Damages when the software vendor doesn’t deliver

The NSW Court of Appeal has upheld the decision to award damages for a defective computer system as the cost of replacement and also included a component for an employee’s time spent working on solutions for the problems.

Some facts

SEMF is an engineering and project management consultancy.

In 2013, it engaged Renown to supply and install an upgraded project management and accounting system. The upgraded system was to be based on Microsoft Dynamics SL 2011.

When installed, between 2014 and 2016, the system was defective. The defects related mainly to the module which was supposed to enable SEMF’s employees to generate real-time reports through a web-based browser. SEMF’s employees spent considerable time and effort and incurred significant costs in trying to remedy the defects before Renown conceded it wasn’t possible to fix the problems.

By the time of the trial in 2021, the Microsoft Dynamics SL 2011 software had itself been superseded by the Microsoft Dynamics SL 2015 and then the Microsoft Dynamics SL 2018 package. SEMF had therefore arranged for the installation of a new system based on the 2018 package.

The trial judgment

At first instance, the trial Judge, Ball J found Renown had breached the contract to supply and install the system. His Honour gave judgment for $662,344 comprised of:

  1. $631,894 for the costs of installing a new system based on Dynamics SL 2018, less $52,218 for maintenance fees payable to Microsoft from 2016;
  2. $84,744 paid to Mr McLean, an employee who was found to have been engaged specifically to work on solutions to the problems with the Renown System and the implementation of the Business Portal. However, damages were not allowed for the time of other SEMF employees performing tasks which would not have been necessary had the Renown System not been defective, by reason that the extent of the diversion was not established, a substantial portion of the time claimed was in respect of administrative staff and there was no evidence that SEMF had had to employ additional administrative staff, and the disruption to the business was not so great as to justify an award of damages based on employee costs;
  3. $27,184 for additional licences, $13,935 paid to Plumbline, $7,320 paid to Ms Nicholls, and $800 paid to Pinnacle Analytics. These items either were not, or are no longer, in dispute;
  4. less, a set-off in favour of Renown for $51,315 in respect of unpaid invoices.

On appeal

On appeal, Renown contended Ball J was wrong to assess damages at the date of the trial rather than the breach. It argued further that the damages should be the difference between the value of the system as delivered and the value of the system it had contracted to supply and that no allowance for the employee should be included.

As we all no doubt recall, the measure of damages for breach of contract is:[1]

The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.

Brereton JA (with whom Meagher and Mitchelmore JJA agreed) considered that contracts of this kind for the supply and installation of software systems were analogous to building construction contracts. While the general rule is that damages for breach of contract are assessed at the date of the breach, that is not always the case in such cases as the loss actually suffered can be affected by the date the defects are discovered.

Accordingly, Brereton JA considered SEMF was entitled to its reasonable costs of rectification when those costs were incurred. At [20], his Honour explained:

the principle emerges that the proper measure of damages in a case such as the present is the reasonable costs of rectification, which will be the costs when they were actually incurred (if they have been incurred by the date of trial), so long as they are not unreasonable; or (if they have not been incurred already), the reasonable costs as proved as at the trial, unless it is established that by not conducting rectification works earlier the plaintiff has unreasonably failed to mitigate its loss.

Further, SEMF had allowed Renown an extended period of time to rectify the defects which came to an end when Renown itself concluded it could not fix the defects. Hence, there was no suggestion that SEMF had unreasonably failed to mitigate its loss.

Replacement or fixing the defective module

Renown further contended that the costs of rectification should be limited to fixing the defects in the specific, faulty module.

In a conclusion that will surprise no one who has ever tried to unscramble these things, however, the expert evidence was that identifying the defects and appropriate remedies would be extremely time-consuming and expensive and might never be possible. Accordingly, the expert evidence demonstrated that replacing the whole system with the new 2018 system would be the more efficient and costs effective solution.

A discount because the 2018 system was better than the 2011 system

The next question was whether some discount should be made because SEMF got a better, more modern system – the 2018 version – than what it had contracted for – the 2011 version.

The trial judge accepted there were situations where some allowance for “betterment” should be made. However, they did not apply here. SEMF had not consciously chosen an asset more valuable than the one being replaced. His Honour also considered that, save in one respect, there was no evidence of any benefit to be accounted for.

The exception to this conclusion was in respect of maintenance fees. Before the system was upgraded to the 2018 system, SEMF had not been paying maintenance fees to Microsoft, some 18% of the contract value each year.

In the Court of Appeal, Brereton JA accepted that the 2018 system did bring enhancements and improvements to the user experience over the 2011 system. However, SEMF would have been entitled to upgrade upon payment of the applicable maintenance fees.

There was a disagreement between the experts on whether an upgrade from the 2011 system to the 2018 system would have simply worked or would have required additional work. If such work was required, SEMF had been saved it and its damages might have been reduced on the “avoided loss principle”.

Under that principle, however, Renown bore the onus of proving what work would have been required and so the amount of costs saved. There was no evidence of what work would have been involved let alone its costs so, at [36], this argument failed.

The employee costs

Ball J had allowed for the costs of Mr McLean’s work to be included in the damages, but not other employees. The Court of Appeal upheld these findings.

Mr McLean was a casual employee, engaged for a specific purpose. While Mr McLean was initially engaged to work on a different project, from October 2015 he was engaged full-time to work solely on the implementation and attempted rectification of the system installed by Renown. At [39]: Brereton JA explained:

As a casual employee whose work was solely related to the Renown System, he fell in a different category from the other employees in respect of whom “diversion of time” was claimed but not allowed.

Renown Corporation Pty Ltd v SEMF Pty Ltd [2022] NSWCA 233 (Meagher, Brereton and Mitchelmore JJA)


  1. I thought it was the rule in Hadley v Baxendale (or part of it) but the High Court in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd has ascribed it to Robinson v Harman.  ?

Some talks (not me)

Coming up to the end of the year, there are events on reforming patent litigation practice and domain name disputes in review.

Patent litigation practice

Calling it “A very IPRIA Christmas”, IP Australia and IPRIA are hosting on 7 December at 5:30 pm an end of year celebration exploring “a wish list of practice reforms for making patent litigation in Australia (including appeals from the Office) more expeditious and cost effective.”

