Innovative software and business methods are critical to the success of competitive Canadian businesses, especially those involved in financial services and e-commerce. Now more than ever, Canadian businesses must consider how business method and software patents will impact their bottom line. Recent court decisions favouring the patentability of business methods and software include the United States Supreme Court’s June 28, 2010 decision in Bilski v. Kappos (Bilski) and the Federal Court of Canada’s October 14, 2010 decision in Amazon v. Canada (Commissioner of Patents). The position of the courts is in contrast to the widely held misconception that business methods and software cannot be patented. These decisions confirm that, with appropriate limitations, business methods and software are indeed patentable, and these decisions will likely result in an increasing number of similar patents granted by the Canadian and United States patent offices. Considering that the patent and judicial systems of Canada and the United States have always played an important role in the ability of businesses to compete, business method and software patents will also affect the risks and opportunities related to company valuation and conflict resolution strategies.

Business method and software patents are knocking at the door of Canadian businesses and it is time to answer.

The United States Supreme Court decision in Bilski was focused on the patentability of a method for hedging risks in commodities trading. It rejected the lower court’s rigid application of a machine-or-transformation test that invalidated the risk hedging method since it was neither connected to a particular machine nor did it transform a particular article into a different state. The Supreme Court’s opinion also questioned the applicability of this test in determining the patentability of inventions in the information age. It is important to note that the ultimate rejection of Bilski’s patent was because the risk hedging method was concluded to be an abstract idea, not simply because the risk hedging method was a business method. In arriving at this decision, the Court noted that its previous precedents setting out exceptions to patent eligibility, including for abstract ideas, are applicable to all traditional subject matter including business methods.  

Since the release of the Bilski decision, the United States Patent and Trademark Office (USPTO) and U.S. courts have provided further insight into the patentability of business methods. In guidelines for its patent examiners, the USPTO notes that patent claims reciting a particular machine or transformation that provide meaningful limits to the application of a concept can favour a finding of subject matter eligibility. A United States Federal Circuit decision subsequent to Bilski further refined the abstract idea exception, noting that “inventions with specific applications or improvements to technologies in the marketplace are not likely to be so abstract that they override the statutory language and framework of the Patent Act.” Based on the above, U.S. businesses will likely continue to file for and obtain business method and software patents in the United States, something that has become ingrained since the landmark 1998 United States Federal Circuit decision in State Street Bank and Trust Company v. Signature Financial Group, where the patentability of business methods was accepted.

The Canadian Intellectual Property Office (CIPO) has not embraced the patentability of software and business methods. This is reflected in a 2009 decision by the Commissioner of Patents that rejected Amazon.com’s “one-click” Canadian patent application as an unpatentable business method. (Amazon.com’s application claimed a method for facilitating Internet purchases with just a single click and without the need to “check out” or re-enter client details.)

Despite CIPO’s policy on business method patents, businesses in the United States and elsewhere remain undeterred from filing business method and software patents in Canada. As a result, a backlog of business method and software patent applications awaits changes to the Canadian patent system before examination can proceed. There is need for patience, as Canadian patents, in granted or application form, have a potential lifespan of 20 years from filing. It is also worth noting that Amazon.com’s one-click patent was affirmed by the USPTO in March 2010.  

Amazon.com appealed the rejection of its patent in Canada and CIPO’s policy against business methods to the Federal Court of Canada. The Federal Court’s decision in Amazon v. Canada (Commissioner of Patents) reversed the Commissioner of Patents’ rejection. The decision stated that in order for an art to be patentable “it must not be a disembodied idea but have a method of practical application,” and that Amazon.com’s one-click invention is “not simply a scheme, plan or disembodied idea; it is a practical application of the one-click concept, put into action through the use of cookies, computers, the Internet and the customer’s own actions.” Accordingly, the Federal Court of Canada has affirmed that “there is not, nor has there ever been, a statutory exclusion for business methods in Canada,” and that business method inventions should be subject to the same requirements as other inventions under the Patent Act, preserving the rarity of exceptions to patentable subject matter. The Amazon v. Canada (Commissioner of Patents) decision is currently under appeal, but the Federal Court’s condemnation of CIPO’s policy against business methods is fairly strong, particularly where the Court notes, “The absolute lack of authority in Canada for a ‘business method exclusion’ and the questionable interpretation of legal authorities in support of the Commissioner’s approach to assessing subject matters underline the policy driven nature of [the Commissioner’s] decision.”  

These court decisions have explicitly stated that business methods are patent eligible and have attempted to clarify required limitations to these types of inventions. Businesses, more than ever, need to carefully consider the importance of business method and software patents when evaluating strategies on conflict resolution related to company product and service offerings, company and technology valuations, and product and service development. Canadian businesses that adapt, understand and account for the ramifications of these court decisions will be better positioned for the future.