Business Methods and Software Patents

The Australian Government’s Productivity Commission (“The Commission”) has devoted an entire chapter of its draft report on Intellectual Property Arrangements to the topic of ‘business methods and software patents’.  The Commission’s draft recommendation in this respect is that ‘the Australian Government should amend section 18 of the Patents Act 1990 (Cth) to explicitly exclude business methods and software from being patentable subject matter.’

The Commission defines a business method as ‘a way of operating “any aspect of an economic enterprise”’, noting that this ‘encompass[es] a broad range of ideas and activities.’  It defines software as ‘a set of instructions that allow computing devices to function.’  The draft report further states that ‘with the rise of the digital economy, many business methods are implemented by software, making it difficult to separate the two.’  It is on this basis that The Commission creates and analyses a single, all-encompassing, category of business methods and software patents.

The draft report identifies a number of factors that, in The Commission’s opinion, weigh against allowing patents to be granted for business methods and software inventions.  These factors include:

  • a belief that innovation would occur in software and business processes in the absence of patent protection, as evidenced, for example, by the existence of a strong free and open source software (“FOSS”) movement;
  • many software products exhibit rapid development and short innovation cycles, suggesting that the ‘first mover advantage’ provides a sufficient incentive, and that the time-frames of the patenting process are, in any case, mismatched to the commercial lifespan of software programs and features; and
  • business method and software patents are said to reward low levels of inventiveness, to result in the disclosure of little ‘new knowledge’, to be used strategically, and to constrain follow-on innovation.

The draft report identifies one possible exception, in the form of ‘embedded software’, i.e. software implemented within products that are not generally regarded as computing devices and which, when implemented using more traditional technologies, would generally be regarded as patentable.  The Commission is seeking further input on identifying approaches or tests to ‘differentiate between inventions where the contribution of embedded software is trivial, and inventions where the contribution of embedded software is genuinely deserving of patent protection’.


As has been the case in many previous attempts to ‘reform’ the law in relation to patenting of computer-implemented inventions The Commission appears to view software through the lens of its own experience of mass market applications and online services. It also seems to have been swayed by the rather narrow perspective provided by FOSS advocates whose influence over legislature change in New Zealand, for example, was greatly disproportionate to their numbers.

This perspective fails to account for the pervasive role of software across almost all industries and strata of society in advanced economies.  While many relatively trivial software products and features may have rapid development times, short life cycles, and minimal cost and inventive merit, this is not necessarily representative of the overall contribution made by computer-implemented inventions.  In addition to software embedded in a wide range of technological products, there are highly specialised, technical and mission-critical software applications deployed throughout all industries, and across the public and private spheres.

Indeed, some of the most important code in the world – requiring large investments in research, development, coding and testing – is not to be found in smartphone apps, office PCs or on e-commerce sites.  This code, whether embedded in products and systems, or used for their design and operations, is mission-critical, mostly proprietary, and carries with it huge liability in case of faults or failures.  As such it shares many characteristics, and policy justifications for strong intellectual property protections, with more traditional industrial products.

By subsuming such a wide diversity of commercial and industrial activity into a single category of business methods and software patents, and tarring this whole class with the brush of its least patent-worthy representatives, The Commission is unable to address the real issues that have plagued debate around patenting of computer-implemented inventions.  This deficiency needs to be resolved through further consultation and a more nuanced approach to the topic in The Commission’s final report.  Otherwise, the inquiry will have wasted a valuable opportunity to review the important role of intellectual property rights in protecting and encouraging innovation in one of this century’s most vital and economically important fields of endeavour.