The event will be chaired by Justice Rofe and features Clare Cunliffe and David Shavin KC from the Bar and Lisa Taliadoros from the solicitors’ side of the profession.

Registration is free and attendance can be in person or online – although to assist catering they do ask that you register by the end of Monday 5 December if you are planning to attend at the Law School in Carlton in person.

Domain names

If domain name disputes are more your thing, the Hon. Neil Brown KC is also presenting an “Annual round-up on Domain Name Arbitration”. Topics Neil intends to cover include:

  • how the domain name process works
  • latest trends emerging from the decisions of arbitrators
  • what evidence do you need and how to collect the best evidence
  • the procedures to lodge a claim and how to defend one
  • traps for new players.

While Neil and I haven’t always seen eye to eye in particular cases, Neil has lots of experience both in the UDRP and a number of other regional and country-specific dispute resolution processes.

Neil is giving his talk online via Zoom at 10:00 am (Melbourne time; i.e. UTC +11) also on 7 December 2022.

According to his brochure, there is no need to register; just log-in. I am afraid I cannot reproduce the link so you are probably best just to email him directly.

Thaler (DABUS) is donged Down Under

Last Friday, the clock finally ran out on Dr Thaler’s attempt to register a patent in Australia on the basis that the artificial intelligence, DABUS, was the inventor: the High Court refused special leave to appeal from the Full Federal Court’s ruling that an inventor must be a human being.

Perhaps surprisingly, the High Court did not reject the application for special leave on the grounds that an inventor for the purposes of the Patents Act must be a human being. Rather, it dismissed the application on the grounds that it is not an appropriate vehicle for the determination of the issue.

You will recall that s 15(1) of the Patents Act 1990 defines who is entitled to be granted a patent:

Subject to this Act, a patent for an invention may only be granted to a person who:

(a) is the inventor; or

(b) would, on the grant of a patent for the invention, be entitled to have the patent assigned to the person; or

(c) derives title to the invention from the inventor or a person mentioned in paragraph (b); or

(d) is the legal representative of a deceased person mentioned in paragraph (a), (b) or (c).

The Commissioner had rejected Dr Thaler’s application at the formalities stage on the basis that an inventor must be a human being. Therefore, Dr Thaler’s application failed at the formalities stage under reg. 3.2C(2)(ii) because the application identified DABUS as the inventor and DABUS was an artificial intelligence only.

It was an agreed fact before the Courts that DABUS was the “inventor”:

MR SHAVIN: …. [Dr Thaler] programmed the computer but he said that the way in which the computer was programmed is it acted independently in its selection of subject matter and in its generation of the invention. So, he says that he truly was not the inventor, but DABUS, the artificial intelligence, he says was the proper inventor.

Two or perhaps three matters seemed to be exercising the panel determining the special leave application.

First, there were questions directed to whether or not the case was simply one of either DABUS qualified as an inventor or there was no inventor at all for the purposes of the Act. One problem with that was that, as it was an agreed fact between the Commissioner and Dr Thaler there was no contradictor to the proposition. Notwithstanding the agreement between the parties, the panel appeared to consider that Dr Thaler himself might have been the inventor:

EDELMAN J: Mr Shavin, your submission would have a great deal of force if it were possible to exclude, immediately, without any possibility of argument, the possibility that the applicant was not the inventor, because then, once that possibility is excluded, one is left with either a presumption of the section that every invention must have an inventor – on your submission – that is wrong. Or, alternatively, an approach an inventor does not need to be a natural person, which meets some of the difficulties that the Full Court has identified. But the difficulty for this Court is that without having any submissions about the starting point, which is whether a natural person here could be the inventor, we are groping in the dark.

The idea being suggested here appears to be similar to questions of authorship in copyright law where there may be questions of degree such that the computer program is merely a tool like, say, Microsoft Word which an author uses to record his or her words compared to the computerised system used to generate telephone directories in the Phone Directories case where, the system having been designed and implemented, the Court found there was no human intervention.[1]

Secondly, if the Act did set up the dichotomy and an inventor had to be a human being, concerns were expressed that would mean there was a “gap” in the legislation – there could be “inventions” that could not be protected because there was no inventor. Thus:

EDELMAN J: If that factual and legal position is correct, and Dr Thaler is not the inventor, then there is a significant hole in the operation of section 15 because it means that you can have an invention but no inventor.

Thirdly, the panel was plainly aware that the status of DABUS as an inventor was an issue being litigated around the world and, in particular, the UK Supreme Court has listed for hearing on 27 February 2023 the legality of the procedural approach taken to reject Dr Thaler’s application.

Where does that leave matters?

Plainly, some sort of question mark hangs over the Full Federal Court’s approach.

So far, the Commissioner has not announced any change to practice about disallowing applications which identify an artificial intelligence as an inventor.

There may be a question whether someone who does not have Dr Thaler’s agenda will nominate an artificial intelligence as an inventor. The panel refusing the special leave application appeared to envisage that the person who owned, or controlled or programmed the computer might legally be able to claim inventorship. For example:

EDELMAN J: There is an easy way the question could have been raised, which could have been if the applicant had listed himself as the inventor and the Commissioner and had rejected that on the basis that he was not the inventor but the artificial intelligence was the inventor, which would then have given rise to the prospect that nobody, for the purposes of section 15, was the inventor.

There are, however, with respect any number of difficulties with this.

For example, as Mr Shavin KC pointed out, that might require the applicant to identify someone as the inventor which the applicant did not believe to be true.

Secondly, with the benefit of the special leave panel’s (non-binding) observations, does one nominate the owner, the controller or the programmer or some combination of all three as the inventor? If one nominated the wrong person, that might provide a ground for revoking any subsequent patent on the grounds of lack of entitlement or more likely fraud, false suggestion or misrepresentation.[2]

Thirdly, how would anyone ever know? In most (if not all) cases, the Commissioner is not going to be in a position to dispute the nomination of a person as an inventor. It might possibly come up in the context of an opposition or infringement / revocation proceedings but that would likely depend on something like the time-honoured tradition of a disgruntled ex-employee blowing the whistle.

