Why Stop Now? The Availability of Business Method Patents in Canada
| Author | Matthew Synnott |
| Pages | 75-96 |
75 APPEAL VOLUME 11 2006
WHY STOP NOW?
THE AVAILABILITY OF BUSINESS
METHOD PATENTS IN CANADA
Matthew Synnott
In describing the patent system’s role in the industrial revolution,
Abraham Lincoln commented that “the patent system added the
fuel of interest to the fire of genius”.
1
Introduction
Indeed, the genius of invention was the catalyst for change during the
rise of industrialism. Today, it is the information economy that is on
the rise. While the genius of invention remains a catalyst for progress
in the information economy, the shape of innovation has changed.
The patent system ably protected inventors and promoted innovation
in the industrial age, when the most important innovation involved
physical, discrete technologies. However, in the information
economy, a broader definition of innovation must be embraced, one
that further values enhancement of process or method rather than
enhancement of physical tools. Consequently, a debate has emerge d
as to the role of the patent system in protec ting innovations of
methods or processes.
1
James Gleik, “Patently Absurd” New York Times Magazine (12 Mar 2000)
online: New York Times
patents.html>.
76 APPEAL VOLUME 11 2006
This paper will analyze the availability of business method patents in
Canada. Specifically, it will be submitted that while business method
patents are already available as a matter of practice, they deserve a
wider and more explicit reception into law. Initially, a brief
explanation of patents and an attempt to define business me thod
patents will be offered. American and Canadian jurisprudence will
then be reviewed in order to assess the availability of business method
patents. Finally, this article will discuss various competing arguments
over the utility of business method patents, in order to support their
efficacy.
2. A Foundation to Business Method Patents
An Introduction to Patents
Patents are the law’s primary mechanism for encouraging and rewarding
the development of new and better technology. Gleick describes the
patent as “enforcing a Faustian bargain: inventors give up their secrets,
publishing them for all to see and absorb, a nd in exchange, they get a 20-
year government-sanctioned monopoly on their technology”.
2
Accordingly, the benefits of the patent system target two groups: the
public and inventors. Patents serve the public by allowing later
innovators to leverage the information disclosed in patents in order to
create new and better inventions. Patents serve the inventor (once
they become a patent holder) by granting them a 20-year exclusive
right to use of their invention. This exclusive right to use allows
patent holders to capitalize on their inventions; patent holders can use
and sell the output of their technology, license their technology to
others for a return, or use their patent as a negotiating tool.
There are several requirements for an invention to be patentable.
First, the invention must be captured by the definition of invention in
s. 2 of the Patent Act
3
: “‘invention’ means any new and useful art,
process, machine, ma nufacture or composition of matter, or any new
and useful improvement in any art, process, machine, manufacture or
composition of matter”. This definition requires the invention to be
classifiable under one of the proscribed taxonomies. Subsection 27(8)
2
Ibid.
3
Patent Act, R.S.C. 1985, c. P-4, s. 2.
APPEAL VOLUME 11 2006 77
of the Patent Act expressly prevents patenting “any mere scientific
principle or abstract theorem”, e ven if it may fit into one of the s. 2
taxonomies.
4
The s. 2 definition also requires that the invention be
useful. Vaver explains that usefulness simply requires the invent ion to
work as described and produce something or have a technical result
but is not depe ndent on other factors like commercial viability.
5
Assuming the invention fulfills the requirements of the s. 2 definition,
it must also meet an additional two requirements for patentability:
novelty and non-obviousness. Novelty, or newness, is specifically
required by s. 28.2 of the Pa tent Act.
6
An invention will not be novel if
it was known to the public more than a year before the patent
application. Non-obviousness is mandated by s. 28.3 of the Patent
Act.
7
The test asks whether a notional person would come up with the
invention “directly and without difficulty”.
8
This notional person is
“skilled in the art or science”
9
of the invention and has been held to
have no inventiveness or imagination.
10
Business Method Patents
Business method patents (which have also been referred to as process
patents) are not defined in any primary legal authority in Canada or
the United States.
11
In fact, the lea ding judicial authority on the
availability of business patents recommended eliminating the
4
Ibid. at s. 27(8).
5
David Vaver, Intellectual Property Law: Copyright, Patents, Trademarks
(Toronto: Irwin Law, 1997).
6
Patent Act, supra note 3 at s. 28.2.
7
Ibid. at s. 28.3.
8
Vaver, supra note 5.
9
Patent Act, supra note 3 at s. 28.3.
10
Beloit Canada Ltd. v. Valmet Oy, [1986] F.C.J. No. 87 (Fed C.A.).
11
Teresa Cheung and Ruth M. Corbin, “Is there a Method to the
Madness? The Persisting Controversy of Patenting Business Methods”
(2005), 19 I.P.J. 29, at para. 35.
