Aerotel Ltd. v Telco Holdings Ltd & Ors Rev 1

Patentability exclusions require a four-step inquiry: construe the claim, identify the actual contribution, ask whether it consists solely of excluded subject matter, and check whether it is technical. The inquiry concerns substance rather than claim form. Using hardware does not itself avoid an exclusion, and a computer program remains within the excluded category when embodied on an operational medium. A contribution consisting solely of excluded matter does not qualify as a technical contribution. A genuinely new physical system may, however, contribute more than a business method, even when assembled from known components. The business-method exclusion covers specific business activities and does not require a completed transaction. Pure questions of patentability law should be resolved during examination; applicants receive the benefit of reasonable doubt on debatable factual questions.

Aerotel owned a patent for a prepaid telephone-calling system and sued Telco for infringement. Telco counterclaimed for revocation and obtained summary judgment before Lewison J, who held the subject matter excluded from patentability: [2006] EWHC 997 (Pat). Although Aerotel and Telco settled before the appeal, Aerotel retained a commercial interest because it had brought a separate infringement action against Wavecrest.

Neal William Macrossan applied for a patent for an automated system which obtained answers from users and generated documents needed to incorporate companies. A Patent Office hearing officer refused the application. Mann J dismissed his appeal: [2006] EWHC 705 (Ch). Macrossan appealed on written submissions, while the Comptroller appeared and also assisted the court in Aerotel's appeal following its settlement.

The common question was how to determine whether claimed inventions concerned excluded subject matter as such under article 52(2) and (3) of the European Patent Convention, implemented by section 1(2) of the Patents Act 1977.

1. Aerotel's appeal was allowed and Macrossan's appeal was dismissed. The court adopted a structured four-step approach: properly construe the claim; identify the actual contribution; ask whether it falls solely within excluded subject matter; and check whether the contribution is technical. This reformulated the binding technical-contribution approach in Merrill Lynch's Appn. [1989] RPC 561, Gale's Appn. [1991] RPC 305 and Fujitsu [1997] RPC 608. Although the third stage might already answer the technical question, the fourth remained a necessary check under those authorities (paras 38–49).

2. The contribution must be assessed in substance, considering the problem addressed, the invention's operation and its advantages. At the application stage an alleged contribution could generally be accepted, but an incorrect assertion about what had been invented was not conclusive. Pure legal questions should be decided during prosecution; reasonable doubt on debatable facts should favour the applicant (paras 5, 43–44).

3. The exclusions were disparate and should be construed without a bias towards or against exclusion. They were not collectively confined to abstract or intangible subject matter. A computer program included an operational program embodied on a medium, and its ordinary execution supplied no sufficient technical effect. The court declined to follow Pension Benefits, Hitachi and Microsoft/Data Transfer, whose hardware-based approaches conflicted with binding domestic authority (paras 21, 27–31, 38, 92).

4. Aerotel's contribution was a new physical combination of hardware, rather than merely an existing apparatus used for a new business method. The system was technical and contributed more than a method of doing business as such. Its method claims concerned use of that new apparatus and likewise escaped the exclusion. Lewison J had mistaken evidence that known components could implement the system for evidence that the overall system was already known (paras 50–57).

5. Macrossan's contribution automated the work of a solicitor or company formation agent using standard hardware. A business method could concern a specific activity and need not complete a commercial transaction. Describing the invention as a tool did not remove it from that exclusion. The contribution was also a computer program as such, with no technical contribution beyond running the program (paras 63–73).

6. The court left open whether the mental-act exclusion extended to electronically performing activities capable of mental performance. It doubted the wider construction but did not need to decide it. The apparent-bias objections also failed; remittal would serve no useful purpose because no relevant further evidence was identified and the alleged flaw did not affect the judicial hearings. The revocation decision against Aerotel was reversed, while refusal of Macrossan's application stood (paras 62, 74, 77, 94–98).

• Court of Appeal: In [2006] EWCA Civ 1371 , allowed Aerotel's appeal against revocation and dismissed Macrossan's appeal against refusal of his patent application.
• High Court, Patents Court: Lewison J granted Telco summary judgment on its revocation counterclaim and ordered revocation of Aerotel's patent on 3 May 2006: [2006] EWHC 997 (Pat) .
• High Court: Mann J dismissed Macrossan's appeal from the Patent Office on 3 April 2006: [2006] EWHC 705 (Ch).
• Patent Office: On 22 March 2005, the hearing officer upheld the objection that Macrossan's application concerned unpatentable subject matter.
• Patents County Court: Aerotel's infringement action began in February 2005. HHJ Fysh QC transferred it to the High Court in November 2005.