If nothing else, if such things are to be protected as patents, it seems what we really need is some form of international agreement one whether they should be patentable and, if so, rules or guidelines for determining who is entitled to be the applicant. There has of course been no rush of international adoption of the extension of copyright to computer generated works. That problem, however, is becoming increasingly important as schoolkids (and millions of others) are happily playing with online AIs to generate their own art works, poems and other materials.

[Thaler v Commissioner of Patents]thaler sla] [2022] HCATrans 199 (11 November 2022)


  1. Telstra Corporation Limited v Phone Directories Company Pty Ltd [2010] FCAFC 149 at e.g. [118] – [120]. The trial judge, whose decision was upheld in that appeal, was also a member of the panel which refused special leave in Thaler.  ?
  2. Patents Act s 138(3)(a) and (e) – although, in the case of entitlement issues s 138(4) and s 22A may very well excuse inadvertent errors.  ?

Prof. Brennan on copyright in Australia

Late last year, Prof. David Brennan published Copyright Law, Federation Press.

Those of you who have heard David speak or read any of his wide ranging publications will no doubt appreciate that this is a book worth adding to your arsenal library.

If you are not one of that fortunate number, perhaps you will be further encouraged by the words of one Hon William Gummow AC:

Since its enactment more than 50 years ago, the 1968 Act has moved significantly from the classic structure of copyright laws. This is the product of judicial decisions and much legislative activity. The busy practitioner often will be presented on short notice with copyright disputes and needs an authoritative text to be ready at hand. In those law schools where the subject is taught to undergraduates the students need access to a stimulating study of the statute and case law.

This book answers their needs. The author has an engaging literary style which leads the readers through the conceptual thickets of copyright law. The publisher also is to be congratulated for the preparation which has gone into the production of the book and its printing in Australia.

from His Honour’s review Copyright Law by David Brennan —  (2022) 51 Aust Bar Rev 391 (paywall).

One slight quibble, it might be thought a slight disservice to the efforts of the late Prof. Lahore to mark his 1977 monograph as the last comprehensive text specifically serving the Australian market given his much expanded Copyright Law looseleaf service published in 1988 and, of course, the continuing mammoth Copyright and Designs, first published in 1996. (Of course, I would say that!). Nonetheless, that quibble aside, if you are following copyright law in Australia, you should be finding this book.

Front views of two prior art microphones, the registered design and the XTrak

A case of design

A case of design

Burley J has ruled that Uniden’s XTrak mobile radio product would infringe GME’s registered design.

Uniden had begun displaying in Australia images of its Xtrak product on its website and in its online shop, but was not yet selling the product. After an exchange of correspondence in which Uniden refused to disclose its proposed launch date, GME sought an interlocutory injunction to restrain infringement of its registered design. Instead, Burley J listed the matter for early final hearing:

How good is that?

Helpfully, Burley J’s decision includes images of the prior art as well as the registered design and the Xtrak. Front views of the two closest prior art as well as the registered design and the Xtrak are set out below:

GME Uniden and the prior art

The legal issue

By s 71, a person infringes a registered design if they make, import, sell, offer to sell etc. a product embodying a design substantially similar in overall impression to the registered design.

Whether a product is substantially similar in overall impression to a registered design is tested by the matters set out in s 19.

Those matters require the Court to give more weight to the similarities than the differnces having regard to the state of development of the prior art, whether or not there is a statement of newness and distinctiveness[1] and the freedom of the designer to innovate. As GME’s design was registered before the ACIP Response Act, these matters fell to be considered from the perspective of the “standard of the informed user”.

The s 19 factors are also used to determine the validity of a registered design.

Burley J noted that the ALRC had explained how the substantial similarity test was supposed to work at paragraph 6.7:

…. The word ‘substantially’ is preferred to ‘significantly’ because ‘substantially’ has already been interpreted in a copyright context to be a qualitative and not quantitative term. The qualitative test is useful to determine designs infringement without importing a copying criterion. A qualitative test will assist the courts in evaluating the importance of the similarities and differences between competing designs. ….

and:

The phrase ‘overall impression’ is preferred because it encourages the court to focus on the whole appearance of competing designs instead of counting the differences between them.

(The emphasis is Burley J’s.)

Burley J pointed out, therefore, the prior art is relevant not just to the validity of the design but also infringement as it helps determine the proper scope of the design.

Accordingly, where the state of the art was highly developed, distinctiveness may lie in only small advances. If so, however, a correspondingly close degree of resemblance would be required between the accused product and the registered design.

Comparing the designs

Burley J considered the overall shape of the registered design and the Xtrak was very similar, both being vertically symmetrical curve-shaped trapezoids tapering to the base. The screen arrangement and screen surrounds were very similar. As was the curved PTT (or press to transmit button) and the clear spatial separation below the upper buttons and the lower buttons.

Front views of the registered design and the Xtrac labelled to identify corresponding features
Registered design v Xtrac

His Honour noted a number of differences. The registered design had a slight “step in” feature (which contributed to the spatial separation between the upper and lower buttons on the front face); the lower buttons in the registered design were arranged a central trapezoidal button where the Xtrak had a central column of speakers; thirdly, the Xtrak had a row of dummy buttons centred on the top speaker element while the registered design displayed a curving speaker panel. Other differences, such as the visibility of the microphone and the top buttons, were relatively trivial and given less weight.

Burley J accepted that there were functional and ergonomic considerations affecting the design of such products. For example, the “basic architecture” of such products would include a PTT button, buttons, a speaker, a microphone, a boss and a downward-facing grommet. Others included a shape that could be held in one hand, the positioning of the PTT button on the left-hand side.

However, the evidence of the prior art showed there was considerable scope for variation in these features so a designer had considerable freedom to innovate.

Overall, Burley J held at [84] the Xtrack was closer to the registered design than the registered design was to the prior art and so infringed:

I take into account the state of development of the prior art in making my assessment, in accordance with s 19(2)(a) of the Act. In my view the informed user would regard the XTRAK to be more similar in overall impression to the GME design than any of the other prior art devices. The prior art base demonstrates that the overall shape of each of the devices considered in section 3.3 above varies considerably, from broadly rectangular, to trapezoidal, to the waisted rectangle of the Crystal. The two most similar to the GME design, in terms of shape, in the prior art are the TX4500S and the Standard Horizon, yet they have more obviously different appearances in terms of their front face arrangements.

