Court of Appeal reviews patentability of business methods and computer programs

United Kingdom

On Friday, 27 October 2006 the Court of Appeal delivered its eagerly anticipated judgment in the Aerotel and Macrossan cases. These cases centred upon the patentability of business methods and computer programs. The Court of Appeal held that the correct approach to dealing with these exceptions to patentability is found by applying a 4-step test, as follows:

  1. properly construe the claim;
  2. identify the actual contribution;
  3. ask whether it falls solely within the excluded subject matter;
  4. check whether the actual or alleged contribution is actually technical in nature.

In an unprecedented move, the Court of Appeal also recommended that the EPO Enlarged Board of Appeal consider a number of questions relating to the correct approach to determining whether a particular invention should be excluded from patentability under Article 52 of the European Patent Convention.


Article 52(1) of the European Patent Convention (“EPC”) prescribes that “European patents shall be granted for any inventions which are susceptible of industrial application, which are new and which involve an inventive step”. However, Article 52(2)(c) specifies that “schemes, rules and methods for performing mental acts, playing games or doing business, and programs for computers” are not to be regarded as “inventions” within the meaning of Article 52(1).

Article 52(3) of the EPC provides that the provisions of Article 52(2) “shall exclude patentability of the subject-matter or activities referred to in that provision only to the extent to which a European patent application or European patent relates to such subject-matter or activities as such”.

Section 1(2) of the Patents Act 1977 (the “Act”) is the English equivalent of Article 52.


Aerotel Ltd (“Aerotel”) is the proprietor of a patent in relation to a certain pre-payment telephone system. Aerotel instituted proceedings against Telco Holdings Ltd and others (“Telco”) for patent infringement, and Telco counterclaimed that Aerotel’s patent was invalid because it related to subject matter that was excluded from patentability.

In a separate case, Neil Macrossan (“Macrossan”) applied to the UK Patent Office for a patent in respect of “an automated method of acquiring the documents necessary to incorporate a company”. The UK Patent Office refused his application, on the basis that the subject matter of the application was unpatentable. Macrossan appealed the UK Patent Office’s decision in the High Court.

In each of these cases the High Court determined that the exceptions to patentability covered the relevant patent or patent application. The unsuccessful party in each case then appealed to the Court of Appeal.


The 4-step test

The Court of Appeal held that the correct approach to dealing with whether an invention is prohibited from patentability on the basis that it is excluded subject matter under Article 52 of the EPC is to apply a simple 4-step test, as follows:

  1. properly construe the claim (i.e. decide what the monopoly is);
  2. identify the actual contribution (in substance, not form);
  3. ask whether it falls solely within the excluded subject matter; and
  4. check whether the actual or alleged contribution is actually technical in nature.

The Court of Appeal observed that the 4-step approach is essentially a re-formulation (in a different order) of the test that was set out in Merrill Lynch [1989] RPC 561.

  • Aerotel

Applying the above test to the Aerotel application, the Court of Appeal held that Aerotel’s appeal was successful. Aerotel’s system constituted a new system - a new physical combination of hardware - and was more than a mere business method. The relevant contribution was also technical in nature.

Aerotel and Telco settled their dispute just before the appeal was heard. However, Aerotel has a pending patent infringement action against another company, Wavecrest. The Court of Appeal’s confirmation of the validity of Aerotel’s patent will clearly be significant in those proceedings.


In contrast, the Court of Appeal dismissed Macrossan’s appeal. The Court held that Macrossan’s contribution was an interactive system, and that the relevant method was intended in practice to be one carried out by a user accessing an internet site. This method was designed to do the tasks that would otherwise have been carried out by a solicitor or a company formation agent. Finally, there was nothing technical in Macrossan’s contribution, beyond the mere fact of running a computer program. The Court of Appeal concluded that Macrossan’s patent was “both for a method of doing business as such and for a computer program as such”.

The Court also noted that a business method need not be abstract, nor result in the completion of a transaction (contrary to Mr. Justice Mann’s findings in the High Court).

Questions for the EPO Enlarged Board of Appeal

The Court of Appeal posed a number of questions to the EPO Enlarged Board of Appeal. Lord Justice Jacob noted that the British Comptroller of Patents had encouraged the court in this request for clarification, but also recognised that the EPO Enlarged Board of Appeal would be free to ignore the Court of Appeal’s questions if it wished.

The Court of Appeal’s questions were as follows:

(1) What is the correct approach to adopt in determining whether an invention relates to subject matter that is excluded under Article 52?

(2) How should those elements of a claim that relate to excluded subject matter be treated when assessing whether an invention is novel and inventive under Articles 54 and 56?

(3) And specifically:

(a) Is an operative computer program loaded onto a medium such as a chip or hard drive of a computer excluded by Art.52(2) unless it produces a technical effect, if so what is meant by 'technical effect'?

(b) What are the key characteristics of the method of doing business exclusion?


The precise scope of Article 52 of the EPC (and hence section 1(2) of the Act) has been debated for many years, and judgements on exceptions to patentability have been contradictory. However, the Court of Appeal’s structured 4-step test has, to some extent, clarified the UK position in relation to software and business method patents. The Court of Appeal’s recommendation that the EPO Enlarged Board of Appeal consider a series of questions also demonstrates the efforts that the UK courts are making to foster increased cooperation, legal consistency and harmony throughout the European community. This is significant because the majority of all software and business method patents are granted by the EPO, and as such the EPO’s position on these applications is of great importance.

The UK Patent Office has indicated that it will issue a Practice Note in light of the Court of Appeal’s judgment.