Delhi High Court Dilutes The Business Method Exception Under Section 3(k) Of The Patents Act, 1970

What is Business Method Exclusion under Section 3(k) of the Indian Patent Act:

Section 3(k) of the Indian Patent Act, 1970, explicitly excludes certain categories of inventions from patentability. Among these are "mathematical or business methods, computer programs per se, or algorithms." This provision plays a critical role in defining the scope of what constitutes a patentable invention in India, particularly in the context of modern technological and business innovations.

What Does Section 3(k) State?

Section 3(k) of the Act declares that the following are not considered inventions:

• Business Methods: Methods related to conducting business, such as e-commerce strategies or financial transactions.
• Mathematical Methods: Abstract mathematical formulas and principles.
• Computer Programs Per Se: Software that does not demonstrate a technical effect or solve a technical problem.
• Algorithms: Pure algorithms used in software development.

The exclusion of business methods is particularly strict, as it does not include the qualifying term per se, unlike computer programs. This means that business methods are broadly excluded without consideration for technical contributions or advancements they might provide.

Analysis of the judgement

The judgment in the Comviva Technologies Limited Vs Assistant Controller of Patent & Design; C.A.(Comm. IPD-PAT)-492 of 2022 provides an important analysis of Section 3(k) of the Indian Patents Act, 1970, which excludes from patentability "a mathematical or business method or a computer programme per se or algorithms." This case specifically addresses the patentability of computer-related inventions and their classification under Section 3(k), with significant implications for innovation in the digital and technological domains.

Background of the Case

The appellant's patent application involved a system for authentication of electronic payment cards using electronic tokens. The invention aimed to enhance security in contactless payment systems by employing a multi-layered token-based authentication process.

The Assistant Controller of Patents had rejected the application on two ground viz the invention was categorized as a "business method and it was considered a "computer programme per se," both of which are non-patentable under Section 3(k).

Court's Analysis

The Delhi High Court examined the rejection in light of established legal principles and guidelines:

a. Business Method

The court referred to Clause 4.5.2 of the Guidelines for Examination of Computer-Related Inventions (CRI Guidelines, 2017), which clarifies that claims should only be treated as business methods if they are "essentially about carrying out business/trade/financial activity/transaction."

The court emphasized that mere use of terms like "payment" or "transaction" does not automatically classify an invention as a business method. Instead, the focus should be on whether the invention addresses a technical problem or provides a technical solution. The court further concluded that the invention addressed a technical problem related to transaction security and did not fall under the category of business methods.

b. Computer Programme Per Se

The court reiterated that Section 3(k) excludes only "computer programmes per se" from patentability, not all inventions involving computer programs. It cited precedents such as Ferid Allani v. Union of India; W.P.(C)7 of 2014, delivered by Hon’ble High Court of Delhi, which highlighted that inventions demonstrating technical effect or technical advancement are patentable, even if they involve computer programs. The court found that the appellant's invention provided a technical solution to a specific problem in contactless payments (e.g., preventing unauthorized transactions). Therefore, it could not be dismissed as merely a computer program.

The court has set aside the Assistant Controller's decision and directed the Patent Office to grant the patent, subject to compliance with other statutory requirements. 

Challenges Posed by Business Method Exclusion

Section 3(k) provides an absolute bar on business methods. The exclusion is interpreted as absolute for business methods. Inventions that primarily aim to solve business or administrative problems are excluded from patentability, even if they involve some technical implementation. It creates ambiguity in interpretation. Determining whether an invention is a "business method" can be subjective. Courts and patent offices often face challenges in distinguishing between technical contributions and mere business strategies. Further, innovations involving digital technologies, artificial intelligence, or fintech solutions often blur the lines between technical advancements and business methods. This has led to concerns about excluding potentially valuable inventions from patent protection.

Important Judicial Interpretations and Guidelines with respect to Business Method Exclusion

One of the important decision with respect to the Dilution of 3 (k) is Priya Randolph v. Deputy Controller of Patents and Designs; (T)CMA(PT)/109/2023, wherein the Hon’ble Madras High Court ruled that an invention involving hardware, software, and firmware components designed to improve data privacy was not merely a business method. The court emphasized examining the substance of the invention rather than its superficial association with business methods.

Further in the matter of OpenTV Inc v. Controller of Patents; C.A.(COMM.IPD-PAT) 14/2021, the Hon’ble Delhi High Court held that inventions aimed at solving purely business problems (e.g., gifting media) fall under the business method exclusion. However, it highlighted the need to revisit Section 3(k) exclusions in light of growing innovations in computing and digital technologies.