2 other matters

First, the statement of newness and distinctiveness was so general, not identifying any particular features, it played no role in the assessment.

Secondly, as noted, the comparison fell to be made under the “standard of the informed user” test applicable before the amendments made by the ACIP Response Act.

Burley J applied the “familiar person” test developed by Yates J and also applied by Nicholas J, not the “informed user” approach. It does seem both practical and sensible for the Courts to apply the “familiar person” test to pre-ACIP Response Act cases now, given the divergent responses and the legislative adoption of the “familiar person” test going forward.

Final judgment matters

In his Honour’s final orders disposing of the proceeding, Burley J refused to make an order for delivery up and takedown against Uniden. The orders included an injunction, the infringing products had never been sold in Australia and there was no reason to believe Uniden would not comply with the injunction:

… the broad principle underlying the making of such order is that where an injunction has been made and, that notwithstanding, there is a basis for considering that there may be a temptation to act in breach of the injunction because of materials possessed by a party, then it may be appropriate to order delivery up and takedown: see Goodman Fielder Pte Ltd v Conga Foods Pty Ltd [2021] FCA 307. That circumstance does not arise in the present case. An injunction will be made against Uniden, a large corporation. There is no reason to believe that it would not behave in accordance with the injunction, as counsel for the applicant accepts. In those circumstances, and having regard to the correspondence which indicates that the XTRAK product has never been sold in Australia, it is appropriate to decline to make an order for delivery up and takedown.

Burley J also adopted a process designed to expedite resolution of the order that Uniden pay GME’s costs of the proceeding.

At the parties’ request, Burley J allowed them 14 days to negotiate the quantum of costs payable by Uniden to GME. If they were unable to agree, Burley J ordered that GME should file and serve within a further 14 days a Costs Summary in accordance with the Costs Practice Note (GPN-Costs). Uniden would then have a further 14 days to file and serve a costs response. If the parties were still unable to agree within 14 days of that service, then a Registrar was directed to determine the quantum including, if thought appropriate, on the papers.

A check on Federal Law Search shows the proceeding as “closed”.

GME Pty Ltd v Uniden Australia Pty Ltd [2022] FCA 520


  1. There was a statement of newness and distinctiveness here: “Newness and distinctiveness is claimed in the features of shape and/or configuration of a microphone as illustrated in the accompanying representations.”  ?

An AI is not an inventor after all (or yet)

A strong Full Bench of the Federal Court of Australia has ruled that DABUS, an artificial intelligence, is not an inventor for the purposes of patent law. So, Dr Thaler’s application for DABUS’ patent has been rejected.[1] No doubt the robot will be back again[2] and we can expect that an application for special leave will be pending soon.

A dalek on display
By Moritz B. – Self-photographed, CC BY 2.5,

Dr Thaler had applied for a patent, No. 2019363177 entitled “Food container and devices and methods for attracting enhanced attention”, naming DABUS – an acronym for ‘device for the autonomous bootstrapping of unified sentience’ – as the inventor.

The Commissioner had rejected the application under reg. 3.2C for failure to identify the inventor. That rejection was overturned by Beach J on appeal from the Commissioner. And this was the decision on the Commissioner’s appeal.

Essentially, the Full Court ruled that an inventor for the purposes of patent law must be a natural person, not an artificial intelligence.

The Full Court held that identification of the “inventor” was central to the scheme of the Act. This is because, under s 15, only the inventor or someone claiming through the inventor is entitled to a patent.

Under the legislation before the 1990 Act, their Honours considered that an ‘actual inventor’ could be only a person with legal personality. At [98], their Honours summarised:

In each of these provisions, the ability of a person to make an application for a patent was predicated upon the existence of an “actual inventor” from whom the entitlement to the patent was directly or indirectly derived. Paragraphs (a), (c) and (e) describe the actual inventor as, respectively, a person, one that is deceased and has a legal representative (which must be a person), and one that is not resident in Australia. Paragraphs (b), (d), (f) and (fa) all contemplate an assignment happening between the patent applicant and the actual inventor. It is clear from these provisions that only a person with a legal personality could be the “actual inventor” under this legislative scheme.

This scheme, and its consequences, did not materially change under the 1990 Act.

Acknowledging that a none of the case law had to consider whether an AI could be an inventor, the Full Court noted that the ‘entitlement’ cases proceeded on the basis that ‘inventor’ meant the ‘actual inventor’. Their Honours considered the cases interpreting this expression were all premised on the ‘actual inventor’ – the person whose mind devised the claimed invention – being a natural person. At [105] and [106], their Honours explained:

None of the cases cited in the preceding five paragraphs confronted the question that arose before the primary judge of whether or not the “inventor” could include an artificial intelligence machine. We do not take the references in those cases to “person” to mean, definitively, that an inventor under the Patents Act and Regulations must be a human. However, it is plain from these cases that the law relating to the entitlement of a person to the grant of a patent is premised upon an invention for the purposes of the Patents Act arising from the mind of a natural person or persons. Those who contribute to, or supply, the inventive concept are entitled to the grant. The grant of a patent for an invention rewards their ingenuity.

Where s 15(1)(a) provides that a patent for an invention may only be granted to “a person who is an inventor”, the reference to “a person” emphasises, in context, that this is a natural person. …. (emphasis supplied)

Given that conclusion, and the structure of s 15, Dr Thaler’s argument that he was entitled on the basis of ownership of the output of DABUS’ efforts was to no avail. At [113]:

… having regard to the view that we have taken to the construction of s 15(1) and reg 3.2C(2)(aa) [i]t is not to the point that Dr Thaler may have rights to the output of DABUS. Only a natural person can be an inventor for the purposes of the Patents Act and Regulations. Such an inventor must be identified for any person to be entitled to a grant of a patent under ss 15(1)(b)-(d). (emphasis supplied)

The Full Court then drew support from the High Court’s reasoning in D’Arcy v Myriad esp. at [6] in which the majority emphasised that patentable subject matter had to be the product of “human action”.

