Australia: Australian Patent Office Refuses Patent For Financial Trading Method

Last Updated: 9 August 2018
Article by Mattia Pagani and Chris J. Carter

In April 2018, the Australian Patent Office held the hearing of BGC Partners Inc [2018] APO 27, in which it refused a patent application in the area of financial trading for failing to claim patentable subject matter.

Although this outcome may seem unsurprising given the well-established ineligibility of business methods for patent protection, it is worth noting that the invention was framed by the patent applicant as a technical innovation for improving the efficiency of electronic trading systems. Ultimately, however, the Patent Office took the view that the substance of the invention was not a technical improvement, but a business improvement, and thus it was unsuited to patent protection.

The Patent Application

The application in question was Australian standard patent application number 2016204442, in the name of BGC Partners Inc.

The application, titled "System for automatically distributing a trading order over a range of prices", describes a financial trading system in which a single trade order created by a trader is automatically converted into multiple trade orders covering a range of price levels (e.g. buy or sell price levels), which are then submitted to a trading exchange for execution.

The multiple trade orders are generated in accordance with distribution parameters (e.g. order size, price level, and order spread) which may be pre-configured manually by the trader or automatically by a computer system. In this way, while creating a single trade order, traders are able to take advantage of the depth of the market to accomplish more trades with higher frequency. Traders who would benefit from such a process include market makers and, more generally, traders practising high-frequency trading.

From a technical perspective, BGC argued that its invention improves the efficiency of electronic trading systems by reducing the volume of messages communicated between various entities involved in a trading session.

The application explains that, in electronic trading systems, trade orders are communicated from a trader terminal to a trading exchange. Clearly, communications between these two entities are subject to network traffic and inherent network latencies. However, in BGC's invention, even while multiple trade orders are executed, communication between the trader terminal and the trading exchange is limited to one single trade order (and one single confirmation notification upon execution of the trade orders), easing the load on the communication network.

This technical aspect was deemed sufficient for meeting patentable subject matter requirements in the US, where BGC was granted US patent number 8,566,213.

Backed by a granted US patent, BGC commenced prosecution of its Australian application by aligning the claims with the granted US claims. The Australian Patent Office however issued consecutive examination reports asserting that the claims, whilst being novel and inventive, did not define patentable subject matter. Following receipt of the second examination report, BGC requested a hearing contesting the outcome of the examination.

Hearing Decision

In his decision, the Delegate of the Commissioner of Patents reviewed the case law that has evolved around the principle of "manner of manufacture", which guides what is considered patentable in Australia.

In particular, the Delegate emphasised the teaching expressed in Grant v Commissioner of Patents [2006] FCAFC 120 and Research Affiliates LLC v Commissioner of Patents [2013] FCA 71, that, in order to be patentable, a method must produce a "concrete, tangible, physical, or observable effect". This was relevant in the present case because the main claim in the application was directed to "[a] method of improving the efficiency of an electronic trading network".

In accordance with recent Patent Office practice, the Delegate proceeded to apply the Australian version of the British Aerotel/Macrossan test, which essentially consists of identifying the substance of the claims, and determining whether it falls within established principles of what constitutes a patentable invention. The substance of the invention was characterised as the reconfiguration of a trade order received from a trader into a number of different orders to be sent to trading exchanges.

The Delegate disagreed with BGC's submission that the invention solved a technological problem by improving the efficiency of an electronic trading system through a reduction in network traffic and latency. According to the Delegate, the invention does not decrease latency "within the network", but instead "operates within the confines of the latency that already exists in the network". The Delegate considered the specification to be "unhelpfully silent and/or indefinite in its language" relating to the technological improvements alleged by BGC.

The Delegate also briefly highlighted that the trading orders generated by the invention aim to minimise the risks associated with the movement of markets. Given that, in the Delegate's view, this risk-related activity occurs within the constraints of a network, the invention was determined to be a "business improvement".

In light of this reasoning, the Delegate seems to have taken into account a number of principles developed by the Australian Courts for assessing patentability, namely whether the invention results in an improvement in the function of a computer, and whether the invention solves a technical problem within or outside the computer.

Finally, the Delegate acknowledged the Full Federal Court's position in Commissioner of Patents v RPL Central Pty Ltd [2015] FCAFC 177 that a computer implementation of a business method can be patented if there is "some ingenuity in the way in which the computer is utilised". Here however, the Delegate again noted that the specification does not identify any technical problems encountered during implementation of the invention, and that therefore there is no ingenuity in how the invention is implemented.

Conclusion

This decision is another demonstration of the Patent Office's approach in determining patentability, which, focussing on the substance of the invention, is increasingly similar to UK, rather than US, practice. The decision also highlights the importance of elaborating in the specification any technical advantages and technical problems addressed by the invention. The Delegate's view of the invention seems to have been at least partly influenced by the lack of these technical statements within the specification.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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