78 APPEAL VOLUME 11 2006
taxonomy.
12
However, it is perhaps disingenuous to suggest there is
no difference whatsoever in the context of patentability between two
example inventions, one of which is a machine that produces a
discrete physical output, versus another invention that offers a more
efficient means of organizing and using mutual fund data. A definition
is required in order to lend precision and provide context for the
analysis in the paper.
Part of the difficulty in formulating a definition for business method
patents is a product of the scope given to the phrase. “Business
method” is a blanket term and can describe numerous patented
inventions in a diverse array of fields including logistics, advertising,
marketing and finance. Most commonly, business method patents
seem to be associated with e -commerce and other computerized
systems for doing business. Given that most modern innovat ion
occurs in an electronic context over an appropriately broad range of
fields, this is a logical association. It also is difficult to formulate a
definition of business method that will describe all of what should be
patentable without also describing things that should definitely not be
patentable. Stephen J. Ferance offers a broad definition: “‘business
method’ refers to any method in the field of economic endeavour”.
13
This definition includes all electronic commerce methods and many
professional skills and purely mental steps.
14
While this definition is
undoubtedly encompassing, more precision is necessary to identify
the niche of business methods amongst the collective whole of
patentable subject matter.
It has been suggested that the re is an implicit understanding that a
business method patent will describe a “system or method for how
information is obtained, managed and used in the course of carrying
on a business or similar enterprise”.
15
The requirement for interaction
12
Infra, note 19 at 1375.
13
Stephen J. Ferance, “Debunking Canada’s Business Method Exclusion
from Patentability” (2001) 17 C.I.P.R. 493 at 495.
14
Purely mental steps and professional skills describe methods that have
consistently (and correctly) been seen as not patentable. See below at 3.2.1
and 3.2.2.
15
Cheung, supra note 11 at para. 35.
APPEAL VOLUME 11 2006 79
with information clearly speaks to e- commerce and many other
potential business methods. However, not every business method
patent will necessarily involve an interaction with information.
16
For the purposes of this paper, the term “business method” refers to
a process in any economic endeavour that will achieve a certain result.
Interaction with information will be a common and critical aspect of
most business methods.
3. Judicial Treatment of Business Method Patents
American Jurisprudence
The landmark decision with respect to business method patents is
that of the United States Court of Appeals (6th Circuit) in State Street
Bank & Trust v. Signature Financial Group (“State Street”).
17
In State
Street, the plaintiff State Street Bank & Trust sought a declaration of
invalidity for United States patent serial number 5,193,056 for a “Data
Processing System for Hub and Spoke Financial Services
Configuration” (the “Boes” patent).
18
The Boes patent, assigned to
the defendant Signature Financial Group by the inventor R. Todd
Boes, facilitated administration of a “hub and spoke” mutual fund
scheme. In the hub and spoke scheme, various mutual fund assets
(being the spokes) are pooled as partners into an investment portfolio
partnership (being the hub). The patent described a computerized
system for constant collection and analysis of data related to the
mutual funds, allowing for the efficient administration and records
keeping of the mutual fund scheme.
19
Initially, the Boes patent was invalidated by the District Court. The
District Court made this ruling by application of two possible
exceptions to patentability: the “business method exception” and the
16
See e.g., US Patent No. 1,242,872 “Self Serving Store” held by Clarence
Saunders (the founder of Piggly Wiggly®) describing the modern grocery
store.
17
State St reet Bank & Trust v. Signature Financial Group, 149 F.3d 1368, 47
U.S.P.Q 2d 1596 (Fed. Cir. 1998) [State Street cited to F.3d].
18
Ibid. at 1368.
19
Ibid. at 1369.
80 APPEAL VOLUME 11 2006
“mathematical algorithm exception”.
20
On appeal, Rich J. overturned
the District Court’s decision. Writing for the court, Rich J. dealt w ith
both exceptions and found neither to be applicable.
The perceived business method exclusion was found to be based on a
“general, but no longer applicable legal principle”,
21
had only been stated
in obiter dicta, and had never been used by an American court to deem an
invention unpatentable.
22
Rich J. also said of the definition of patentable
subject matter in 35 U.S.C. § 101
23
(the American equivalent to s. 2 of the
Canadian Patent Act):
24
The plain and unambiguous meaning of § 101 is that any
invention falling within one of the four stated categories of
statutory subject matter may be patented, provided it meets
the other requirements of patentability. … The repetitive use
of the expansive term “any” in § 101 show Congress’s intent
not to place any restrictions on the subject matter for which a
patent may be obtained beyond those specifically recited in §
101.