Although not put in this way, it is apparent that policy considerations played a significant role in their Honours’ conclusion. At [119] to [120], their Honours pointed out:

in filing the application, Dr Thaler no doubt intended to provoke debate as to the role that artificial intelligence may take within the scheme of the Patents Act and Regulations. Such debate is important and worthwhile. However, in the present case it clouded consideration of the prosaic question before the primary judge, which concerned the proper construction of s 15 and reg 3.2C(2)(aa). In our view, there are many propositions that arise for consideration in the context of artificial intelligence and inventions. They include whether, as a matter of policy, a person who is an inventor should be redefined to include an artificial intelligence. If so, to whom should a patent be granted in respect of its output? The options include one or more of: the owner of the machine upon which the artificial intelligence software runs, the developer of the artificial intelligence software, the owner of the copyright in its source code, the person who inputs the data used by the artificial intelligence to develop its output, and no doubt others. If an artificial intelligence is capable of being recognised as an inventor, should the standard of inventive step be recalibrated such that it is no longer judged by reference to the knowledge and thought processes of the hypothetical uninventive skilled worker in the field? If so, how? What continuing role might the ground of revocation for false suggestion or misrepresentation have, in circumstances where the inventor is a machine?

Those questions and many more require consideration. Having regard to the agreed facts in the present case, it would appear that this should be attended to with some urgency. However, the Court must be cautious about approaching the task of statutory construction by reference to what it might regard as desirable policy, imputing that policy to the legislation, and then characterising that as the purpose of the legislation …. (emphasis supplied)

Finally, in this quick reaction, it can be noted that the Full Court recognised that their Honours’ decision was consistent with the English Court of Appeal’s decision on the counterpart application. Their Honours considered, however, there were sufficient differences in the legislative schemes that a wholly autocthonous solution should be essayed.

Commissioner of Patents v Thaler [2022] FCAFC 62 (Allsop CJ, Nicholas, Yates, Moshinsky And Burley JJ)


  1. Patent application No. 2019363177 entitled “Food container and devices and methods for attracting enhanced attention”  ?
  2. With apologies to you know who.  ?

Aristocrat gets special leave

The High Court has granted Aristocrat special leave to appeal the Full Federal Court’s ruling that Aristocrat’s application for an electronic gaming machine (EGM or “pokie”) was not patentable subject matter.[1]

The patent application

Aristocrat’s application is entitled ‘A system and method for providing a feature game’ – App. No. 2016101967; yet another problematic “innovation” patent.

The Commissioner and Aristocrat were in agreement that the case rose or fell on the patentability of claim 1:

(1) A gaming machine comprising:

(1.1) a display;

(1.2) a credit input mechanism operable to establish credits on the gaming machine, the credit input mechanism including at least one of a coin input chute, a bill collector, a card reader and a ticket reader;

(1.3) meters configured for monitoring credits established via the credit input mechanism and changes to the established credits due to play of the gaming machine, the meters including a credit meter to which credit input via the credit input mechanism is added and a win meter;

(1.4) a random number generator;

(1.5) a game play mechanism including a plurality of buttons configured for operation by a player to input a wager from the established credits and to initiate a play of a game; and

(1.6) a game controller comprising a processor and memory storing (i) game program code, and (ii) symbol data defining reels, and wherein the game controller is operable to assign prize values to configurable symbols as required during play of the game,

(1.7) the game controller executing the game program code stored in the memory and responsive to initiation of the play of the game with the game play mechanism to:

(1.8) select a plurality of symbols from a first set of reels defined by the symbol data using the random number generator;

(1.9) control the display to display the selected symbols in a plurality of columns of display positions during play of a base game;

(1.10) monitor play of the base game and trigger a feature game comprising free games in response to a trigger event occurring in play of the base game,

(1.11) conduct the free games on the display by, for each free game, (a) retaining configurable symbols on the display, (b) replacing non-configurable symbols by selecting, using the random number generator, symbols from a second set of reels defined by the symbol data for symbol positions not occupied by configurable symbols, and (c) controlling the display to display the symbols selected from the second set of reels, each of the second reels comprising a plurality of non-configurable symbols and a plurality of configurable symbols, and

(1.12) when the free games end, make an award of credits to the win meter or the credit meter based on a total of prize values assigned to collected configurable symbols.

(emphasis supplied by Middleton and Perram JJ).

The new or innovative feature lay in the feature comprising the free game integer – integers 1.10 to 1.12. It was apparently common ground that the other features were part of the common general knowledge for electronic gaming machines.

In the Full Court, Middleton and Perram JJ at [3] and [4] explained:

3 It is not suggested that there is anything inventive about Claim 1’s EGM except for its feature game and it is in all other respects an unremarkable EGM. (Because the 967 Patent is an innovation patent strictly the question is whether there is anything innovative about it, but nothing turns on the distinction between inventive and innovative for present purposes). A feature game is a secondary game awarded to a player on the occurrence of a defined event in the ordinary or ‘base’ game of spinning reels, termed a ‘trigger event’. Once the feature game is enlivened by the trigger event the feature game appears and the player is able to play it and potentially to win further prizes. When the feature game is completed the EGM reverts to the base game.

4 The point of feature games is to encourage players to keep wagering on the EGM by making it more interesting to do so. Since the revenue generated by an EGM is a function of the amount wagered upon it – in New South Wales up to 15% in the long run – the more successful a feature game is in keeping the player wagering, the more lucrative the EGM is for its operator. A successful feature game is therefore commercially valuable both from the perspective of the class of persons who operate EGMs and from the perspective of those who manufacture and distribute them to that class. The Respondent (‘Aristocrat’) is part of a world-wide group of companies engaged in the manufacture and distribution of EGMs and is the particular member of the group which owns the 967 Patent.

