Reverse Mortgage System Fails Subject Matter Test

On 5 May 2005, the Delegate of the Commissioner of Patents handed down Peter Szabo and Associates Pty Ltd [2005] APO 24. The matter arose out of an attempt by the patentee, Peter Szabo and Associates Pty Ltd, to obtain certification of innovation patent no. 2004100848. By way of background, please see my post of 20 April 2005.

The Subject Matter
The patent was directed to a "reverse mortgage" system. In such a system, an aged person can part-sell an interest in their home in return for a cash deposit. Settlement occurs after death. A disadvantage is that a financier can make an excessive profit in the event of an early death. The claimed invention addressed this by providing a rebate in certain circumstances. The patent set out a number of mathematical expressions for determining the amount of the rebate. During the certification process, the patent Examiner raised an objection that the invention was not proper subject matter for a patent.

The Law
According to the Australian Patents Act, an invention is patentable if, inter alia, the invention as claimed is a "manner of manufacture within the meaning of section 6 of the Statute of Monopolies". The rules governing patentable subject matter depend on a continuous re-defining of that phrase in our courts. As a result, it has been possible for Australia to adapt to changing technologies without the need for statutory amendments.

The present hearing is useful in that it summarizes the landmark National Research Development Corporation v. Commissioner of Patents (1959) 102 CLR 152 case. It also sets out a very useful table of cases and the related subject matter in issue.

The Delegate reinforced a number of principles enumerated below:

1. The purpose of section 6 of the Statute of Monopolies was to encourage development in the fields of science and technology. To be a manner of manufacture an invention must contain some material element that relates to science or technology.

2. The invention must fall within the scope of the useful arts as opposed to the fine arts. Useful arts involve the application or use of science and/or technology in a material manner.

3. The use of mathematical expressions does not necessarily indicate that the subject matter falls within the useful arts. It is necessary to investigate what is represented by the mathematical expressions.

4. It is not enough that an invention addresses a practical need. The investigation must apply the principles which have been developed for the application of section 6 of the Statute of Monopolies.

The Decision
The Delegate held that the claimed invention did not define a manner of manufacture. In particular, the Delegate held that the claimed invention as a whole did not embody in any material manner elements of science or technology. The claimed invention was held to be no more "than a prescription of the basis of a contractual agreement between parties, based on mathematical expressions formulated to produce a more equitable arrangement."

The Delegate revoked the patent.


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