25
The Court then quoted from Diamond v. Chakrabarty,
26
deciding that
“it is improper to read limitations into § 101 on the subject matter
that may be patented where the legislative history indicates that
Congress clearly did not intend such limitations”.
27
The Court thus
eliminated from American law the notion that business methods were
20
Ibid. at 1472.
21
Ibid. at 1375.
22
Ibid. at 1375.
23
35 U.S.C. § 101 states: “Whoever invents or discovers any new and
useful process, machine, manufacture, or composition of matter, or any
new and useful improvement thereof, may obtain a patent therefor [sic],
subject to the conditions and requirements of this title”.
24
Infra note 76.
25
State Street, supra note 17 at 1373.
26
27
State Street, supra note 17 at 1373.
APPEAL VOLUME 11 2006 81
inherently unpatentable subject matter, laying the “ill -conceived
notion to rest”.
28
The mathematical algorithm exception was described as follows:
[C]ertain types of mathematical subject matter, standing
alone, represent nothing more than abstract ideas until
reduced to some type of practical application. … Unpatentable
mathematical algorithms are identifiable by showing that they
are merely abstract ideas constituting disembodied concepts or
truths that are not “useful.” From a practical standpoint, this
means that to be patentable an algorithm must be applied in a
“useful” way.
29
The Court used the decision of In Re Alappat (“Alappat”)
30
to
determine what constitutes a useful way of applying an algorithm.
Incorporating Alappat, State Street required the output of the algorithm
to be “a useful, c oncrete, and tangible result”.
31
The Court found that
the Boes patent described a system that did produce such an output,
with the numbers representing features of the portfolio system,
including price, profit, percentage, cost and loss.
32
Therefore, the
mathematical algorithm exception was held inapplicable.
State Street also addressed the conceptualization of business method
patents. Rich J. suggested that a machine-process dichotomy was not
useful:
[I]t is of little relevance whether claim 1 is directed to a
“machine” or a “process,” as long as it falls within at least one
of the four enumerated categories of patentable subject matter,
“machine” and “process” being such categories.
33
28
State Street, supra note 17 at 1375.
29
State Street, supra note 17 at 1373.
30
In Re Alappat, 31 U.S.P.Q. 2d 1545 (Fed. Cir. 1994).
31
State Street, supra note 17 at 1373.
32
State Street, supra note 17 at 1375.
33
State Street, supra note 17 at 1373.
82 APPEAL VOLUME 11 2006
Canadian Jurisprudence
Canadian courts have yet to clearly address the patentability of
business methods in a manner comparable to State Street. In
“Debunking Canada’s Business Method Exclusion from
Patentability”, Ferance carefully reviewed and analyzed an ostensibly
comprehensive survey of jurisprudence in arriving at his conclusion
that business method patents were available under the Canadian
patent regime. While some authors continue to perpetuate the notion
that there exists an exclusion to patentability for business methods,
34
Ferance’s conclusions most accurately reflect the rules to be gleaned
from the limited jurisprudence and the realities of the Canadian
system.
The limited Canadian jurisprudence cited in relat ion to business
method patents generally addresses four issues. The first of these is
the patentability of software and computer-based inventions. Second
is the professional skills exception to patentability. This issue speaks
to inventions that bring about a computerized implementation of a
job previously done by a skilled professional as well as inventions that
are purely abstract schemes for doing business. The third issue centres
on the definition of “art” as used in s. 2 of the Patent Act.
35
This issue
is paramount, as most method patents will be captured as an
invention by application of this definition.
36
Lastly, the fourth issue
considers varying approaches to interpretation of the Patent Act.
The Patentability of Software and Computer-Related
Implementations of Methods
The first clear judicial consideration of whether software and
computer-based inventions were patentable was Schlumberger Ltd. v.
34
Vaver, supra note 5. See also Cheung, supra note 11 at para. 28:
“Dimock and Eisen ‘…business methods remain excluded from
patentable subject matter’”. But see M.B. Eisen, “Arts and Crafts: The
Patentability of Business Methods in Canada” (2001) 17 C.I.P.R. 279.
35
Patent Act, supra note 3 at s. 2.
36
Cheung, supra note 11 at para. 46.
APPEAL VOLUME 11 2006 83
Commissioner of Patents (“Schlumberger”).
37
In Schlumberger, the Federal
Court of Appeal unanimously upheld the Patent Examiner and Patent
Appeal Board’s rejection
38
of the application. Pratte J., writing for a
unanimous Court, described the process used in geological
exploration as follows:
The appellant’s application discloses a process whereby the
measurements obtained in the boreholes are recorded on
magnetic tapes, transmitted to a computer programmed
according to the mathematical formulae set out in the
specifications and converted by t he computer into useful
information produced in human readable form.