Their Honours then explained how the free game feature worked at [11] – [12]:

11 The game defined by integers 1.10–1.12 is in fact not a single game at all but rather a family of games with particular common attributes. On the occurrence of a trigger event (integer 1.10) the player is awarded one or more free games of the feature game (integer 1.11). The feature game (integer 1.11) consists of a second set of reels. Amongst the symbols on these reels are ‘configurable’ symbols. The patent does not define a configurable symbol but it does provide for them to be assigned prize values by the computer on which the game is played, which is known as the game controller (integer 1.6). A preferred embodiment of the invention suggests that the configurable symbol may be overlaid with the amount of the prize which has been assigned to it (although this is not a necessary feature of integer 1.11 and any symbol will do). In that preferred embodiment, the configurable symbol is an image of a pearl and it is configured by the overlaying on that image of different prize amounts, e.g., some pearls appear with ‘250’ and others with ‘1000’, where those figures represent credits.

12 Returning to the feature game, each time a configurable symbol appears in the display grid at the end of the free game that particular symbol position on the relevant reel stops spinning for any remaining free games and the configurable symbol remains locked in place in any subsequent play of the feature game (i.e. if the player still has any free games left). When the player eventually runs out of free games in the feature game a prize is awarded related to the number of configurable symbols which have been locked in place (integer 1.12). In the preferred embodiment the prize is the sum of the assigned values on the pearls which have been frozen on the display grid but integer 1.12 is consistent with the prize being calculated in some other way.

Burley J

At first instance (on appeal from the Commissioner), Burley J considered that the case law required a two stage assessment of patentable subject matter:

  1. The initial inquiry was whether or not the claim was for a mere scheme or business method of the type that was not the proper subject matter for a grant of a patent.
  2. If so, a second inquiry arose: whether or not the claim involved the creation of an artificial state of affairs where the computer was integral to the invention, rather than a mere tool in which it was performed. That is, was there invention in the computerisation of the claimed method?

Each step was to be undertaken as a matter of substance rather than mere form.

Applying that methodology, Burley J avoided the whole mere scheme or business method controversy by holding that the claim was for a mechanism of a particular construction where the integers interacted to produce a particular product – an EGM.

While this blogger welcomed the result, it did raise a rather awkward question: why did putting the integers in a box create patentable subject matter when essentially the same functionality could also be supplied over a network including, dare one say it, the Internet.

The Commissioner appealed.

The Full Court

All three judges (Middleton, Perram and Nicholas JJ) unanimously allowed the appeal. Middleton and Perram JJ delivered the main opinion and Nicholas J delivered a separate concurring opinion.

All three judges accepted unreservedly that a mere scheme or abstract idea was not patentable subject matter.

All three judges also accepted that whether something is patentable subject matter was to be determined as a matter of substance rather than mere form.

Middleton and Perram JJ

At [14] – [15], Middleton and Perram JJ considered that the feature game itself defined by integers 1.10 to 1.12 was a mere abstract idea for purposes of patent law. This was because either it was the definition of a family of games with common attributes and so akin to the rules of a game. Or it was because it was a method of increasing player interest in the EGM and so increasing the operator’s gaming revenue. On that view, it was just a business scheme or scheme.

At [16], their Honours accepted that an invention which physically embodied an abstract idea and gave it some practical application could be patentable subject matter. Thus, a mechanical poker machine which allowed a game (the abstract idea) to be played could be patentable. In such a case, however, the patent would protect the physical embodiment and not the abstract idea:

But the patent protects the invention which is the poker machine and not the abstract idea consisting of the game which it plays. This is consistent with decisions on board or card games to the effect that the game itself, no matter its ingenuity, does not comprise patentable subject matter but the physical apparatus used for playing the game (such as cards or the board) may do so ….

Crucially, their Honours then held that the implementation of the game by means of an unspecified computer program could not be a manner of manufacture unless the implementation resulted in some development of computer technology rather than its utilisation. At [18], their Honours said:

The implementation of an abstraction such as that disclosed by integers 1.10–1.12 by means of an unspecified computer program to be executed on the computer which is the game controller will not give rise to a patentable invention unless the implementation itself can be seen as pertaining to the development of computer technology rather than to its utilisation …. [2]

Middleton and Perram JJ next accepted that Burley J’s approach could be workable where the subject matter of the claimed patent was obviously implemented in a computer. In other cases, however, it had the potential to lead to a wrong result especially where “for example, whether a claimed physical apparatus such as an EGM is, in truth, no more than a particular kind of computer.”

Instead, Middleton and Perram JJ proposed at [26] a different two-step analysis:

(a) Is the invention claimed a computer-implemented invention?

(b) If so, can the invention claimed broadly be described as an advance in computer technology?

In the present case, the claimed invention was a computer-implemented invention.

First, although the apparatus claimed was an EGM (or poker machine), it was in substance a computer. At [32] – [34], their Honours found that the EGM was a game control computer (integer 1.6) attached to a random number generator (integer 1.4, another computer) with some input and output devices (respectively, integers 1.2, 1.3 and 1.5 (input) and 1.1 (output)) with associated software instructions (integers 1.7, 1.8 and 1.9 and the feature game 1.10 – 1.12).

Secondly, to avoid the (erroneous) conclusion that the claimed invention was for the practical implementation of an abstract idea in a device, at [50] their Honours considered it was necessary to distinguish between a claim for an invention which was a computer and a claim for an invention implemented in a computer.

As a claim for either type of invention could appear to be a claim for a computer, it was necessary to identify what was in fact the substance of the claimed invention.

Here, the correct characterisation of the claim had to take into account the two elements of the claim: one element being the EGM (in effect, the computer) and the other element being the feature game and, importantly, the feature game was the only innovative feature of the claim.

As the feature game was to be executed in the computer, at [56] Middleton and Perram JJ considered the relationship of the feature game elements to the computer elements was one of implementation. Accordingly, the claim was to a computer-implemented invention.

Turning to the second question (b), Middleton and Perram JJ held that the claimed invention was not directed to an advance in computer technology. At [63], their Honours said:

Because the invention is the implementation of a feature game on the computer which is an EGM, the next question is whether what is put forward as inventive (or innovative) about Claim 1 pertains to the development of computer technology or merely its use. The fact that integers 1.10–1.12 leave it entirely up to the person designing the EGM to do the programming which gives effect to the family of games which those integers define inevitably necessitates the conclusion that Claim 1 pertains only to the use of a computer. Indeed, it purports to do nothing else. Claim 1 is silent on the topic of computer technology beyond that the person implementing the invention should use some.