The Indian Patent Office’s Guidelines for Examination of Computer-Related Inventions (CRI Guidelines) provide clarity on assessing claims involving business methods wherein it has laid down that the “claims must demonstrate a technical effect or contribute to solving a technical problem.” and “mere inclusion of hardware or software components does not automatically make an invention patentable if its essence remains a business method”.

Strategies to Overcome Section 3(k) Exclusion

To overcome the exclusion posed by Section 3(k) with respect to the Business Method it is suggested to emphasize how the invention solves a technical problem or improves hardware functionality rather than describing it as a method for conducting business. The claims needs to be drafted carefully wherein one should avoid language that directly links the invention to business processes. The claims must highlight any novel hardware integration or specific technical advancements. The claims should be such that it should present the invention as one that provides a technical solution rather than as a tool for enhancing business efficiency.

The judiciary and policymakers have increasingly recognized the need to reconsider Section 3(k)'s exclusions in light of technological advancements. The Hon’ble Delhi High Court in many of the judgements has suggested revisiting these exclusions to accommodate innovations by startups, SMEs, and educational institutionsas these rigid exclusions could hinder India's competitiveness in emerging fields like AI, blockchain, and fintech.

Impact of the High Court of Delhi's Judgment on the Indian Patent Landscape

The judgment underscores that inventions demonstrating a technical contribution or solving a technical problem should not be automatically excluded as business methods. This approach clarifies that the mere presence of business-related terms like "transactions" or "payments" does not necessarily categorize an invention as a business method if its core contribution is technical.

The Hon’ble court emphasized examining the substance of the invention rather than its superficial categorization. This means that if an invention primarily addresses a technical issue, it may be patentable even if it involves aspects typically associated with business methods.

With respect to the Computer Programme per se the ruling by the Hon’ble High Court in Comviva highlights that computer programs resulting in a technical advancement, such as enhanced security in electronic transactions, should not be excluded from patentability under Section 3(k). This interpretation aligns with global practices where technical effects or contributions are key determinants of patentability. The Hon’ble Court has recognised the technical advancement and by recognizing technical advancements in inventions involving computer programs, this judgment encourages innovation in fields heavily reliant on software, such as fintech, AI, and blockchain technologies. It aligns with international trends that support patent protection for software-related inventions demonstrating technical effects.

The decision provides clear guidance to patent examiners on assessing inventions involving business methods and computer programs. It reinforces the need to evaluate whether an invention provides a technical solution rather than focusing solely on its association with business processes. With this clarified interpretation, there is potential for an increase in patent grants for inventions that previously might have been rejected under Section 3(k). This could foster greater innovation and investment in technology-driven sectors.

Implications of the Judgment

The judgment reinforces that business methods are non-patentable only if they are purely about conducting business without any technical contribution and Computer-related inventions can be patented if they demonstrate technical advancement or solve a technical problem.

This judgment has led to alignment with global standards like Article 52 of the European Patent Convention by emphasizing "technical effect" and "technical contribution," the judgment aligns Indian patent law with international frameworks.

The judgment clarifies that inventions cannot be automatically classified as "business methods" merely because they involve terms like "payment," "transaction," or "financial activity."

Conclusion

This judgment is a landmark interpretation of Section 3(k) of the Indian Patents Act, providing much-needed clarity on patentability criteria for computer-related inventions. It underscores the importance of distinguishing between mere automation of business processes and genuine technological advancements, thereby fostering an environment conducive to innovation in India. Section 3(k) of the Indian Patent Act reflects India's cautious approach toward granting patents for abstract ideas or non-technical innovations like business methods. While this ensures that patents are not misused to monopolize basic economic activities, it also creates challenges for innovators working at the intersection of technology and commerce. Judicial interpretations and evolving guidelines indicate a gradual shift towards balancing innovation with legal safeguards, but further reforms may be necessary to keep pace with global trends and technological progress. The High Court of Delhi's judgment represents a significant shift towards a more nuanced understanding of what constitutes a patentable invention under Section 3(k) of the Indian Patent Act. By focusing on technical contributions and advancements, this decision not only aligns Indian patent law more closely with international standards but also encourages innovation by providing clearer pathways for securing patent protection for complex technological inventions. As a result, this ruling is expected to have a lasting impact on how patents are evaluated and granted in India, particularly in emerging technology sectors.

Author is an Advocate practicing in the Supreme Court and the Delhi High Court.

[The opinions expressed in this article are those of the author. Verdictum does not assume any responsibility or liability for the contents of the article.]