39
Schlumberger is relevant for three reasons. First, the Court held that a
computer-based implementation should not prejudice the
patentability of an invention and computer programs could be an
invention under s. 2 of the Patent Act.
40
Second, the Court clarified
that when assessing the patentability of computer-based inventions, it
is the substance of the process—regardless of the fact that it is
implemented with a computer—that must be considered.
41
The
resultant rule was that if the underlying process is not patentable, the
computer implementation of it could not transform it into patentable
subject matter. Pratte J. stated that “if those calculations were not to
be effected by computers but by men, the subject-matter of the
application would clearly be mathematical formulae … as such, in my
view, it would not be patentable”.
42
The application was accordingly
denied on the basis of the exception now found in s. 27(8) of the
Patent Act.
37
Schlumberger Ltd. v. Commissioner of Patents, [1982] 1 F.C. 845, 56 C.P.R. (2d)
204 (F.C.A.) [Schlumberger cited to FC].
38
Schlumberger’s Application, (1978), 106 CPOR 1 Aug. 1978 (P.A.B.).
39
Schlumberger, supra note 37 at para. 2.
40
Schlumberger, supra note 37 at para. 4.
41
Schlumberger, supra note 37 at para 5.
42
Schlumberger, supra note 37 at para 5.
84 APPEAL VOLUME 11 2006
The bar set in Schlumberger has been implicitly challenged by numerous
subsequent decisions.
43
In Re Application for Patent of Mobil Oil Corp.,
44
a
patent was issued for a method of filtering instrumentation reflection
from seismological data using mathematical algorithms. The Patent
Appeal Board held that the removal of reflection s from the data made
the process a useful art that did not relate solely to mathematical
calculations.
45
The 1998 decision of Re Motorola Inc. Patent Application
No. 2,085,228
46
saw the Patent Appeal Board retreat from the
position of Schlumberger. The issued patent was for a device that
evaluated exponentials—an example of a hardware implementation of
a mathematical process. The claim was allowed on the basis that it
was for a specific piece of hardware, and therefore the patent would
only prevent others from using the hardware, but not the algorithm,
as described.
47
The Professional Skills Exception
While the case of Lawson v. Commissioner of Patents (“Lawson”)
48
has
been cited as supporting the exclusion of business methods from
patentability,
49
it is more c orrectly characterized as Canadian law’s
43
Re application for Patent of Seiscom Delta Inc., (1985), 7 C.P.R. (3d) 506
(P.A.B.), where a patent was issued for an invention using a computer to
record, process and display seismic data representing three dimensions on
a two-dimensional surface; see also Mobil Oil, infra note 44 and Motorola’s,
infra note 46.
44
Re Application for Patent of Mobil Oil Corp, (1988), 24 C.P.R. (3d) 571
(P.A.B.) [Mobil Oil cited to C.P.R.].
45
Ibid. at 575.
46
Re Motorola Inc. Patent Application No. 2,085,228, (1998), 86 C.P.R. (3d) 71
(P.A.B.) [Motorola cited to C.P.R.].
47
Ibid. at para. 15.
48
Lawson v. Commission of Patents (1970), 62 C.P.R. 101 (Ex. Ct.) [Lawson
cited to C.P.R.].
49
H.G. Fox, The Canadian Law and Practice Relating to Letters Patent for
Inventions, 4th ed. (Toronto: Carswell, 1969) at 23.
APPEAL VOLUME 11 2006 85
reception of the exclusion of professional skills from patentability.
50
The claims described a method for subdivision of real estate lots in an
efficient shape. The Exchequer Court rejected the claims as being a
professional skill, sta ting that it represents “an art which belongs to
the professional field and is not a manual art or skill.”
51
Cattanach J.
described the exception in the following passage:
[P]rofessional skills are not the subject-matter of a patent.
If a surgeon were to devise a method of performing a certain
type of operation he cannot obtain an exclusive property or
privilege therein. Neither can a barrister who has devised a
particular method of cross-examination or advocacy obtain a
monopoly thereof so as to require imitators or followers of his
methods to obtain a license from him.
52
Applying the above quote, Cattanach J. held the method of
subdividing the land to be a professional skill of a solicitor,
conveyancer and surveyor, and accordingly the application was
rejected.
The professional skills exception was recently applied Re Patent
Application No. 564,175.
53
The application being reviewed there was
for a computerized financial account management system. The system
optimized allocation of funds from a mortgage account into multiple
investment accounts. Since the process was previously undertaken by
individual financial accountants, the Court used the rule in Schlumberger
and claimed to analyze whether the process itself was patentable
without regard to its computerized implementation.
54
The Board
applied Lawson and stated:
[T]he Applicant has substituted a computer which has been
programmed in a specific manner to make decisions which
were formerly made by a financial advisor. … An operation
which is not patentable when carried out by an individual
50
Cheung, supra note 11 at para. 42; see also Ferance, supra note 13 at 511.
