Canada: Business Methods Are Patentable In Canada

Intellectual Property Update edited by Robert Irani

The Federal Court of Appeal Rules in Amazon.com; the Canadian Patent Office Allows Amazon's Patent Application

The Federal Court of Appeal released its decision on the patentability of Amazon's "one-click" Internet shopping invention on November 24, 2011. The Court ruled that business methods remain patentable subject matter under Canadian law, and the patentable subject matter test advanced by the Commissioner of Patents is incorrect and not supported by law. On December 22, 2011, the Commissioner of Patents allowed Amazon's patent application.

The Federal Court of Appeal decision follows an appeal by the Commissioner of Patents of the Federal Court's ruling on the Patent Office's rejection of Amazon's patent application for its one-click Internet shopping method. In that decision, the lower Court overturned the Patent Office's rejection and held that business method patents constituted patentable subject matter in Canada and that the form-and-substance test for determining patentable subject matter applied by the Commissioner was inconsistent with Canadian law. The Federal Court of Appeal directed that the Commissioner and the Patent Office reconsider Amazon's patent application on an expedited basis and in accordance with the legal principles set forth by the court.

The Commissioner of Patents rejected Amazon's patent application on the basis that the claimed invention did not fall within the statutory definition of invention under Section 2. The Commissioner advanced a two-part test for determining patentable subject matter under Section 2, which requires: (1) identifying, independently of the construction of the patent claims, what the inventor has claimed to have invented – the actual invention; and (2) determining whether the actual invention falls within one of the subject matter categories enumerated in Section 2.

The Federal Court of Appeal held that the Commissioner's test for determining patentable subject matter on the basis of inventive concept or actual invention is incorrect in law. The determination of statutory subject matter must be based on a purposive construction of the patent claims according to the Supreme Court of Canada in Free World Trust and Whirlpool. The Commissioner cannot consider the issue of patentable subject matter without first construing the patent claims in the application.

The Court did however note that by applying a purposive construction to the patent claims, what appears on its face to be a claim to an art or a process may, on a proper construction, be a claim for a mathematical formula and therefore not patentable subject matter. The Court made reference to Schlumberger. In Schlumberger, the Federal Court of Appeal found that a method for collecting, recording and analyzing data according to a mathematical formula using a computer did not constitute patentable subject matter. The Court concluded that the method claim amounted to a mathematical algorithm, that could otherwise be solved manually, being executed using a computer. The Court held that a mathematical algorithm fell within the prohibition under Section 27 against patenting a mere scientific principle or abstract theorem. The presence or absence of a computer did not change the patentable nature of the claim.

In its rejection of Amazon's patent application, the Commissioner of Patents concluded that the one-click invention failed the three tests that were considered to be implicit in the meaning of art under the Patent Act: (1) it does not add to human knowledge anything that is technological in nature; (2) it is merely a business method and a business method is not patentable; and (3) it does not cause a change in the character or condition of a physical object.

The Court criticized the Commissioner for devising or relying on such tests, and stated that the focus should remain on the principles to be derived from the jurisprudence. The Court further noted that "catch phrases, tag words and generalizations can take on a life of their own, diverting attention away from the governing principles".

The Court found that the technological requirement applied by the Commissioner is vague and likely to be highly subjective and unpredictable in its application. It should therefore not be used as a stand-alone basis for distinguishing patentable subject matter from non-patentable subject matter.

The Court held that there is no Canadian jurisprudence that determines conclusively that a business method cannot be patentable subject matter. The Court further noted that the Commissioner of Patents has granted patents for applications directed to business method inventions.

On the requirement of a change in the character or condition of a physical object, the Court agreed with the lower Court and held that because a patent cannot be granted for an abstract idea, it is implicit in the definition of invention that patentable subject matter must be something with a physical existence, or something that manifests a discernible effect or change. The Court did not, however, accept that the physicality requirement could be satisfied merely by the fact that the claimed invention has a practical application. This appears to narrow the broad definition of art from the Supreme Court of Canada in Shell Oil.

In allowing the appeal by the Commissioner of Patents, the Court found on the narrow ground that the lower court had erred in undertaking its own purposive construction of the patent claims in Amazon's application on the basis of the available record, which did not include expert evidence to assist the Court. The Court held that anyone who undertakes a purposive construction of a patent "must do so on the basis of a foundation of knowledge about the relevant art, and in particular, about the state of the relevant art at the relevant time". The Court added that "[f]or the Commissioner, that assistance comes in the form of submissions from the patent application, and I assume, from staff at the patent office with the appropriate experience" and that courts generally require the expert evidence of persons skilled in the art as per Whirlpool. On this basis, the Court did not adopt the lower court's construction of the claims and instead directed the Commissioner of Patents to re-examine the patent application on an expedited basis.

The application was allowed by the Commissioner on December 22, 2011, and on December 28, 2011, Amazon paid the final fee to issue the patent. It is expected that the one-click patent will issue under Canadian Patent No. 2,246,933 in the weeks to come.

Amazon filed a patent application for its one-click ordering system on September 11, 1998. Some 13 years later the application has been allowed by the Canadian Patent Office, with both the Federal Courts and the Commissioner of Patents affirming the patentability of business method inventions in Canada.

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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