The Patentability of Business Methods in Canada: The Case of Amazon.com's 1-Click technology

Catherine Du Pont-Thibodeau is a J.D. candidate at Osgoode Hall Law School and is taking the Patent Law course.

A topic recently caught my attention while surfing the Internet in search of a subject for this blog: the patentability of business methods in Canada and more particularly Amazon.com’s 1-Click technology. Having very little knowledge of patent law at least so far, I decided to explore this topic to understand what the buzz was all about. Through this short post, I will try to provide some insight on the developments of the Canadian patent law and the impact of the recent rejection of Amazon.com’s 1-Click.

In a nutshell, Amazon’s 1-Click online purchasing method allows a customer to purchase an item with a single mouse-click. For example, a first time user enters his/her identification, billing and shipping information, which is then stored on the vendor’s server. On his/her next visit, he/she can proceed quickly by making the purchase and proceeding directly to the virtual checkout with one click.

Patents for this process took off in the U.S. in 1998, when a U.S. Court of Appeal ruled in State Street Bank & Trust Co. v. Signature Financial Group Inc. that patents could be awarded for business methods. In the aftermath of this decision, many companies rushed to file patent claims for a wide range of business practices. Amazon.com became one of the most visible method patentee with its 1-Click patent.

However, in Canada, Amazon.com’s experience was very different. In 2004, Amazon’s application was rejected by the Canadian Patent Office (the “CPO”) based on obviousness and non-statutory subject matter but that decision was overturned on appeal by the Canadian Patent Appeal Board (the “CPAB”) on the basis that all of Amazon’s 75 claims were inventive in comparison to prior art. But, the CPAB also held that all claims were directed to non-statutory subject matter. This decision has signaled a significant shift in the CPO‘s approach to patentable subject matter and, in particular, software and business method patents. Currently, the issue is now before the Federal Court and is being followed closely by software and business method innovators.

The CPAB referred to the traditional judicial test established in Beloit Canada Ltd. v. Valmet Oy but also relied on the newer four-step approach outlined by the Supreme Court of Canada (“SCC”) in Sanofi-Synthelabo Canada Inc. v. Apotex Inc., and concluded that the invention was not obvious because a person skilled in the art would not have been led “directly and without difficulty” to the claimed invention.

The CPAB then considered the issue of subject matter and here innovated holding that it was necessary to consider both the form of the claim(s) (e.g. whether each claim on its face appeared to define statutory subject matter) and its substance (e.g. what has been discovered or added to human knowledge) to determine whether it fell into excluded subject matter. In other words, the CPAB held that it was not sufficient for the form of a claim to fall within one of the categories of statutory subject matter found in the definition of “invention” in S.2 of the Patent Act, R.S., c. P-4, because the substance of the invention must also fall within one of the statutory categories. In short, a claimed invention cannot be considered as statutory if the feature or group of features that make it new and not obvious fall into excluded subject matter.

The CPAB also adopted a new technological subject matter requirement. It held that “subject matter that is not technological is not statutory subject matter, and cannot fit under one of the categories of invention”. In applying that analysis to the Amazon.com 1-Click patent, the CPAB concluded that “what had actually been discovered … is limited to streamlining the traditional online ordering method, and the benefits and advantages that flow from it. In other words, the essence of the claimed invention is the particular rules for carrying out an online order”. It then added that “concepts or rules for the more efficient conduct of online ordering, are methods of doing business. Even if these concepts or rules are novel, ingenious and useful, they are still unpatentable because they are business methods”. The CPAB further held that the substance of these claims were not statutory subject matter because the substance of the invention failed to qualify as an “art” or “process” within the definition of “invention”. The CPAB rejected the possibility of patenting business methods, stating that “since patenting business methods would involve a radical departure from the traditional patent regime, and since the patentability of such methods is a highly contentious matter, clear and unequivocal legislation is required for business methods to be patentable”. The CPAB sided with the dissenting opinion in Monsanto Canada Inc. v. Schmeiser,  and ignored the U.S. decision in State Street Bank & Trust Co. v. Signature Financial Group Inc., and its progeny. Furthermore, although the CPAB acknowledged that the claimed invention did involve some technological aspects, such as the technological capability of a cookie, this was not sufficient for patentability because that technological aspect was known from the prior art. With this new technological requirement, only features that are novel and non-obvious over prior art, constituting the substance of the invention, can be relied upon to qualify as statutory subject matter.