51
Lawson, supra note 48 at 111.
52
Lawson, supra note 48 at 110.
53
Re Patent Application No. 564,175 (1999), 6 C.P.R. (4th) 385 (P.A.B.) [Re
175 cited to P.A.B.].
54
Ibid. at 386.
86 APPEAL VOLUME 11 2006
cannot be made patentable merely by having it carried out by a
computer.
55
Defining “Art”
In Lawson, the Exchequer Court construed “art” according to the
definition in s. 2 of the Patent Act as including method patents, stating
“that ‘art’ may include a method or process patent is well settled.”
56
Cattanach J. defined “art” as “an act or series of acts performed by
some physical agent upon some physical object and producing in such
object some change of either character or of condition”.
57
Lawson
imposed a linkage to a material object and required a transformation
on that object.
More recently, the Federal Court Trial Division addressed the
definition of “art” in Progressive Games, Inc. v. Commissioner of Patents
(“Progressive”).
58
Denault J. stated:
The sole issue in this appeal is whether or not the
Appellant's changes in the method of playing poker fall within
the definition of the terms “art” or “process” as those terms
are used in the definition of ‘invention’ at Section 2 of the
Act.
59
In Progressive, the patent sought was for a method of playing a card
game. Specifically, the method enabled a casino to play heads -up five-
card stud poker against one or more players. The Federal Court
rejected the patent, as it did not fully satisfy Denault J.’s definition of
“art”. While Ferance correctly notes that Progres sive “did not involve a
‘business method,’ but rather, involved a me thod of playing a
55
Ibid. at 386.
56
Lawson, supra note 48 at 103.
57
Lawson, supra note 48 at 103.
58
Progressive Games, Inc. v. Commissioner of Patents (1999), 3 C.P.R. (4th) 517
cited to C.P.R.].
59
Ibid. at 521.
APPEAL VOLUME 11 2006 87
game”,
60
the case is still significant for its somewhat problematic
construction of “art”.
Denault J. began by affirming that “art” includes process.
61
The Court
then used the Supreme Court of Canada’s dec isions in Shell Oil v.
Commissioner of Patents
62
in order to construct a three-part definition of
“art”. Denault J. stated:
Accordingly, the definition of the term "art" as provided by
the Supreme Court 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 poker game met both the first and third criteria of the Progressive
definition of “art”.
63
The application was rejected on the basis of the
second, as the Court did not see the poker game as a substantial
change or innovation.
64
Interpreting the Patent Act
The Supreme Court of Canada grappled with the patentability of
higher life forms in Harvard College v. Canada (Commissioner of Patents)
(“Harvard College”).
65
Though the inventive subject matter is not
related to business methods, the decision is relevant in two ways.
First, the decision is a recent and compelling authority on the
interpretive approach to deciding what is captured by “invention”.
Second, the decision (as well as its treatment in the Fe deral Court of
60
Ferance, supra note 13 at 525.
61
Progressive, supra note 58 at para. 13.
62
63
Progressive, supra note 58 at para. 18.
64
Progressive, supra note 58 at para. 20.
65
S.C.R 45, [Harvard College cited to S.C.R.].
88 APPEAL VOLUME 11 2006
Appeal) provides a basis for questioning the sources of the perceived
business method exception in Canadian law.
The majority and minority decisions in Harvard College make it clear
that “invention”, for the purposes of s. 2 of the P atent Act, is an
expanding concept. Bastarache J., writing for the majority, stated:
“Because the Act was designed in pa rt to promote innovation, it is
only reasonable to expect the definition of ‘invention’ to be broad
enough to encompass unforeseen and unanticipated technology.”
66
This statement certainly supports the notion that the Patent Act should
continue to support innovation in the context of new technologies
(such as biotechnology and e-commerce). However, the majority did
not accept that invention had as expansive a definition as that
suggested in State Street.
67
The enumerated categories
68
in s. 2 were
held to be exhaustive. Additionally, it was held that if an application
was captured by one of the enumerated categories in “invention”,
policy grounds and exclusions not provided for by the Patent Act
could not operate to prevent the granting of patent.
69
Assuming many
business methods can be captured as an “art”
70
within the textual
definition of “invention”, this ruling necessitates their patentability.
71
Ferance notes that the first instance in Canadian legal literature of the
notion that business methods were excluded from patentable subject
matter was in a 1926 text on patent law by Featherstonhaugh and
Fox.
72
The statement was supporte d by obiter dicta from the English
case of Cooper’s Application
73
that suggested “a mere sche me or plan”
66
Ibid. at para. 158.
67
Ibid. at para. 158.
