“Delhi High Courts Direction On Reviewing The Government Policy On The Patentability Of Business Method Patents.”

The issue of patentability of business method patents is complex and multifaceted, and it varies between jurisdictions. Recently, the office of the Controller of Patents and Designs refused the application for grant of a business method patent titled ‘System and method to provide gift media’ under Section 15 of the Patents Act, filed by US-based company OpenTV Inc. In response to its refusal, the company filed an appeal before the Delhi High Court. The Court said that there is a need to re-examine the provisions in the Patents Act that lay down that ‘business methods’ are not patentable [OpenTV Inc. v. The Controller of Patents and Designs and Anr]. While expressing concern, Justice Prathiba M. Singh said that Section 3(k) of the Patent Act, 1970, does not consider business methods as patentable inventions regardless of the fact that many emerging technologies, such as business methods or applications of computing and digital technologies, are used in industries, including by start-ups, small and medium enterprises (SMEs), and educational institutions. While referring to the similar views expressed by the 161^st Report of the "Review of the Intellectual Property Rights Regime in India" presented by the Department-Related Parliamentary Standing Committee for the Ministry of Commerce and Industry, the judgment states that,

“There is a need to have a re-look at the exclusions in Section 3(k) of the Patents Act, 1970, in view of the growing innovations in this space. As the Parliamentary Committee Report referred to above recommends, the need to consider the march of technology in the digital space, is an urgent one, so that patent law is not outpaced and patenting itself does not become irrelevant in the years to come.” 

While agreeing to the fact that the amendment of the provision in the said legislation is the prerogative of the legislature, the Court directed to the Registry to send a copy of the judgment to the Secretary, Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry for consideration.

Patentability of business methods

The issue of patentability of business method patents has been viewed differently in the United States, European Union (EU) countries, and India. In the United States, business methods can be patented under certain conditions. The US Supreme Court ruling on Bilski v. Kappos, established a two-step test to determine whether a business method is eligible for patent protection. If the method is tied to a particular machine or apparatus (such as a computer system), or transforms an article into a different state or thing, then it may be eligible for patent protection. However, if the method is an abstract idea that cannot be tied to a specific machine or apparatus, then it is not eligible for patent protection.

In contrast, EU countries have stricter requirements for patentability. The European Patent Convention (EPC) excludes business methods from patentability if they are purely mental or human activities, and do not have technical character. Additionally, the method must be new and inventive.

India also has strict patentability requirements, and business methods are not explicitly mentioned in the country’s Patents Act. The Indian Patent Office has issued guidelines that state that business methods are patentable only if they are novel, non-obvious, and have industrial application. 

Granting of business method patents

In the United States, the grant of business method patents follows the same process as other patents. An application must be filed with the US Patent and Trademark Office (USPTO), and the application is subjected to a rigorous examination process. If the USPTO determines that the patent application meets all of the statutory requirements, the patent can be granted. Business method patents are subjected to greater scrutiny and may take longer to be granted due to their controversial nature.

In the EU, the grant of business method patents is regulated by the European Patent Office (EPO). The EPO examines patent applications based on the EPC requirements, including novelty and inventive step. If the application meets all requirements, the patent can be granted by the EPO.

In India, patent applications for business methods are filed with the Indian Patent Office. The office examines the application and determines whether the method is novel, non-obvious, and has industrial applicability. However, the process for granting patents in India tends to be slower than in the US or EU.

Challenges with business method patents

The grant of business method patents has been subject to significant controversy in all three jurisdictions. In the US, many critics argue that business method patents stifle innovation and competition, as they allow companies to monopolize certain business practices. Some have argued that this leads to a lack of innovation, as smaller companies may not have the resources to compete with larger companies with business method patents.

In the EU, business method patents have faced similar criticism. Critics argue that such patents may encourage rent-seeking behavior from companies, as they allow them to gain a competitive advantage without innovating. Additionally, some critics argue that business method patents may hinder innovation, as companies may spend more time and resources seeking patents rather than developing new ideas.

In India, the grant of business method patents has also been controversial. Some have argued that patents on business methods may lead to monopolies, and discourage innovation from smaller companies. Additionally, some argue that the Indian Patent Office has been inconsistent in its approach to business method patents, leading to uncertainty for companies seeking such patents.

Patentability of Business methods and Innovation

In today's world, innovation has become an essential element for the growth and prosperity of businesses. Intellectual property (IP) rights, particularly patents, play a crucial role in encouraging and protecting innovation. In India, the intellectual property system, including patent laws, are relatively new but have evolved considerably over the past few decades, leading to the emergence of a thriving startup ecosystem. The grant of business method patents in India has played a significant role in fostering innovation; however, patentability of business methods remains a matter of debate.