It did not matter that the claim improved player engagement or improved subjective satisfaction. That had nothing to do with developing or advancing computer technology. Similarly, the use of configurable symbols for prizes was of no assistance. That might advance gaming technology but was not an advance in computer technology.

Nicholas J

Nicholas J reached the same conclusion but by a somewhat different route.

Like Middleton and Perram JJ, his Honour started from the proposition that mere schemes and abstract ideas are not patentable. At [115] Nicholas J considered that to be patentable the case law required a claimed invention to relate to some technological innovation:[3]

The Full Court noted at [100] the distinction drawn in Research Affiliates at [94] between a technological innovation which is patentable and a business innovation which is not. The use of the expression “technological innovation” emphasises the need to identify a technological contribution in a field of technology. The desirability of providing patent protection to technological innovations is reflected in Art 27(1) of the Agreement on Trade Related Aspects of Intellectual Property Rights which relevantly provides that “… patents shall be available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application …”. The language of “technological innovation” has now been adopted in s 2A of the Act which refers to the promotion of economic wellbeing through technological innovation as an object of the Act.

An interesting invocation of the new Objects clause in the Act.

At [116], Nicholas J considered it was important to avoid an excessively rigid or formulaic approach to this issue. This was because the technological advance may lie in the field of computer technology. However, the required technological advance could also lie in a field of technology outside the computer:

… it is not appropriate to adopt an excessively rigid or formulaic approach to the question whether a computer implemented scheme is a manner of manufacture. This is especially true in situations where there may be no clear distinction between the field to which the invention belongs, and the field of computer technology. There may well be a technological innovation in the field of technology to which the invention belongs even though it cannot be said that there has been some technological innovation in the field of computers. The field of the invention may encompass different fields of technology that have their own technical problems that lie “outside the computer”. Moreover, the solutions to these problems may necessarily rely upon generic computing technology for their implementation. That does not necessarily render such solutions unpatentable.

His Honour gave as an example at [120] a computer-implemented invention for running a refrigerator in a more energy-efficient way. This might not involve an advance in computer technology but could well be patentable where the invention lay in the field of refrigeration technology. So, there could also be patentable subject matter in the way a gaming system or machine functioned even if there had not been an advance in computer technology.

Turning to Aristocrat’s patent application, Nicholas J considered at [135] that Burley J’s two-step test did not adequately address the Commissioner’s submission that the claim was for nothing more than the (unpatentable) rules of a game implemented in generic computer technology for its well-known and well-understood functions.

Citing RPL at [96], the fact that the feature game instructions were embodied in a computer was not sufficient to qualify as patentable subject matter. While the purpose of the invention was to provide a different and more enjoyable playing experience, the claim was not directed to overcoming any technological problem. At [141], his Honour explained:

The specification does not identify any technological problem to which the patent purports to provide a solution. Nor did the expert evidence (insofar as it was made available to us) suggest that the invention described and claimed in the specification was directed to any technical problem in the field of gaming machines or gaming systems. Rather, as the specification makes clear, the purpose of the invention is to create a new game that includes a feature game giving players the opportunity to win prizes that could not be won in the base game. Ultimately, the purpose of the invention is to provide players with a different and more enjoyable playing experience. The invention is not directed to a technological problem residing either inside or outside the computer.

Generic computer technology / software

While acknowledging that the phraseology had been used in earlier Full Court decisions, Middleton and Perram JJ considered at [35] to [42] that testing whether the claimed invention merely involved a generic computer or generic software was not “especially helpful”. It was preferable to focus on whether the claimed invention related to an advance in computer technology.

In contrast, Nicholas J (who had participated in the earlier cases) was not so troubled. At [112], his Honour considered it could be a useful signpost to patentability (or not) to ascertain whether the computer or software was just conventional computer technology being used for its well-known and well-understood effects.

Where to now

The law relating to “manner of manufacture” is a mess.

Following NRDC and before about the mid–2000s, the issue hardly, if ever, came up. Since the mid–2000s, there have been numerous cases; it is perhaps no exaggeration to say there are more, indeed way more, cases each year than in the previous 50 years.

And, unless one is prepared to say that it’s a computer-related invention and so it is not patentable subject matter (which the Courts repeatedly do not say), it is very hard to say what will pass the threshold and what will not.

One issue is that the cases are replete with comments like there is nothing new or inventive about that. That suggests that what is really the issue is lack of novelty or inventive step.

That though gives rise to a whole set of sub-issues. First, the whole situation is exacerbated by the abominations called “innovation patents”, which don’t actually require any invention, just that what is claimed (in effect) be new.

Secondly, proving lack of inventive step is a complicated, expensive and risky gamble – especially under our law before the Raising the Bar amendments.

Thirdly, while cases like CCOM, IBM and Welcome-Catuity could provide a principled approach to this issue, that could well end up with Australian law granting patents in circumstances where the USA and the EU would not. Not a situation the Productivity Commission would favour. And, it is far from clear that any clear or consistent approach has emerged in either jurisdiction, especially the USA.

The reason, or at least one of the reasons, why NRDC was a “watershed” in patent law was that it got rid of the artificial pigeon-holes or categories of “vendible product” which, as the NRDC judgment so tellingly demonstrated, had resulted in such inconsistent and unpredictable results to the test of manner of manufacture. Instead, it adopted an open-ended, flexible approach directed to achieving the objects of patent law.

Against that background, one might argue that Nicholas J’s approach, with respect, allows a degree of flexibility and forward-thinking which may not follow from the approach taken by Middleton and Perram JJ. Whether his Honour’s approach provides any more certainty may be debated but at least it would avoid a narrow categorisation. Whether that is an approach that finds favour with the High Court, or what direction it might take, remains to be seen.

[Some typos were corrected on 24 June 2022]


  1. That is, not a ‘manner of manufacture’ for the purposes of Patents Act 1990 s 18(1)(a) and 18(1A)(a). Exceptionally, special leave was granted on the papers.  ?
  2. Citing Commissioner of Patents v RPL Central Pty Ltd [2015] FCAFC 177; 238 FCR 27 at [96] and [102] (Kenny, Bennett and Nicholas JJ).  ?
  3. Nicholas J considered that Research Affiliates at [115] – [119] (and RPL Central applying it) broadly equated the requirement for a technical contribution or technological innovation to the “artificially created state of affairs” required under the NRDC test.  ?

