The EPO has built up a significant body of case law on what is required for software or business methods to be patentable (see box "Current EPO position").

When is software patentable? The test developed by the EPO to determine whether or not a software-related invention is patentable (that is, whether it goes beyond a computer program or business method "as such"), is whether the program/method has "technical character". This is sometimes expressed as a requirement that the claimed invention produces a technical effect or makes a technical contribution to the art. This requirement, based ona doctrine which was previously found in German patent jurisprudence (see "German position" below), is not expressly stated in the EPC, but, when challenged in the recent Improved Pension Benefits System case, the EPO Appeal Board (the Board) said that it was implicit in the definition of patentability in the EPC (T 931/95, OJ EPO 2001, 441).

The case law indicates that the required technical effect will be found when running the software results in something technical, such as the solution to a technical problem, or where technical features are required to carry out the claimed invention. In addition to claims directed to methods carried out using programmed computers and to apparatus including programmed computers, the EPO has also allowed related claims to the software itself contained in a physical medium (T 935/97 and T 1173/97 OJ EPO 10/99. 609).

When are business methods patentable? Although Article 52(2) also excludes methods of doing business from patentability, this is not an absolute bar; for example, in Sohei a financial trading system was found to be patentable, even though it was effectively a business method (T/769/92, 1995 OJ EPO 525). The Board focused on the technical effect of the system rather than on its end result.

The Improved Pensions Benefits case involved a method of controlling a pension benefits program which used employee data to calculate the cost to the employer and the benefit to each employee of employee life insurance policies purchased by the employer and held in a master trust. The Board held that such claims to a method of doing business, that used "technical means" for a purely non-technical purpose and/or for processing purely non-technical information, were not necessarily "technical". However, the Board did consider that a computer programmed for use in a particular field, even if that is a business field, is an "apparatus", namely, a physical entity, man-made for a utilitarian purpose and so an invention within the meaning of Article 52(1). The Board justified this rather artificial distinction by reference to Article 52(2), which does not refer to "apparatus" but only to "schemes, rules and methods".

In Hitachi auction the Board went further, holding that it would be inconsistent to reject as unpatentable a claim to the method to be carried out by the apparatus which is the subject of other claims in the same patent application, and that "a method involving technical means is an invention within the meaning of Article 52(1)" (T 0258/03).

However, in both cases the Board held that, when judging the novelty and inventive step of any claimed invention, the invention is assessed by taking account of only those technical features that contribute to an inventive step (see box "Patent requirements"). Using this test, both the method and apparatus claims were rejected.

In the UK, computer programs and business methods (if set out in a document) are regarded as literary works and so protected by copyright under the Copyright, Designs and Patents Act 1988. However, patent protection is considered more effective as the copyright protects the expression of an idea (for example, the software code), rather than the underlying idea (that is, the principles of operation of the software itself) (see box "Patent requirements").

The provisions of the Patents Act 1977 relevant to the patentability of software and business methods (section 1) are based on Article 52 of the EPC and are expressed in similar (though not identical) terms. While the UK Patent Office (UKPO) and the English courts have emphasised the importance of being consistent with the EPO, in practice they have a narrower approach than that of the EPO.

In Merrill Lynch's Application the patent application was directed to an invention relating to an improved data processing based system for implementing an automated trading market in securities ([1989] RPC 561). The Court of Appeal held that even if the claim could be regarded as producing a new result in the form of a technical contribution to the prior art (that is, prior patents and other documents which could be relevant to the novelty and inventiveness of the patent claims), the result, whatever the technical advance, was simply the production of a trading system: in other words, simply a method of doing business and therefore excluded from patentability.

The UKPO followed Merrill Lynch for some time, ruling that some excluded things could not be patentable even if a technical contribution were present. It changed its approach in 2002 by issuing a notice stating that, unless and until the courts give any guidance to the contrary, inventions which involve a technical contribution will not be refused a patent merely because they relate to business methods or mental acts (Practice Notice "Patents Act 1977: Interpreting section 1(2)" [2002] RPC 40).

