Business Methods Patentable in Canada

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Business Methods Patentable in Canada

: December 5, 2011

On November 24, 2011, the Canadian Federal Court of Appeal delivered its eagerly anticipated decision in Amazon.com, Inc. v. Canada (Commissioner of Patents), 2011 FCA 328, (November 29, 2010) affirming in part, 2010 FC 1011, (October 14, 2010); that “a novel business method can be an essential element of a valid patent claim” (para. 63).

The Federal Court of Appeal agreed that all elements of patentability, be they questions of patentable subject matter, novelty, utility, obviousness or statutory prohibition, are questions addressed to “the subject matter of the claims”, and require a purposive construction of the claims in accordance with the principals laid out in Free World Trust v. Électro-Santé Inc., 2000 SCC 66, and Whirlpool Corp. v. Camco Inc., 2000 SCC 67, the seminal Canadian cases on patent claims construction (interpretation).

On the important question of the circumstances in which a process or method (i.e. an art, like a business method) may be patentable, the Federal Court of Appeal quoted and approved the lower court at length, refusing any requirement for technological advances in a patent and not prohibiting business methods which otherwise meet the other criteria. However, the Court refused to draw a distinction from Schlumberger Canada Ltd. v. Canada (Commissioner of Patents), [1982] 1 F.C. 845 (C.A.), finding that the mere existence of a practical application or computer embodiment will not satisfy the condition that an invention not be abstract if the essential elements of the claims are nothing more than abstract ideas (and the other elements of the claims non-essential).

After over 13 years since filing, the patent has been returned yet again to the patent office for consideration, if any how, on a purposive construction, the claims might be valid as having some

essential elements which are not abstract, in addition to the ones which are.

BACKGROUND

At issue in this case was Amazon.com’s patent application for a “Method and System For Placing A

Purchase Order Via A Communication Network”, filed September 11, 1998, and claiming priority from two corresponding US applications.

The patent application claims the exclusive rights over a method and system for orders for goods and services created online by a registered user using a single action, without the further need to register payment information at the time of purchase. This is the so-called “One-Click Patent” that has been issued in the United States, Australia and New Zealand, but not in Europe where three of four related patent applications have been rejected at various stages and the remaining one will likely not issue.

Decision of the Canadian Intellectual Property Office

The patent application was rejected on numerous grounds by the Commissioner of Patents after two

hearings at the patent appeal board, the last in 2008. While the Commissioner found that the invention might be unpatentable for lack of novelty and obviousness, she actually rejected the claims on the basis of non-statutory subject matter, finding that the claims:

• Essentially related to a business method, and were therefore unpatentable as such;

• Lacked any physical element as it relates to the inventive aspect; and

• Lacked any technological contribution as it relates to the inventive aspect.

Decision at the Federal Court of Canada

In a strongly worded decision in Amazon’s appeal to the Federal Court of Canada, Phelan J. denounced virtually all aspects of the Commissioner’s approach. The decision expressly rejected certain past office practices and tests, and proposed a test to be used in assessing patentability of business method patents generally, by providing the following guidance:

• There is an “absolute lack of authority in Canada for a ‘business method exclusion’”;

• Inventions need not be either physical in nature or effect;

• Tangibility is not an issue;

• There is no requirement that inventions be technological (the Court questioned how it would

even define such an evolving concept);

• It is improper to examine the “substance of the invention” or to parse out the novel and known

elements of an invention for the purpose of determining whether there is patentable subject

matter in the novel elements alone – a purposive construction is to be used for all legal interpretation of the claims.

Phelan J. then reiterated the test for patentability of an art or process (including a business method)

enunciated in Progressive Games, Inc. v. Canada (Commissioner of Patents), 177 F.T.R. 241 (T.D.) at para. 16, aff’d (2000), 9 C.P.R. (4th ) 479 (F.C.A.). As a result, Phelan J. then essentially directed that the patent be issued as it clearly met the tests.

DECISION AT THE FEDERAL COURT Of APPEAL

Sharlow J.A. and concurred in by Trudel J.A. and Stratas J.A., confirmed Phelan J.’s approach to

construction, but disagreed in part on how the requirement physicality is met. They also determined that he did not have sufficient evidence to rule on the issue of construction of the claims, and returned the patent for re-examination on an expedited basis.

In discussing the analytic framework for assessing whether the subject matter of the claims is patentable, the Court directs the Commissioner to engage in a purposive construction of the claims, and then to determine whether the subject matter of the claims, once appropriately construed, meets the applicable tests.

In setting the test for patentability of a method, process or art, the Federal Court of Appeal quoted

Phelan J. at length, including his statement of the test in Progressive Games, to the effect that, to be

patentable:

• The method must have a practical application;

• It must be a new and inventive method of applying skill and knowledge; and

• The method must be commercially useful.

However, the Federal Court of Appeal disagreed in part as to what level of “physicality” of invention

would be needed to overcome the prohibition on patents for merely scientific principles or abstract

theorems set forth in Section 27(8) of the Patent Act. The Federal Court of Appeal determined that the claimed elements must have physical existence or manifest a discernible change or effect, in order to be patentable (para. 66). Further, and in keeping with the Schlumberger decision, Canadian law does not permit a physical embodiment or practical application to render patentable an otherwise abstract idea, without some novelty in the combination of abstract and non-abstract essential elements of the claims.

In Schlumberger, the patent to a software implementation of a mathematical formula was invalid

notwithstanding certain non-essential computer related elements in the claims. So, in addition to the bullets above, to be patentable, a method, process or art must also meet this “physicality” requirement, by:

• Physical existence; or

• Manifestation of a discernible change or effect; or

• Some change to interpretation of the foregoing as a result of advances in knowledge.

But:

• Physicality is not established merely by the presence of a practical application; and

• If an abstract idea is an essential element of a claim following a purposive construction, then

there must be some other essential element in novel combination with the abstract idea which

satisfies the physicality requirement.

The decision also implies that the One-Click purchase method on its own is an abstract concept, but

does not elaborate on what it relied on to reach that factual determination.

CONCLUSIONS

Although it should be remembered that this patent has had a hard prosecution in all jurisdictions and the law in this area is developing; protection of software related inventions exists if the specification and claims are drafted with the legal tests in mind. However, the Federal Court decision was more favourable to patentees than the Federal Court of Appeal decision. Patentees may now need to place greater emphasis on how certain essential elements of their claims meet the “physicality” requirement, in the sense of constituting a discernable change or effect, and draw a contrast between any abstract ideas which underlie an invention and the claimed invention itself.

By (1) adopting much of the Federal Court’s decision, (2) affirming there is no technological requirement in Canadian patents, and (3) directing the court to consider business method patentability with an open mind, the Federal Court of Appeal is opening the door to greater protection for business method patents and software related inventions than previously existed in the Canadian patent office.

Subject to the results of any further appeals to this decision, the importance of this case to inventors of software related inventions cannot be understated. Domestic and foreign inventors and patentees of computer related inventions should take this opportunity to reconsider their Canadian patent filing strategy, and whether the requirement for some physical existence in or a discernable effect or change caused by the claimed invention requires them to amend their claims.

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