One of the primary concerns with business method patents is that they may stifle innovation and create legal monopolies, hindering competition. However, proponents of business method patents argue that they can encourage innovation by allowing businesses to monetize their ideas and invest more in research and development (R&D) efforts.

In India, the question of patentability of business methods is governed by the Patents Act, 1970. The Act defines patentability criteria, including novelty, inventive step, and industrial applicability. The Patent Office has clarified in its guidelines that business methods are patentable if they meet these criteria. Therefore, it is crucial to analyze how the grant of business method patents can lead to innovation in India.

Firstly, grant of business method patents can encourage innovation by providing incentives to businesses to invest in R&D. Patent protection enables companies to secure a return on their investment, allowing them to recover costs and reinvest in further innovation. This further encourages innovation, particularly by SMEs and startups, which may otherwise lack the resources to ensure reliable and efficient innovation. Business method patents can also provide the incentive for businesses to undertake riskier innovation projects that may have a more significant societal impact.

Secondly, the grant of business method patents can encourage innovation by enabling businesses to monetize their discoveries. In the absence of patent protection for business methods, competitors could copy the method and undermine the innovative company's benefits. By granting a patent for a particular business method, a company can not only stop others from using the same method but also gain the exclusive right to license it to others. This allows the company to generate revenue streams, which can be re-invested in further R&D, leading to further innovation.

Thirdly, grant of business method patents can help promote innovation in specific sectors. For example, various business method patents have been granted in the IT sector in India over the last few years. Facebook and Google, among others, have filed for and received patents for various business methods, including social media algorithms and ad personalization. Such patents provide these companies with a competitive edge, encouraging them to invest more in innovative technology.

However, patentability of business methods remains a controversial topic. Critically assessing the Patent Office's guidelines, some argue that they lack clarity, leaving considerable discretion to the examiner. Others suggest that the Indian Patent Office has been inconsistent in its approach to business method patents. Furthermore, there is concern regarding the potential for the grant of patents to lead to legal monopolies in some areas or to hinder competition.

Despite these concerns, it is essential to consider the potential positive outcomes, such as encouraging innovation through increased investment in R&D and incentivizing innovative, riskier projects that might have more significant societal impacts. Further, patents enable businesses to monetize their patents, which can generate significant revenues that can be used for further innovation. In such a context, India's entrepreneurial ecosystem is benefiting from IP rights protection, particularly business method patents as they enable businesses to protect their ideas, expand their operations and gain the right to exclusively license technologies. It thus leads to enhanced investments, new markets, and more job opportunities.

Ferid Allani case

The Ferid Allani case is an instance in which the Patent Office of India denied the grant of a patent for a software application. The application, titled "Method and System for Automated Detection of Car License Plate in the Traffic Environment," had been filed by Mr. Allani, an inventor from Tunisia. The Patent Office of India rejected the application, stating that the software did not meet the patentability criteria under the Patents Act, 1970.

The criteria for patentability in India are novelty, inventive step, and industrial applicability. The patent application for Mr. Allani's software was rejected on the grounds that it did not exhibit inventive step. The Patent Office deemed the software to be a mere computer program and, therefore, did not qualify for patent protection. This decision was made in compliance with the guidelines for the Computer-Related Inventions issued by the Indian Patent Office in 2016 that stated that computer programs, "mathematical methods, business methods, algorithms included in the computer program, and other purely abstract ideas" would not be patentable.

The Ferid Allani case highlights the issues surrounding the patentability of software in India. The unpredictability and inconsistent approach of the Indian Patent Office in granting software patents have created confusion for both inventors and businesses. There has been ongoing debate over whether the patent system should extend to software creations, with some arguing that it stifles innovation and others claiming that it is necessary to encourage and protect innovation. With respect to computer-related inventions, the Delhi High Court in this case ruled that patentability is not barred until the ‘‘technical effect’‘ and ‘‘technical contribution’‘ of the underlying invention has been evaluated. The court also emphasised computer-related invention principles discussed in the CRI Guidelines-2013.

It is essential to recognize that software is an intangible creation, and its patentability can raise issues similar to those of business methods patents. Critics argue that patenting software can lead to monopolies, as it can enable companies to corner the market and prevent others from using similar technology. Additionally, the patenting of software may also make it difficult for smaller companies and inventors to enter the market, leading to less competition, which hinders innovation.

However, proponents of software patents argue that the protection of intangible creations such as software is necessary to ensure that developers can protect their creations and substantially invest in their innovation. Software patents can also promote investment in R&D, leading to technological advancements and benefiting society at large.

