetermined amount to the insured life.
The specification of the patent application described a computer system for implementing the method only in very broad terms, without specific details of how any data processing would be performed.
Delegate: financial transaction or other legal transfer is not patentable
At the hearing, the applicant argued that paying out of an amount (as claimed in claims 1 and 5) is a physical effect.
In his decision, a Delegate of the Commissioner of Patents relied on Grant to hold that the claimed method (in claim 1) does not result in anything physical, but merely a transfer of legal rights of ownership or entitlement.
The Delegate referred favourably to a recent Patent Office decision, Iowa Lottery,4 in which it had been decided that “a financial transaction or other legal transfer of an asset is not the sort of physical or observable effect” being referred to in Grant.
The Delegate then went on to find:
Just as in Grant it is a mistake to see the “asset” as being the outcome of the method—the asset exists before the method is carried out—in the present case it is not the “predetermined amount” which is created as a result of the method, merely the entitlement to it.
The Delegate also mused that the claims related to an insurance plan, and that “schemes” and “plans” are traditionally not patentable. He regarded this as a “strong hint that methods of insurance are inherently mere schemes and hence prima facie not patentable”.
Delegate: physical effect must be central to invention’s purpose
Relying on Invention Pathways, the Delegate then dismissed the computer-related features as being “peripheral and subordinate to the substance of the claimed method”. He referred to the following passage in Invention Pathways:
In applying the decision in Grant I therefore consider that the “concrete effect or phenomenon or manifestation or transformation” referred to must be one that is significant both in that it is concrete but also that it is central to the purpose or operation of the claimed process or otherwise arises from the combination of steps of the method in a substantial way.
Although Invention Pathways only related to a method claim, the Delegate also relied on it to reject the system claim, without providing any additional reasoning.
The invention was also found to lack an inventive step, and thus the lack of manner of manufacture was not the only ground on which the application was refused; however, the Delegate’s reasoning in respect of inventive step seems to have been based primarily on his interpretation of the common general knowledge rather than clearly permissible evidence.
Lessons for patent applicants: focus on concrete features
One lesson from the decision is that the Patent Office regards a life insurance plan, when broadly claimed, as generally unpatentable because transfer of an asset, e.g., making a payment, is not sufficiently “concrete”. Another lesson is that computer-related features cannot confer patentability if they are not central to the purpose or operation of the invention.
Accordingly, patent applicants with commerce or business inventions, particularly those involving transfers of rights or payments, should include in their patent applications as much detail as possible relating to concrete features that are central to the operation of their inventions. This may assist in satisfying the current Patent Office requirements for patentable subject matter.
However, as the reasoning in these Patent Office decisions (e.g., Invention Pathways, Iowa Lottery, etc.) has not yet been considered or approved by an Australian Court, users of the Australian patent system are advised to keep a watch for changes, e.g., by subscribing to our mailing list.
- Section 18(1)(a).
- See, for example, Invention Pathways Pty Ltd  APO 10 (21 July 2010), Iowa Lottery  APO 25 (21 October 2010), Research Affiliates, LLC  APO 31 (17 December 2010), First Principles, Inc.  APO 1 (5 January 2011), Myall Australia Pty Ltd v RPL Central Pty Ltd  APO 48 (12 July 2011), and Network Solutions, LLC  APO 65 (19 August 2011).
-  FCAFC 120 (18 July 2006).
-  APO 25 (21 October 2010).