To conclude, this case appears to raise the threshold for obtaining business method patents in Canada. First, this decision seems to indicate that claim form is not determinative and the substance of each claim will be reviewed to determine what has been added to human knowledge. Where that addition is directed to non-statutory subject matter, the claim will be rejected. In particular, the CPAB made it clear that simply adding hardware elements of a “general purpose computer” would not automatically make a system claim patentable. What must be remembered from this decision is that business methods are excluded subject matter and are not patentable under Canadian law. It is however difficult to understand how the CPAB’s new approach to statutory subject matter could be reconciled with existing Canadian law. For example, this decision represents a clear change from the position outline in the 2005 Manual of Patents Office Practice (chapter 12) which provided that “business methods are not automatically excluded from patentability, since there is no authority in the Patent Act or Rules or in the jurisprudence to sanction or preclude patentability”. Not surprisingly, in 2009, the CPO issued a new draft of its chapter to reflect the new changes.

The CPAB’s decision is not necessarily the end of the road for the 1-Click patent since Amazon can still hope that the Federal Court reverses the decision. However, this decision provides a strong signal that the business method patents face a rough ride under the current Canadian law.

2 Comments
  1. I would tend to agree that it appears as though business method patents have a rough road ahead given the apparent need for “technological subject matter.” The question that strikes me when reading this overview is whether this is the type of innovation that patent law endeavours to protect.

    Generally speaking, the underlying justification for the Canadian Patent Law scheme is the promotion of innovation in the sciences and useful arts. The interests that derive from patent law system can be loosely defined as owner interests and the public interest. As such an appropriate balancing between these apparently competing rights must be struck when deciding upon the patentability of particular subject matter.

    In this instance, we are talking about an ingenious method of doing business, and on the factual record, this clearly meets the threshold for inventive and non-obvious. However, can we not analogise this innovation with other apt ways of conducting business, and do we wish to see those methods also monopolized? Indeed, in the internet context there are a variety of other reasonable alternatives in terms of user interfaces for websites, but with regards to general business practices, there may not be. Moreover, business methods evolve naturally as a result of the pursuit of profit, thus I find the notion that these practices require incentivization questionable.

    That said, I agree that there appears to be some flavour of ingenuity above and beyond that which you find in standard business practices, due to the fact that this is a web-based innovation. That said, this subject matter specifically resides in the border lands of patents and copyrights; therefore, Amazon at the very least will be able to hinder pure free-loading of their efforts through copyright in the program and user interface.

  2. I completely disagree with the Patent Appeal Board (PAB) and this recent decision as well as CIPO’s apparent total disregard for the law in making recent amendments to the Manual of Patent Office Practice (MOPOP).

    I would like to point out that the PAB in not a court of law and none of their decisions are binding. It is merely an administrative body which cannot set precedent and has no more power than what is given to it under the statute and rules. Therefore, this complete shift in CIPO’s thinking is inconsistent with the law as it currently stands. In my opinion, without a sudden unexpected change to the current Canadian Law, the Federal Court will likely reverse this decision and CIPO would be forced to rewrite Chapters 12 and 13 of the MOPOP as it current reads.

    First, the PAB appears to have introduced a new technological subject matter requirement. No where in the Patent Act or Patent Rules does it provide for a requirement of “technological” subject matter. Section 2 of the Patent Act currently states the requirements for subject matter. The PAB does not rely on any jurisprudence from a Canadian court of law for this technological subject matter requirement and therefore is acting beyond its jurisdiction. For the same reason, it is not for the PAB to decide that business methods require specific statutory approval. The PAB must interpret the law as it stand in the Act and Rules as interpreted by Canadian courts of law.

    Second, the PAB’s approach in determining the “essence” of the invention is completely without basis in Canadian law. Instead, the PAB relied on a UK case (which has never been endorsed by a Canadian court of law) for this approach. Section 27(4) of the Patent Act states that the claims define the invention. Therefore, the PAB’s approach of examining the essence of the invention before looking to the claims is a clearly incorrect approach under Canadian law.

    It is not the role of CIPO, in particular, the PAB, to re-write the laws passed by Parliament. It must follow those laws and the intrepretations given to the law by Canadian courts. I think that it is completely wrong to treat the PAB as part of the judiciary in that it has any power to make new law or give interpretations to law.

    Therefore, I think that the Federal Court will overturn this decision as the PAB’s approach is inconsistent with the state of the law.

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