The UKPO's justification for this change was a High Court decision which failed to refer to Merrill Lynch when holding that, although a mere discovery is not patentable, a discovery which has a technical aspect or technical contribution is patentable (Kirin-Amgen Inc v Roche Diagnostics GmbH [2002] RPC 1).

The UKPO says that it applies the EPO tests for patentability, although the reported cases seem to indicate that it still takes a narrower approach than the EPO, closer to Merrill Lynch (see "EPO position" above and box "Current EPO position").

There is therefore uncertainty in the UK law, which can only be resolved by another case reaching the Court of Appeal (or even the House of Lords), or a change in the legislation. It is rare that a software or business method patent is of sufficient value to its owner to justify the enormous expense of making such appeals.

In Germany, software is protected under the national copyright law. Although this protection extends to draft materials such as flow charts and diagrams used in designing a program, the core ideas and principles embodied in that software are not protected. German law views ideas and principles as solutions to technical problems, which have traditionally been protected by patents.

Although the German courts have slowly moved away from their initial reticence against software patents, especially when the software depicts a sufficient technical character or "technicity", they have not been as receptive to so-called computer-implemented business methods.

The technicity requirement is now part of the international patent regime set out in the World Trade Organisation agreement on trade-related intellectual property (TRIPS). Article 27 of TRIPS provides, among other things, that patents shall be available in all fields of technology. However, TRIPS did not define "fields of technology" any further, leaving this to the legislatures and courts of member states.

Section 1 of the German Patent Act (GPA) provides that "plans, rules or methods for . . . business activities" and "programs for data processing systems" as such are not inventions for the purposes of the GPA, in accordance with the EPC to which Germany belongs.

The German Federal Court has held that software can be patented when the program itself is sufficiently connected to the internal technical operations of the computer or brings about an external technical effect; that is, when it depicts a solution to an actual technical problem.

Business methods, on the other hand, raise the question of whether business itself is a "technical" enterprise. German courts and commentators have mostly taken the view that it is not, on the basis that business methods are instructions for mental activities. So the mere implementation of a business method in software, even if this software itself satisfies the technical criteria, will not afford patent protection to the business method it executes. However, this should not mean that business methods that bring about a technical effect over and above their intended commercial activity are excluded from patent protection, although this proposition has not been tested by the German courts.

Usually, software is protected by the French "droit d'auteur" (copyright). Copyright protection lasts much longer than patent protection but is limited to the way the software is written, which may be less commercially useful than protecting the technical functionalities of the software by patent.

Theoretically, software is not patentable under French law. However, a distinction is made between the notion and scope of "software", with the result that software is only not patentable "as such". The criteria for patentability are similar to most patent laws in Europe.

The exclusion of patentability of software is due to the fact that algorithms or programming methods composing the software do not have a technical effect, which is the prima facie condition of an invention. Nevertheless, as a result of case law, software can be patented, as long as it is not claimed "as such" and is included in a more general technical process meeting the criteria of patentability, in particular, the industrial character, which means that the claimed process comprising software must have a technical effect.

However, looking at some of the software patents granted, even these conditions are not strictly observed. More than 10,000 software patents have been filed with the French patent office (and several tens of thousands with the EPO). The French patent office is generally in line with the EPO's case law.

The mismatch in the way that computer-implemented inventions might be protected in Europe prompted the European Commission (the Commission) to address the patentability of software and related inventions in its 1997 Green Paper ("Community Patent and the patent system in Europe - Promoting innovation through patents"; www.practicallaw.com/3-100-1002).

In a follow-up paper published in 1999, the Commission discussed the difficulties arising from the current situation and identified an urgent need for a Directive to remove the ambiguities and legal uncertainty arising from the different ways in which EU member states were implementing the law.