In conclusion, the Ferid Allani case exemplifies the current reality surrounding the patentability of software in India. Patent protection for software may encourage and protect innovation, but it can also create unwanted monopolies and hinder competition if not regulated carefully. Therefore, as directed by the Delhi High Court in its judgment in this matter, it is essential for policy makers to strike a balance by providing effective guidelines for the Computer-Related Inventions to the Patent Office and businesses while considering the benefits and drawbacks of protecting software through patent systems.

India's National Intellectual Property Rights (IPR) Policy, launched in 2016, aims to foster innovation and creativity by protecting intellectual property rights and encouraging the use of intellectual property for the benefit of society. The policy also seeks to create awareness about IP rights and foster a culture of respect for IP rights among businesses, innovators, and the general public. The motto of ‘Creative India and Innovative India’ of this policy plays a crucial role in India's ambitious "Make in India" initiative, which aims to transform India into a global manufacturing hub and boost the country's economic growth.

The Make in India program seeks to attract both domestic and foreign investment across various sectors, with the goal of boosting domestic manufacturing in India. The initiative aims to create employment opportunities, boost economic growth, and increase in the export of goods. The National IPR Policy plays an important role in this initiative by strengthening the intellectual property rights framework and safeguarding intellectual property assets in the country.

The IPR policy provides a comprehensive framework for the protection of patents, trademarks, copyrights, and other forms of intellectual property. The policy seeks to create a robust IP regime that supports innovation, promotes technological advancement, and enhances competitiveness. The policy emphasizes key strategies that are aligned with Make in India's objectives such as increasing IP awareness, developing a strong IP culture, engaging with stakeholders, promoting research and innovation, and enforcing IP rights.

The policy encourages domestic and foreign investment in the country's research and development (R&D) sector. The policy aims to strengthen the R&D environment by encouraging the commercialization of IP, supporting collaboration between research institutions and industry, including startups and MSMEs, and creating a framework for technology transfer. The policy also emphasizes the development of a skilled workforce and promoting entrepreneurship to spur innovation in India.

The National IPR Policy seeks to provide legal certainty to businesses and creators, which will further support the Make in India initiative. A robust IPR regime ensures protection of businesses in India and allows them to confidently invest in R&D, manufacture, and market their products. The policy also helps to protect the rights of small and medium-sized enterprises (MSMEs), which are vital for India's economic growth. SMEs often lack the resources to compete with large-scale manufacturers and may face challenges in enforcing their intellectual property rights. The National IPR Policy provides MSMEs with access to legal and technical support and provides them with the necessary tools to protect their IPRs.

The Make in India initiative creates numerous opportunities for the development of new technologies and inventions. India’s IPR policy plays an important role in encouraging the development of these innovations by providing the legal protection they require. The policy promotes innovation through a number of measures, including the creation of a robust patent system and the protection of trade secrets.

The Way Ahead

The process and regulations surrounding the grant of business method patents vary significantly between the United States, EU countries, and India. While the US has the most liberal approach to business method patents, the EU and India have stricter requirements. However, in all countries, business method patents have faced significant controversy and criticism. Companies seeking business method patents must be aware of the specific requirements and challenges in each jurisdiction in order to make informed decisions.

The National IPR Policy and Make in India initiative are closely intertwined. The policy provides a supportive legal environment for businesses and innovators to invest in India, while Make in India creates the necessary conditions for new ideas and technologies to be developed and brought to the market. The combination of a strong IPR framework and Make in India initiative has turned India into a hub of innovation where entrepreneurs are free to pursue their ideas and create value. It is imperative that the DPIIT, as directed by the Delhi High Court should take a policy decision soon on amending either the guidelines for the Computer-Related Inventions or the Patent Act including the Rules for encouraging creativity and innovation as envisages in the National IPR Policy that has become a vital instrument in supporting the Make in India initiative and driving growth across various sectors.

The grant of business method patents in India can encourage innovation by incentivizing businesses to invest more in R&D and undertake riskier projects, by enabling them to monetize their discoveries through exclusive licenses, and by promoting innovation in specific sectors. However, concerns regarding the potential for patentability of business methods to hinder competition and create legal monopolies must be addressed by ensuring that the Patent Office's guidelines are clear and applied consistently. With the right legislation, IP protection, and a robust patent system, the grant of business method patents can continue to encourage and foster innovation in India.

Author is an Intellectual property Law and Technology Exert and Retd. Joint Secretary, Department of Justice, Ministry of Law and Justice, Government of India.

Views are personal.