68
Patent Act, supra note 3.
69
Harvard College, supra note 65 at paras. 144 and 152.
70
See above at 3.2.3.
71
This of course presumes that the other requirements for patentability, as
described above in 2.1, are met.
72
Ferance, supra note 13 at 515.
73
Cooper’s Application (1902), 19 R.P.C. 53.
APPEAL VOLUME 11 2006 89
such as “a plan for the efficient conduct of business” was not
patentable.
74
In Harvard College at the Federal Court of Appeal,
Rothstein J.A. cast doubt on the persuasiveness of English law,
quoting Pigeon J. in Tennessee Eastman v. Canada
75
: “I doubt whether
decisions dealing with the patentability of inventions under the U.K.
Act are entitled to the we ight which authors such as Fox … seem to
think they should have”.
76
Rothstein J.A. added: “it is doubtful that
UK decisions are helpful for the specific purpose of construing the
definition of ‘invention’ in the Canadian Patent Act”.
77
Given that the
Canadian definition of “invention” closely modelled the American
definition,
78
American jurisprudence provided “useful guidance”.
79
At the Supreme Court level, the majority decision did not challenge
the criticisms of the persuasiveness of U.K. jurisprudence levied by
Rothstein J.A. The dissenting opinion, written by Binnie J., accepted
the views of Rothstein J.A. and also considered American
jurisprudence persuasive.
80
However, Harvard College did not fully
embrace t he American construction of invention. Neither the
majority nor the minority opinions accepted the proposition that
invention includes “anything unde r the sun made by man”.
81
This
distinction is not apposite; such an expansive interpretation is not
required for business method to be construed as an invention.
Harvard College cannot be considered without also addressing the more
recent decision by the Supreme Court of Canada in Monsanto Canada
74
Ibid. at 54.
75
76
Harvard College v. Canada (Commissioner of Patents) [2000 ] 4 F.C. 528, 7
C.P.R. (4th) 1 (F.C.A.) at para. 23, rev’d [2002] 4 S.C.R. 45.
77
Ibid. at para. 57.
78
Ibid. at para. 59.
79
Ibid. at para. 62.
80
Harvard College, supra note 65 at paras. 36, 38-40.
81
Diamond v. Chakrabarty, supra note 26 at 309.
90 APPEAL VOLUME 11 2006
Inc. v. Schmeiser (“Monsanto”).
82
The former found that higher life
forms, including the oncomouse (a genetically modified mouse) in
issue, were unpatentable sub ject matter. The latter found genes and
modified cells making up a plant to be patentable. While the two
decisions may seem difficult to reconcile, Monsanto should not
necessarily be taken to overrule Harvard College; the majority opinion
in Monsanto addresses how the two decisions can coexist.
83
The
difference in results and the changing makeup of the Court may
suggest that the Court will adopt a more expansive interpretation of
patentable subject matter than the majority decision in Harvard
College.
84
Monsanto does not provide further ground for challenging the
perceived business method patent exclusion. In obiter dictae, Arbour J.,
writing in dissent, listed “business systems and methods and
professional skills” as a judicial exclusion from patentability.
85
However, the support for this proposition was erroneous—it was
cited to State Street. Further, judicial exceptions from patentability
(without textual basis in the Patent Act) are themselves doubtful given
the rule against such exceptions endorsed in bo th the majority and
minority decision in Harvard College.
86
Accordingly, this statement is
not persuasive.
In sum, Harvard College provides additional bases for challenging the
existence of a business me thod exception to patentability. Harvard
College held that the only relevant limitations to patentability are those
with a textual basis in the P atent Act.
87
The judgements of Rothst ein
J.A. and Binnie J. cast further doubt on the exception insofar as its
source is UK law of questionable relevance. The combination of these
82
83
Ibid. at paras. 21-24.
84
The impending appointment of Rothstein J.A. to the Supreme Court of
Canada further supports this proposition.
85
Monsanto, supra note 82 at para. 133.
86
Supra note 69; and see Harvard College, supra note 65 a t paras. 40, 144
and 152.
87
Ibid.
APPEAL VOLUME 11 2006 91
holdings undermines the existence of an exception to patentability
existing independent of textual basis or Canadian precedent. Further,
the argument for increased persuasiveness of American jurisprudence
bolsters an interpretation of invention that is inclusive of business
methods. Given Monsanto and the changing makeup of the Supreme
Court of Canada, the potential for the success of this argument is
substantial.
Conclusions as to Patentability in the Canadian System
To summarize, the substance of the business method will be assessed
in determining its patentability, not its form ( Schlumberger). The
business method must be a new process in order to satisfy the novelty
requirement. The process must produce a useful output in order to
meet the utility requirement (and satisfy Progressive), and the process
may need to effect a transformation in a material object in order to be
an art under s. 2 of the Patent Act (Lawson). The process must not be a
bare computer implementation of a professional skill (Lawson,
Progressive). Within this framework, there is a substantial theoretical
expanse in which business methods will be patentable subject matter.
