Season's greetings and welcome to the December 2021 edition of Technol-AG, Addleshaw Goddard's monthly technology update.

In this edition, we cover a range of topics, including whether a new patent can be invented by artificial intelligence, and commenting on recent plans to enhance online consumer rights.

UK Court of Appeal makes landmark AI ruling

In the case of Thaler v Comptroller General of Patents Trade Marks and Designs [2021] EWCA Civ 1374 (21 September 2021), the Court of Appeal (Civil Division) ruled that new patents cannot be invented by artificial intelligence (AI). Mr Thaler challenged the UK Intellectual Property Office (IPO) after it rejected two patent applications that he submitted naming his AI machine as the inventor. The Court of Appeal ruled by a majority of two judges to one that the IPO was right to refuse the patent applications on the grounds that, as it was not a person, an AI machine could not qualify as an "inventor" for the purposes of s.7 and s.13 of the Patents Act 1977. Mr Thaler has brought similar cases in other jurisdictions and although he has lost in the UK and US, he has had success in Australia and South Africa.

This case highlights the current tension between patent law and the state of modern technology. On one hand, patent law has evolved out of a desire to foster and encourage innovation. The "patent bargain" is that patentees are granted a limited time monopoly in respect of their inventions provided that they fully explain it to the public. Whilst we are still far from a truly intelligent "Matrix-style" AI, the current iterations of AI can still use and analyse a much wider set of data than a human can. The main question is, is it right to grant protection over an invention that could not have been made by a human? Who would even be the notional person skilled in the art when assessing infringement? These are all questions that the IPO is currently exploring in the context of a new AI IP framework.

Fundamentally, however, it is not clear where there is any commercial advantage to having the AI as the inventor or patent owner. Using and commercially exploiting the invention is likely to be fraught with difficulties in practice, as an AI may not be able to work the invention for commercial benefit. It is neither an employee nor is it able to enter into contractual arrangements with others to assign or licence its inventions. This means that the patent and the invention may end up locked away in a drawer for up to 20 years and lose their commercial value. For this reason, inventors are still better off relying on their own skill to create valuable inventions. 

Global IT outsourcing spending rising rapidly

The amount of money being spent on global IT outsourcing has reached record levels, according to the latest figures published by ISG. ISG figures show that businesses spent $21.8bn on IT and IT-enabled business services in Q3 2021, with cloud-as-a-service contracts worth a total of $13.4bn during the same period, a 55% rise on the same period last year. ISG has also reported that IT managed services were worth $8.4bn, an increase of 40%, whilst in total almost $60bn has been spend on IT services in 2021, a 26% uplift on the first nine months of 2020. 

Any businesses which are not in the process of outsourcing their IT functions, including moving parts of their enterprises to the cloud, should take heed, as this is clearly the direction of travel. The competitive-edge sought via such outsourcing is made up of potential efficiencies, more agile, dynamic and leaner business models, meeting end-customer expectations, and the opportunities to deploy the capital freed-up by the outsourcing.

Whilst on-demand, scalable and measured services might appeal to most organisations, cloud computing often entails a number of key legal risks, for example in respect of potentially narrow licence scopes, onerous customer obligations and significantly limited liability regimes. Regulatory regimes such as current UK and EU data protection law represent other key legal risks posed by the outsourcing and cloud computing model. As a result, care needs to be taken when balancing the commercial benefits against the legal and regulatory challenges.

BEIS confirms plans to further boost online rights

The Department for Business, Energy and Industrial Strategy (BEIS) has published a response to a question tabled by Lord Willis of Knaresborough who asked the Government, amongst other things, what plans they have to promote consumer confidence in buying online. The response by BEIS notes that the Government currently ensures consumer rights are met online through the Consumer Rights Act 2015 and other legislation, but that they are also consulting on measures to boost these online rights further.

The consultation on reforming competition and consumer policy has now closed, but proposes to implement new rules that make it automatically illegal to pay someone to write, or host, a fake review as well as regulating subscription services and prepayment schemes, amongst other proposals to prevent online exploitation of consumer behaviour. 

With consumers increasingly living their lives online, it is important that relevant regulatory regimes keep pace with the new risks this behaviour poses. Online sales have increased year-on-year since 2008, with a jump of 8% at the start of the pandemic and maintained at that level since (House of Commons briefing paper, dated 25 May 2021). Consumers are increasingly vulnerable to unscrupulous online practices that aim to manipulate spending patterns, with enforcement powers so far failing to keep pace. In the meantime, we await the results of the consultation and the final proposals. 

ECJ rules that under the Software Directive a buyer can decompile a computer program to correct errors

In Top System SA v Belgian State (Case C 13/20), the European Court of Justice (ECJ) issued a landmark interpretation, ruling that licensees are entitled to decompile a licensed computer program to the extent to which it is necessary to correct errors in the program. The ECJ's judgment examined the exceptions to the restricted acts under Article 5(1) of the Software Directive (91/250/EEC), ruling that the lawful purchaser of a program is entitled to decompile some or all parts in order to correct errors affecting its operation and that they would not be required to satisfy the requirements laid down in Article 6. Whilst the interpretation is focused on the previous Software Directive (91/250/EEC), the relevant Articles are very closely aligned to those contained in the current Software Directive (Directive 2009/24/EC).

Previously, aside from the narrow exception that software licences cannot forbid decompilation when it is indispensable to obtain information necessary to achieve the interoperability between computer programmes, and provided that the conditions laid down in the Software Directive are met, it was generally assumed that a software owner can forbid decompilation under a software licence agreement. However, in this case, the ECJ concluded that parties cannot contractually exclude any possibility of correcting errors, although they can agree on the steps and procedures that best suit them with respect to error correction management and related decompilation activities. 

Although Brexit means this decision won't bind the UK courts, they may "have regard" to it if they consider it "appropriate" under Section 6 of the EU (Withdrawal) Act 2018, and so it remains to be seen what the practical implication of the ECJ's decision in the UK will be.