Designs ACIP amendments in force

IP Australia advises that the final provisions of the Designs Amendment (Advisory Council on Intellectual Property Response) Act 2021 came into force last Thursday, 10 March 2022.[1]

Included amongst the important reforms which came into force are:

  • the 12 month grace period (Sch. 1);
  • the new exemption from infringement for prior use (Sch. 2)
  • the removal of the “publication” option and automatic request for registration 6 months after filing (if not requested earlier): (Sch. 3)
  • protection from pecuniary remedies for infringement before publication of the design (Sch. 4)
  • exclusive licensees can sue for infringement (Sch. 5).

Most of these amendments apply to applications for registration made after the amendments commenced.

The “grace period” excludes from the prior art base for novelty and distinctiveness publications and uses by a “relevant entity” in the 12 months before the priority date of the application.

For this purpose, a “relevant entity” means the owner of the design, a predecessor in title and the designer (the person who created the design).

Publication of an application to register the design by a Designs Office is not excluded from the prior art base, however, on the basis that the main point of the grace period is to protect against inadvertent disclosures and not deliberate attempts to obtain registration.

The grace period is available only to applications made on or after commencement. However, there is a further wrinkle: the “grace period” applies (or appears to apply) only in respect of public acts or publications which occur on or after commencement too.

New s 17(1A) provides:[2]

Subsection (1) applies in relation to a publication or use that occurs on or after the commencement of Schedule 1 to the Designs Amendment (Advisory Council on Intellectual Property Response) Act 2021 (whether the 12?month period referred to in that subsection begins before, on or after that commencement).

Things might have been clearer if the words in parentheses had not been included in this exercise in plain English. But they are there. The wording at [19] in the Explanatory Memorandum is clearer:

New subsection 17(1A) provides that the new grace period provided for in new subsection 17(1) only applies to a publication or use that occurs on or after commencement of this Schedule. This is the case regardless of whether the relevant 12-month period would begin before, on or after commencement of the Schedule. This is intended to provide clarity for users of the design system that any publication or use prior to commencement will not be eligible for the new grace period.

That is, it appears the grace period will not be a full 12 months until 10 March 2023.

Another wrinkle relates to third party prior art. If the design owner (or other “relevant entity”) published the design before the publication of the third party’s prior art, the third party is presumed to have derived the design from the design owner and so it does not count as prior art. It is a presumption only. So, if the third party can prove it derived the design independently of the design owner (or other “relevant entity”) the third party’s design goes back into the prior art. See new s 17(1C).

The idea here is that how the third party derived its design is something essentially within the third party’s knowledge and so the third party has the onus of proving independent derivation.

The “prior user” exemption from infringement (new s 71A) works (if that is the right word) in much the same way as s 119 of the Patents Act. This requires the claimant to have taken “definite steps (whether contractually or otherwise)” to make, import, sell, offer to sell etc. a product which is identical to or substantially similar in overall impression to the registered design. It is an “exemption” rather than a “defence” as, amongst other things, it is transferrable.

In what should be a welcome development, IP Australia will be conducting a number of webinars to “walk through” the changes. You can register here.


  1. According to s 2 of the Act, Schedules 1 to 6 and 7 part 3 were to commence on a day to be fixed by Proclamation or, if not proclaimed earlier, on the day after 6 months from the date of Royal Assent – 10 September 2021.  ↩
  2. A consolidated version of the Act as amended hasn’t been published yet and hasn’t made its way on to Austlii or Jade (at least at the time or writing).  ↩

It’s Christmas – so it must be time for copyright reforms

At long last and just in time for Christmas, the Communication Branch of the Department of Infrastructure, Transport, Regional Development and Communications has published the long awaited exposure draft Copyright Amendment (Access Reform) Bill 2021 and – a bit of a surprise – a Review of Technological Protection Measures Exceptions.

To quote from the “have your say” page, the exposure draft amendment bill includes 5 main reform measures:

  • Schedule 1—Limitation on remedies for use of orphan works
  • Schedule 2—New fair dealing exception for non-commercial quotation
  • Schedule 3—Update and clarify library and archives exceptions
  • Schedule 4—Update and restore education exceptions
  • Schedule 5—Streamline the government statutory licensing scheme.

There are also five, 5!, schedules of “additional minor and technical amendments”!

What follows is a very rough and ready summary of a couple of “bits”.

Quotation

The exposure draft posits a new fair dealing defence in respect of public copyright material for the purposes of either non-commercial quotation or quotation for a commercial purpose in relation to a product or service if the quotation is immaterial to the value of that product or service.

The defence would be available only to libraries, archives, educational institutions, the Commonwealth or a State, or someone authorised by them, or a person or organisation for the purpose of research.

There are also other conditions.

The discussion paper includes some examples of things which might fall within or without the defence.

Orphan Works

The exposure draft would introduce a new defence to infringement where someone reproduces etc. copyright material after a reasonably diligent search has failed to identify the copyright owner or, if the owner be identified, they cannot be contacted.

If the author is known, he or she or they must also be identified in the reproduction etc. where that is reasonably practicable.

Then, if the copyright owner pops up, either the owner or the user can apply to the Copyright Tribunal for orders to fix the terms of use. The Tribunal may make orders only to the extent it considers them reasonable.

TPM Review

Under the Australia-US Free Trade Agreement, Australia is required to review its laws relating to technological protection measures every four years.

Apparently, the last review was in 2017. So it’s time for another one.

The discussion paper does say the review is to look at whether the existing exceptions are fit for purpose, need to be repealed or modified and whether new exceptions are required.

If you want a new exception, s 249 sets out criteria that need to be satisfied before the Minister could implement it. These include provision of credible evidence about the matters set out in that provision.

If you are moved to provide submissions, they should be sent in by 11 February 2022.

Have your say page

Exposure draft  Copyright Amendment (Access Reform) Bill (pdf)

Discussion paper (pdf)

There are also Word versions of the exposure draft bill and the discussion paper available via the Have your say page.