The software context provides current examples. In this context,
many e-commerce innovations will perform useful functions and
produce a tangible output and are wholly distinguishable from their
implementation without a computer.
88
The professional skills
exception may apply and exclude some inventions that are inherently
software versions of a professional. Software or methods
accomplishing sufficiently complicated tasks unachievable by a
professional will not be excluded.
89
Many inventions will easily satisfy
the definition of art articulated in Lawson and Progressive. It is easy to
conceive of business methods, likely implemented primarily through
software, that both have methods of practical application, will be new
88
See, e.g., Canadian Patent Number 2,426,168, Method and Apparatus for
Evaluating Fraud Risk in An Electronic Commerce Transaction.
89
See, e.g., Canadian Patent Number 2,241,767 System for Transforming
and Exchanging Data between Distributed Heterogeneous Computer
Systems.
92 APPEAL VOLUME 11 2006
and innovate applications of knowledge, and will be commercially
useful.
90
4. Policy Analysis of Business Method Patents
Since State St reet was issued, a significant portion of literature
discussing business method patents has been decidedly critical.
91
These arguments are divisible into two broad groups: intrinsic
criticisms and extrinsic criticisms. The intrinsic criticisms argue that
business method patents tend to be inherently deficient in some
respect, most commonly saying they lack novelty or utility, or are
overly broad in scope. The extrinsic criticisms find fault with business
method patents on the basis of utility and policy grounds. The
common extrinsic criticisms hold that business method patents are
harmful to innovation and competition, and are not well suited to
assessment. The following review will canvass these arguments and
provide a response to each. Additionally, further reasons will be
provided in order to support the final conclusion that business
methods should be patentable in Canada.
Intrinsic Criticisms
Lack of novelty is a common ground for criticism. Gleick quotes
Professor Lessig as saying: “We’re talking about people taking ways of
doing business and, because they put it into software, they say, ‘This is
now mine’”.
92
An example of this is US Patent Number 5,491,779,
90
See e.g., Canadian Patent Numbers 2,367,320 Workflow Management
System; 2,404,814 Apparatus, Systems, and Methods for Online, Multi-
parcel, Multi-carrier, Multi-Service Parcel Returns Shipping Management.
91
See e.g., Gleick, supra note 1; Leo J. Raskind, “The State Street Bank
Decision: The Bad Business of Unlimited Patent Protection for Methods
of Doing Business” 10 Fordham Intell. Prop. Media & Ent. L.J. 61; Keith
W. Perr et, “State Str eet Bank: Patenting Business Methods” 15 B.F.L.R.
335; Matt Richtel, “Are Patents Good or Bad for Business Online?” New
York Times Cyberlaw Journal (28 Aug 1998), online: New York Times
ml>.
92
Gleick, supra note 1.
APPEAL VOLUME 11 2006 93
which is a patent for the pie chart as used on a c omputer.
93
While the
pie chart’s invention is credited to Florence Nightingale over 100
years ago, this patent was granted Richard D. Bezjian in 1995. A more
common example is the infamous US Patent Number 5,794,207,
94
typically known as the Priceline™ reverse auction patent. Reverse
auctions were used well before the patent application was filed in
1996.
Such cases provide at least anecdotal evidence that some business
method patents lack novelty. Yet, it is not contended that business
method patents should not be subjected to the same standards of
novelty as any other patent. If some applications are being granted for
less-than-novel innovations, the fault exists in the patent examination
process, and no doubt clearer legal rules pertaining to business
method patents will be of service to the issue. Additionally, to the
extent that the argument is generally built on anecdotal evidence, it
certainly cannot be used to support the exclusion of business method
patents that are highly novel. This line of reasoning applies with equal
force to criticisms rooted in utility deficiencies.
Business method patent claims have also been faulted as being
excessively broad in scope. Richtel cites CyberGold’s United States
Patent Number 5,794,210
95
as an example.
96
However, Swinson notes
that there has been a common failure by the media and corporations
in differentiating between the perceived scope and the actual legal
scope of many contentious patents.
97
As well, if claims are being
allowed that are excessively broad, this logically serves as a basis of
93
US Patent Number 5,49 1,779, Three Dimensional Presentation of
Multiple Data Sets in Unitary Format Pie Charts.
94
US Patent Number 5,794,207, Method and Apparatus for a
Cryptographically Assisted Commercial Network System Designed to
Facilitate Buyer-Driver Conditional Purchase Offers.
95
United State Patent Number 5,794,210 Attention Brokerage.
