A Business Method In The Madness: The Future Of Business Method Patents In Canada

Hamlet knew a hawk from a handsaw, but others were fooled by his apparent madness. Likewise, commentators have recently rallied against the apparent madness of allowing business method patents in the U.S. Until recently, such patents were rejected on grounds that the alleged invention was outside the ambit of patentable subject matter. However, in State Street Bank & Trust Co. v. Signature Financial Group Inc., the U.S. Court of Appeal laid to rest the "ill-conceived" prohibition against business method claims and held that Signature’s financial services patent was valid.

For those interested in e-commerce, "business method" patents seek to protect systems and methods for doing business, for example methods for facilitating "buyer-driven conditional purchase offers". In some cases, methods are claimed for doing business on-line, giving rise to the label "Internet patents". Some recent examples of U.S. business method patents are:

U.S. Patent No. 6,029,141 issued to Amazon.com, Inc. for an Internet-based customer referral system (the so-called "affiliate" program which allows Web sites to refer customers in exchange for commissions);

U.S. Patent No. 5,794,207 issued to Priceline.com Inc. which covers "reverse auctions" or buyer-driven methods of conducting commerce on the Internet;

U.S. Patent No. 5,960,411 issued to Amazon.com, Inc. for the One-Click® method which stores billing and shipping information so that customers need only click their mouse once without re-entering information;

And, strangely, U.S. Patent No. 5,851,117 issued to Butcher Company titled "Building Block Training Systems and Training Methods", which is a method for teaching a janitor how to clean commercial washrooms and the like.

The stakes are high. Some business method/Internet patents appear to be seeking control of the underlying framework of electronic commerce. Once issued, these patents do not sit like trophies on a shelf. They are enforced, licensed and litigated. They are property rights upon which companies, such as Priceline.com, build their financing . They are threats to competition for companies such as Barnes and Noble, whom Amazon.com sued shortly after obtaining its One-Click patent on September 28, 1999, obtaining an interlocutory injunction against Barnes and Noble on December 2, 1999, just before the holiday season..

To date, Canada has stood on the sidelines in the debate over business method patents. The Canadian Manual of Patent Office Practice states that methods or schemes of doing business do not comprise patentable subject matter. The question is, why not?

Much of the discussion concerning business method patents has avoided the issue of whether the principle of patenting business methods is supportable, instead focusing on the fact that allowing business method patents will lead to the issue of numerous patents of questionable value. But a bad patent does not a bad principle make, and there are good reasons why Canada should, and will, follow the United States’ lead in issuing business method patents.

First, a note about State Street. This decision involved US Patent No. 5,193,056 issued to Signature Financial Group Inc. for a system allowing monitoring and recording of financial information and the making of all calculations necessary to maintain a partner fund financial services configuration. This configuration allows several mutual funds ("spokes") to pool their investment funds into a single portfolio ("hub") allowing for economies of scale in administering the fund while obtaining tax advantages of a partnership.

The court noted that it was the US Congress’ intention that patentable subject matter include "anything under the sun that is made by man". The court then held that an invention is not unpatentable simply because it relates to a method of doing business. Business methods, the court went on, should have been "subject to the same legal requirements for patentability as applied to any other process or method".

This type of "substance over form" reasoning was employed almost 20 years ago by the Canadian Federal Court of Appeal in Schlumberger Canada Ltd. v. Commissioner of Patents, the last Canadian court case to consider the patentability of software. In that case, the court considered a patent application relating to a process whereby measurements in oil and gas exploration boreholes were recorded on magnetic tapes, transmitted to a computer programmed according to certain mathematical formulae and converted by the computer into useful information such as charts and graphs. The Court found that invention was merely the discovery that certain mathematical calculations resulted in useful information and that, since the calculations could have been performed by humans as a series of mental operations, the subject matter was not patentable under the Patent Act.

Of importance, however, the Court held that the fact that a computer is used to implement a discovery does not change the nature of the discovery. That is, the invention is subject to the same first principles of patentability, computer or no computer.

