Bita M. Rajaee is a JD candidate at Osgoode Hall Law School and is enrolled in Professor Ikechi Mgbeoji’s Patents class in Fall 2011. As part of the course requirements, students are asked to write a blog on a topic of their choice.

One of the most important recent decisions in Canadian patents law is that of Amazon.com, Inc. v. Canada (Attorney General),¹ released on October 14, 2010, where the court granted a patent for a business method. IP Osgoode has already commented on this decision here.  As the authors of the post explain, in their assessment, they “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.” In this post, I will discuss the policy implications of this decision.

In the Amazon.com Inc. case, Amazon was hoping to patent its “1-Click” ordering system, which allowed customers to place their orders using a single click of the mouse. Amazon’s application was at first rejected by the Examiner on two grounds: obviousness and non-statutory subject matter. However, this decision was appealed and Justice Phelan reversed the previous decision, declaring Amazon.com’s system to be patentable. He classified the rejection of such a patent as “a fundamental error of law.”

This judgment has now been appealed and various parties have been given leave to participate as interveners. One of the reasons Justice Trudel at the Federal Court of Appeal identified for allowing the involvement of the interveners was:

The net result of the decision to issue on appeal could be to allow the patenting of ideas, or mental steps, such as many of the methods and steps involved in the creation, use and analysis of financial date, methods for managing financial portfolios and investments, methods for creating and managing insurance contracts, methods used to calculate risk or to analyze actuarial, mortgage or underwriting data, financial models and investment strategies and methods for conducting online banking, with the result that their members would be directly impacted.

The fear identified by Justice Trudel is precisely one of the reasons why this issue is surrounded by controversy. It is in line with the general debate concerning patents and their impact on innovation. Granting a patent at the same time acts as an incentive for inventors and creates a temporary monopoly, potentially dissuading others from adding to this invention.²

As for business method patents in particular, the only certain implication of allowing business method patents is that there will be an immediate increase in patents for business methods. This will in turn lead to an increase in litigation, and be very costly.

It is more difficult to assess the impact of business method patents on innovation. It appears as though business method patents are less an incentive for innovation and are used more after the fact. However, it is not clear whether “there would have been as much entry into internet businesses” were it not for the patent system in the first place.³

Another implication is that in industries that require patents for cross-licensing purposes, business method patents could raise the cost of doing business. Banking or financial services industry, which depend on different institutions communicating with each other, are examples of such industries. Business method patents could also “make it harder for new firms to enter without access to the requisite intellectual property.”⁴ This is the main problem with business method patenting. By nature, they are for incremental inventions and many different ones must be combined to make a useful product. This makes things costly for subsequent users.

Another problem identified with business method patents is their low quality.⁵ A high-quality patent is one for an invention that is completely new. Business method patents, for the most part, relate to a reformulation of an already-existing method. The Amazon.com case is an example of such a situation, where Amazon used previous methods to create a one-click method.

On the positive end, some have suggested that software patenting may be beneficial since, as a result of the patent publication, it would lead to the reuse of software in newer invention.  In other words, patenting encourages publication, and therefore, allows for the perpetuation of the business method.

As with any issue, there are both positive and negative implications arising from the granting of business method patents. One thing that is for sure: the coming decision of the Federal Court of Appeal will have major ramification on patent law in Canada.