Business Method Patents: The State of the Art after the Decision

A major source of controversy in Canadian patent law is the treatment of business method patents. Up until recently business methods were not considered to be patentable (see the Patent Commissioner’s decision in and U-Haul). However, much has changed after the Federal Court’s decision in the case.

Phelan J. addressed the issue of patentability of business methods in, Inc. v. Canada (Attorney General) in a decision released on October 14, 2010. The result: business methods may be patentable ‘in appropriate circumstances.’ Amazon’s patent application met the ‘appropriate circumstances’ requirement. Thus, the court remitted the case to the Patent Office for expedited re-examination on the basis of the court’s finding that patentable subject-matter was present.

The Amazon application related to the placement of an online order allowing the buying of a product from an internet website with a single click. The two independent claims included 1) a system claim disclosing a “machine” which is used to implement’s 1-click ordering system, and 2) a process claim disclosing a “process” which uses stored information and cookies to enable customers to order items over the internet simply by clicking on them.

Noted below is a synopsis of an in-depth analysis of Phelan J.’s decision that is discussed more fully in our case comment (soon to be published in the Intellectual Property Journal).  We conclude that Phelan J.’s decision in Amazon is far from satisfactory. The decision gives rise to more ambiguity, confusion and unanswered questions. In this post, we critique only the court’s reasoning and do not take a position on the ultimate correctness of the decision or on whether business methods should or should not be patentable in Canada.

We criticize the Federal Court’s decision under five headings:

(1)   the expansive meaning given to “art” in the Patent Act;

(2)   the elimination of any ‘technological requirement’ for patentability;

(3)   the reliance on foreign jurisprudence;

(4)   the application of a “purposive” interpretative approach to determine patentability; and

(5)   the failure sufficiently to defer to the Patent Office’s decision. 

As to (1): According to the court, for an invention to be patentable as an ‘art,’ it must meet the threefold test proposed by Denault J. in Progressive Games , i.e. a) it must not be a disembodied idea but have a method of practical application; b) it must be a new and innovative method of applying skill or knowledge; and c) it must have a commercially useful result. Although Denault J.’s decision was affirmed by the Federal Court of Appeal, the threefold test was neither endorsed nor expressly rejected by the appellate court. This threefold test may itself be wrong for confusing issues of novelty and unobviousness with the question the court had to deal with, that is, subject-matter; but, in any event, the Amazon court expands the test by loosening the “practical application” requirement to some “slightly less conventional change in character.” The bounds of this ‘less conventional change’ are not suggested, nor is the nature of the change in the Amazon application indicated. No longer, apparently, need patentable subject matter necessarily relate to any technology.

On point (2): Although obiter, Phelan J. was of the view that there is no technological requirement with respect to patentability of inventions. He may be correct in his assertion; however, he failed to articulate adequate reasoning why no technological requirement is needed or why the technological requirement is not desirable.

Not only does this new approach to patentability appear inconsistent with indications in domestic and international law, it also may have unforeseen and undesirable ramifications such as opening the door to the sort of absurd patents that have been decried in the United States, such as the patenting of dance steps and methods for training animals.

Regarding (3): Phelan J. heavily criticized the Commissioner for her reliance on European jurisprudence. However, without stating why reliance on Australian jurisprudence is better than reliance on European jurisprudence, Phelan J. himself found support for his decision in the Australian case law. It is noteworthy that there are significant differences between the Statute of Monopolies 1623 (Eng.), which regulates patentability in Australia, and the Canadian Patent Act.

On point (4): Phelan J. was unimpressed by the Commissioner’s “form and substance approach” in determining patentability because he thought it inconsistent with the purposive approach to claim interpretation. But he really conflated three different points: how to construe claims, how to determine patentability, and how to interpret statutes. While the first and the third tasks may require a purposive approach, there is absolutely no support for using the purposive approach that is applied to claim interpretation to determine patentability.

With respect to (5): the recent trend in administrative law is towards affording respect and deference to the expertise of the administrative decision maker. Phelan J. criticized the Patent Commissioner on every single aspect of her decision.  This hardly represents either respect or deference.

While some may believe that the Federal Court’s decision has answered one of the most difficult concepts that CIPO, practitioners, applicants and the courts in Canada are grappling with, (whether or not business methods are patentable), the shortcomings of the reasoning in the decision detract from its becoming the final word on this issue. A notice of appeal to the Federal Court of Appeal has recently been filed by the Attorney General of Canada and the Commissioner of Patents.

  1. Thank you for article.

    As for form and substance, the definition of “invention” in Section 2 of the Patent Act has two clauses. The first clause relates to requiring that which is new and useful to be categorizable as one of the five things specified (art, process, machine etc.). If the inventor creates a new and useful machine that is not otherwise excluded, the inventor has created an invention.

    The second clause is in place to enable patenting of improvements, so long as they are improvements in one of the five things specified.

    Because we are dealing with categories in both clauses, the “technological” requirement does not need to be accomodated, and business methods need not be excluded.

    If we go back to basics, to the raw statute, I think we have to regard the actual language of the second clause with a bit more respect though.

    What I think is most interesting about form/substance is its potential for use in overriding this second clause.
    The second clause does not actually specify that an improvement itself must fit into one of the five categories. If it did, the second clause would actually be redundant; that’s what the first clause specifies.

    But, the second clause specifies that an invention can be a new and useful “improvement in” one of the five things. So your new and useful thing (your “contribution” if you’d like to put it that way, or substance as CIPO calls it), in isolation, can actually be something that by the second clause language of Section 2 itself is not restricted to being categorizable as one of the five things.

    The substance isolation put into practice at the CIPO does in fact require the improvement/substance to be categorizable as one of the five things. So, in practice the form/substance approach overrides the second clause.

    I am of the view that the analysis should instead be ensuring that, whatever the nature of the improvement, it has to be manifest in (or, if you like, applied to) one of the five things. That is, let’s decide what was improved, as opposed to the category in which the improvement per se fits into. This might be a good middle ground between eroding the improvement clause, and permitting patenting of dance steps just because a cane and a hat are somehow part of the claim.

    Requiring the substance to be one of the five things, where the substance is an improvement, might be justifiable if the second clause read “…or any new and useful improvement in any art, process, machine, manufacture or composition of matter that is itself an art, process, machine, manufacture, or composition of matter.”

    The differences in respect of the definition of invention between EP and UK law and US/CA/AU law relate to exclusive versus inclusive definitions in the statutes as to what may not (or may) be patented. It is on this basis that the Court went with the case law of the inclusive-definition jurisdictions as more applicable to Canada. The Statute of Monopolies can differ on other unrelated points.

    Thank you

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