Canada: v. — Welcome Relief or Invitation to Litigate?

On December 1, 1999, the United States District Court for the Western District of Washington State (reported at held, in a much publicized ruling, that ("Amazon") had presented a case showing a likelihood of infringement of its "1-Click" business method patent by Inc. ("Barnes & Noble"), and that Barnes & Noble’s patent validity challenges lacked sufficient merit to avoid the granting of a preliminary injunction. The decision was the subject of critical commentary, including even an expression of concern about the U.S. patent system from Jeff Bezos, President and C.E.O. of Amazon, and one of the inventors of the patent-in-suit, who said that "meaningful (perhaps radical) patent reform" was needed, because of the potential for harm: "I now believe it’s possible that the current rules governing business method and software patents could end up harming all of us ...."

The decision even found its way to the popular press, with an article by May Wong in last summer’s Toronto Star noting that "[t]he debate over whether [business method] patents encourage or stifle the internet economy has raged in high-tech, legal and academic circles this year, heightened by’s success in getting a court order forcing book seller to make express online purchasing a two-click effort."

Business Method Patents

Although injunctions - either interim or interlocutory - are rarely granted in Canadian patent cases, the U.S. District Court decision was of interest to Canadians, because it highlighted the concerns about business method patents - that they might hinder innovation in the new economy - and because it appeared to suggest that business method patents would be difficult to attack, as being subject to a broad statutory presumption of validity.

The concerns about business method patents really started with the 1998 decision of the U.S. Court of Appeals for the Federal Circuit in State Street Bank and Trust Co. v. The Signature Financial Group Inc. Before this decision, business methods, per se, were thought not to be patentable, but the finding that a method of managing a portfolio of mutual funds was patentable led to a rush to patent. In the year that followed the decision, the U.S. Patent and Trademark Office reported that the filing of business method patent applications increased seven hundred percent.

The concerns may recently have begun to abate somewhat.

On February 14, 2001, the U.S. Court of Appeals for the Federal Circuit (reported at 010214op.asp) vacated the preliminary injunction that had been granted against Barnes & Noble. The Court of Appeals found that Barnes & Noble had "mounted a substantial challenge to the validity of the patent."

Amazon’s "1-Click" patent

Painted in broad strokes, Amazon’s "1-Click" patent - U.S. Patent No. 5,960,411 - is directed to a method for purchasing goods on the Internet with a single click of a mouse button. At the District Court and the Court of Appeals, Amazon alleged that Barnes & Noble’s "Express Lane" purchase system infringed the "1-Click" patent - in that, a consumer who had already visited the Barnes & Noble website, and given his or her payment information (name, shipping address and credit card), could complete a purchase with a single mouse click. And like the District Court, the Court of Appeals found that Amazon had shown that it was likely that Barnes & Noble infringed at least four independent claims of the "1-Click" patent.

But Barnes & Noble challenged the validity of the "1-Click" patent and argued that it was anticipated by prior art. Although the legal hurdle to overturn the grant of a preliminary injunction on appeal on a validity issue is high, the Court of Appeals found that the lower court had made a clear error in misreading the prior art.

Internet Distinction "Irrelevant"

The "1-Click" patent speaks to a "client/server environment such as the Internet." Because the patent was found by the Court of Appeals not to be confined to the Internet, the relevant prior art was found not to be confined to Internet applications. The Court of Appeals held that Barnes & Noble had demonstrated, with reference to the prior art - in particular, a mid-1990s stock charts system - that there was a substantial question as to the validity of the "1-Click" patent. Amazon had argued that this system was not on the Internet; the court saw this distinction as "irrelevant." Consequently, the Court of Appeals saw the challenge to validity as having merit, and vacated the preliminary injunction.

On one level, all that was decided by the Court of Appeals was that Barnes & Noble can continue to use its "Express Lane" business method until trial. However, on another level, and of much greater significance, this decision confirms that the Court of Appeals will treat Internet-based business method patents like all others. Moreover, any doubt lingering after the State Street decision as to whether or not business methods are patentable subject-matter in the U.S. has been removed.

Of equal significance was the finding by the Court of Appeals that prior art was not to be limited to Internet applications, suggesting that merely adapting a known business method for use on the Internet will not be patentable. This should be welcome news to those companies which have been slow to move in filing business method patent applications.

Finally, the decision suggests that each business method patent will have to be determined on its merits - that is, the validity of each business method patent may have to be determined by litigation. While this uncertainty is likely not welcome news to new economy companies, it is not bad news for patent litigators.

This article was originally published in The Lawyers Weekly on April 13, 2001.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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