This kind of analysis ought to apply equally to business method patents. While a patent in Canada may not be granted for any "mere scientific principle or abstract theorem", the Patent Act contains no specific exclusion relating to business method patents. And no Canadian court has clearly rejected the principle of business method patents. Where business method patents have been rejected, it has been on other grounds. For example, in Lawson v. Commissioner of Patents, the court considered a patent application for a method of subdividing land to provide greater density, staggered building locations, etc. The court rejected the patent application not because it was a business method, but because such a method comprised the skill of a solicitor, planning consultant and surveyor and, as such, was an "art" that belongs to the professional field and not an "art" in the industrial sense as defined in s. 2 of the Patent Act.

It has been suggested that the court in this case misplaced its objection to patentability. So-called professional" arts may be properly unpatentable because they lack "utility", not because they are outside the scope of categories included in an invention.

Interestingly, a recent court decision has confirmed the utility of a method for a game, which is akin to a method of doing busines. In Progressive Games, Inc. v. The Commissioner of Patents the Court considered the patentability of an application entitled "Poker Game". The invention related to a modified version of a five-card stud poker game which can be played in a casino or cardroom environment. Although the applicant was granted a patent in the U.S., the Canadian Intellectual Property Office (CIPO) rejected the application on grounds that the method claims were not directed to either an "art" or a "process" within the meaning of section 2 of the Patent Act and thus were not patentable subject matter.

The court, in considering the appeal, determined that the definition of "art" includes a process that:

i. is not a disembodied idea but has a method of practical application;

ii. is a new and innovative method of applying skill or knowledge; and

iii. has a result or effect that is commercially useful.

The Court then concluded that the applicant’s changes in the method of playing poker met two of the above criteria, namely that (i) this was a practical application; and (iii) the result was commercially useful. However, the court rejected the application on grounds that it did not result in (ii) a new and innovative method of applying skill or knowledge as commonly used in the expression "the state of the art" because the applicant’s "changes in the method of playing poker - i.e. by adding a new player referred to as ‘the house’ – did not substantially modify the poker game as it existed nor did they create a new game."

The court left the door open just wide enough to suspect that the decision could have been otherwise had the invention related to an entirely new kind of game.

The question is probably not if, but when, Canada will allow business method patents. Not only do Canadian courts consider U.S. court decisions as instructive, but section 2 of the Patent Act, which defines patentable subject matter, is in fact based on the early U.S. patent statutes. Can Canada be far behind its southern neighbour in granting these patents?

Once the taboo is lifted, and a method relating to a "business" loses its visceral, knee-jerk judicial reaction, one is left with a method. Is the method new? Is it inventive? Is it useful? These are the benchmarks of patentability, not whether the method is patentable in view of dubious but established ways of pigeonholing subject matter. If a court were convinced that the method in question employed a novel method of applying skill or knowledge and otherwise met the statutory requirements, there would appear to be no reason why the court would not follow the U.S. court in State Street.

On a policy level, the U.S. is allowing e-commerce and financial-based companies to gain a competitive advantage by patenting their methods of doing business. If Canada wants to take a leadership role in the exploding Internet economy, it has to protect the intellectual property of companies that develop, create and invent in this space. There is every reason to believe that this protection will be granted.

In fact, it is now clearly possible to obtain a "business method" patent in Canada, provided that hardware or other physical apparatus, which is directed toward traditionally patentable subject matter, is included in the claims. An example is Canadian Patent No. 2,137,498 issued on February 1, 2000 to Walker Asset Management Limited Partnership (the corporate parent of Priceline.com). This patent, entitled "remote gaming system", is for a "method of providing credit value to a gaming device". The inclusion of nominal hardware in the claims ("numeric keyboard of a telephone", etc.) narrows the scope of the claimed invention only minimally and shows that, practically speaking, business method patents will be issued by CIPO.

Inventors should consider filing applications now for "pure" business methods and also for methods including apparatus. If the law remains unclear, an applicant can still wait 5 years before requesting examination (the equivalent of 20 "Net years"). One could, of course, wait until Canadian courts follow their counterparts in the U.S. Likewise, patent agents may ponder and muse: "To patent, or not to patent business methods, that is the question." But Canada is a country where the patent is awarded to the first person to file. So the answer is simple: "Don’t wait for other inventors to jump the queue ahead of you".

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.