96
See e.g., Richtel, supra note 80, as the US Patent Number 5,794,210 was
suggested to give it the sole right to pay consumers online incentives.
97
John Swinson, “Do Internet Process Patents Threaten E-Commerce?”
Australian Legal Information Institute (06 June 2004).
94 APPEAL VOLUME 11 2006
criticism for the examination and approval process, but not
necessarily efficacy of business method patents.
Extrinsic Criticisms
Shortcomings in the patent examination process have also been used
to support exclusion. Many, especially in the software industry,
98
have
argued that the examination process is ill suited to assess applications
properly. Two empirical studies have been conducted on the quality
of business method patents.
99
The studies assessed the patents in
terms of novelty, obviousness and references to prior art. Both found
that business method patents averaged a higher rating than their
traditionally accepted counterparts, furthering the notion that
perceived issues with novelty and quality may be less a specific
indictment of business method patents tha n suggested. These studies
also cast doubt on the arguments against patentability based on
perceived issues with novelty.
Ultimately, the most provoking of criticisms are those that question
the general utility of patents in the information age. Many
commentators have seen business method patents failing a cost-
benefit analysis where their predecessors had succeeded. Business
method patents are suggested to be without economic efficacy, being
harmful to innovation
100
and competition.
101
While neither of these
criticisms is wholly without merit (and both are likely broader
criticisms of the patent system in general), it must be remembered
that the patent system is premised on trade -offs. Additional resources
are required by innovators to ensure their technologies do not infringe
patented ones, but innovators are provided with a legal mechanism
98
Gleick, supra note 1; see also Richard Stallman, “The GNU Philosophy”
GNU (2004), online: GNU Free Software Foundation
www.gnu.org/philosophy/>.
99
John Allison and Emerson Tiller, “The Business Method Patent Myth”
18 Berk Tech. L.J. 987 at 987; see also Starling David Hunter III, “Have
Business Method Patents Gotten A Bum Rap?” MIT Sloan School of
Management Paper 182 (2004).
100
Gleick, supra note 1; see also Raskind, supra note 91.
101
Ra skind, supra note 80; See also Stallman, supra note 98; Gleick, supra
note 1.
APPEAL VOLUME 11 2006 95
for capitalizing on their efforts. In that regard, the system both
prevents and fosters innovation. Legally granted monopolies on
technology inherently affect competition. However, competitors are
challenged to leverage the disclosure in other patents in order to
create new and better technologies.
102
Patents are viewed as fostering
competition.
103
In the case of small-to-medium-sized enterprises,
patent protection can be a critical component in gaining market share
from larger, entrenched competitors.
Further Support for Patentability
While the traditional economic justifications for the pate nt system
should still apply in today’s economic context, more arguments are
available in support of patent protection for business methods.
104
The
final one offered here is for the harmonization of law. Cheung states
that “with the current ease of mobility of capital and technology,
there is impetus for Canada to harmonize the application of its patent
legislation with that of other countries”.
105
Binnie J. supported this
notion in Harvard College.
106
The availability of business method
patents is desirable from a legal perspective—interpretive harmony
and legal certainty should be the idea l—but it will also allow Canadian
innovators to compete in an analogous market with comparable rules,
and with American competition.
102
As an example, in response to the limitation of use of the GIF and
JPEG imag es imposed by software patents, the open source community
responded by developing the more efficient PNG image format.
103
Canadian Intellectual Property Office, “A Guide to Patents” (Ottawa:
Industry Canada, 2004), online: Industry Canada
see also Competition Bureau, “Intellectual Property Enforcement
Guidelines” (Ottawa: Competition Bureau, 2000), online: Competition
Bureau at 1, 5.
104
Statistics Canada, “Determinants of Innovative Activity: The Role of
Intellectual Property Rights” (Ottawa: Supply and Services Canada, 2000);
see also Cheung, supra note 13; Swinson, supra note 97.
105
Cheung, supra note 11.
106
Harvard College, supra note 65 at 11.
96 APPEAL VOLUME 11 2006
Conclusion
Business method patents are not explicitly recognized as
patentable in the Canadian legal system. However, practice and
the existing legal framework dictate that many business method
patents have been and will continue to be approved. This
unclear position results in a lack of certainty that is not
beneficial to either party—those in support or those opposed to
their patentability. The law, especially to the extent that it is an
economic tool, must provide certainty. Canadian patent law
currently allows for the possibility of patentability. While
criticisms specifically targeting business method patents are
debatable, the patent system continues to provide many
benefits. Consequently, it would be inappropriate to further the
artificial and potentially baseless exclusion of business methods
from patentability. Therefore, it is submitted that the need for
certainty and the benefits of patentability necessitate a full
reception of business method patents in Canadian law.
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