The confusion surrounding the UK's position on software patents looks set to continue after a ruling in the House of Lords yesterday. The Law Lords refused Australian businessman Neal Macrossan leave to appeal against a court decision last year that his invention of an automated system that compiles the necessary documents for incorporating a company in the UK could not be patented.

A patent application for the web-based system had been rejected by the Court of Appeal in October on the grounds that it was a "business method" and a " computer program", both of which are generally excluded from the patent system in the UK.

Macrossan's lawyers had argued that the Court of Appeal judges had used new criteria for judging what constituted a successful patent application that were out of step with those used in the rest of Europe and that there was a need for clarification on the points of law surrounding what software is patentable. The Lords rejected this line of argument, claiming the case "does not raise an arguable point of general public importance".

John Collins, partner at patent and trade mark attorneys Marks & Clerk, and a representative of Macrossan in his request for leave to appeal, said he was surprised by the decision. "You can argue about the merits of the case and what aspects of the invention are technical," he said. "But I didn’t think you could argue that there is an issue with the law that needs resolving."

Collins argued that there is currently broad agreement between both sides of the software patent debate that some types of software, known as computer implemented inventions, should be patented, but there is a lack of clarity on how you define these types of software.

To be patentable, a software-related invention must have a "technical effect ", typically involving some associated hardware. "Most people agree that [an innovative] control panel on a washing machine, which [contains] software, should be patented," he said. "That means we are arguing about where we draw the boundary, and that is what we wanted to establish."

He added that the issue had been muddied further by the appeal court judges' ruling against Macrossan, which included a four-step test for deciding whether an invention should be granted a patent. Collins said this test could be interpreted as excluding any computer program operating solely within a conventional computer from qualifying for a patent, regardless of the technical aspect involved.

"It means encryption algorithms, and pattern and speech recognition software, which have all been patented in the past in the UK, would no longer be able to be patented," he said. "[The UK patent office] say there has been no change, but I see a tightening up of their practice."

However, a spokesman for the Foundation for a Free Information Infrastructure welcomed the Lords decision, claiming it further validated the appeal court ruling. "It shows the decision by the previous court was correct," he said.

Opponents of software patents, which are established in the US, have long argued that they should continue to be outlawed, claiming that they stifle innovation and hamper the open source movement.

But advocates of software patents insist the current situation, whereby different European countries and the European Patent Office all take different views on what computer programs can be patented, is unsustainable and making it too difficult for firms to protect their intellectual property.