In its Green Paper, the Commission had already concluded that software patents would be good for European industry and supported the patentability of software programs provided that they met the conditions of novelty, industrial application and constituted a technical invention (see box "Patent requirements"). Business method patents as a distinct entity had not been approved.

The Commission presented its draft Directive in February 2002 (www.practicallaw.com/9-101-6958). It included a definition of "computer-implemented invention" in Article 2 that would allow claims where the novel features were realised wholly or partly by means of a computer program. This was in fact wide enough to allow a claim on a method of doing business if a non-obvious technical contribution was present. A suggested form of claim was put forward in the draft Directive, though this would not have allowed patents to be granted for computer programs in isolation from a machine on which they may be run, an approach that was contrary to the EPO's position.

However, when the draft Directive was put before the European Parliament in September 2003, substantial amendments were introduced that significantly changed the original proposal, indeed some could have significantly changed the existing law to remove patent protection from things that have always been regarded as patentable (www.practicallaw.com/5-102-5083).

Having previously concluded that software patents were good for European industry, the Commission was faced with a Directive that would have severely weakened the prospects for software patent protection in Europe. After much wrangling at an inter-governmental level in an attempt to secure a compromise agreement, the EU Council of Ministers finally agreed a Common Position on a revised draft Directive in March 2005 (www.practicallaw.com/6-200-5516).

The European Parliament rejected this revised draft on 6 July 2005. The Commission has indicated that it does not intend to produce a new version. This means that the current position, namely each member state applying its own test for patentability, will continue.

There are a number of good reasons for seeking patent protection:

There are, however, drawbacks to applying for a patent:

A patent is a complex and, to the uninitiated, arcane document, which should be drafted by a patent agent (attorney) with specialist knowledge of the subject matter. For software and business method patent applications, it is particularly important to find a patent agent who knows how to draft the application so as to give the best chance of obtaining a patent which will then be enforceable (for further information, see feature article "Patents: protecting your inventions", www.practicallaw.com/1-100-8009).

The main parts of a patent are the description, which usually includes drawings, and the claims. The latter are the legally effective part, which set out the scope of the patent monopoly. Validity and infringement of the patent both depend on the wording of the claims (see box "Patent requirements").

The patent application and relevant forms are filed in a patent office (see "Filing the patent" below). This may be a national office or, in Europe, applications can be filed in the EPO. As there is currently no such thing as a European patent, the EPO carries out a centralised search and examination process, but if the patent is granted then national patents will be issued for each state designated by the applicant. The office where the application is filed will carry out a search to look for prior art, and a patent examiner will consider whether the claims meet the statutory tests for grant of a patent. Where the office refuses to grant some or all of the claims, the applicant will usually try to overcome that objection by making amendments and/or arguments. There may be several rounds between the patent office and the applicant before a patent is granted (one of the reasons for cost and delay).

If the patent is granted by the EPO, the patent must then be translated into the official languages of the countries which the applicant has designated, another considerable expense. Anyone objecting to the grant of the patent by the EPO has a nine-month period in which to start an official opposition proceeding. This proceeding can take many years to complete. If the opponent is successful, all the granted national patents are revoked automatically.

Because each patent application costs several thousand pounds, no-one can afford to file everywhere in the world for everything they invent.

Where to file. Patent protection should be sought, if funds allow, in all the following commercially important jurisdictions:

The current uncertainty about the patentability of software and business methods in various jurisdictions means that filing applications for such inventions must be carefully considered with an expert adviser. Certainly, filing in the US, which has the most liberal regime for granting such patents, should always be considered even if this is not a large market for an applicant's products, as there may be licensing opportunities (see box "Filing patents:US in-house perspective").

What to file. Obviously, an applicant should seek patent protection for inventions that are important to its business, particularly those that give an edge over its competitors. However, there may be advantages to patenting inventions that an applicant is not using and may not intend to use, as it may be able to license them or use them to defend itself against a competitor.